Topic Outsourcing HR / PEO
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Each year brings with it the renewal of group health insurance and the associated increase in premiums.
Unfortunately, insurance companies increase premiums for small businesses more than large businesses. They also increase premiums for companies with medical claims in the previous year.
One way to minimize these premium increases is to partner with a best-in-class professional employer organization (PEO).
For example, this year, Questco had only a single-digit renewal.
What Determines the Size of Premium Increases?
Several factors affect the size of premium increases. One of the primary factors is the type of medical underwriting adopted by the PEO’s healthcare plan.
Loose vs. Strong Underwriting
Loose underwriting is a type of medical underwriting that only factors the employees’ age, gender, and location within the healthcare plan. Strong underwriting is a medical underwriting that includes specific information, including demographics, medical claims, and prescriptions.
When PEOs use strong underwriting, it is easier for insurance carriers to identify healthy employees and those prone to making medical claims.
Strong underwriting helps to ensure that PEOs create a fair healthcare plan that does not require individuals with limited medical needs to make overpayments for medical coverage. It prevents PEOs from charging healthier employees higher premiums at the same rates as claim-prone employees, which causes companies to make overpayments.
Consequently, strong underwriting also prevents employers from making underpayments due to misleadingly low “honeymoon rates.” This occurs when a PEO charges misleadingly low health premiums for the first year of coverage resulting in companies thinking they’ve found a great deal. However, when renewal time comes, rates exceed an acceptable range.
Small vs. Large Business
Another factor that impacts the premium increase is the size of the risk pool. A health insurance risk pool is a group of employees whose medical costs are combined to calculate premiums.
Insurance carriers consider numbers and economies of scale; as a result, most insurers charge small businesses more than 15% higher premium rates compared to large companies.
PEOs can take advantage of those economies of scale by pooling together all of their client’s worksite employees into a single risk pool.
Number of Medical Claims
An increased number of individual medical claims leads to an increase in premiums since it indicates that more people are using their medical coverage to satisfy their requirements for medical care.
Organizations can mitigate individual claims by resorting to larger risk pools that are more stable and predictable. Increasing the size of the risk pool means that a single medical claim has less impact on the whole.
For example, if you cover five employees and one gets sick, your premium rises considerably. If you cover 500 employees and one gets sick, your premium increases by much less.
How do PEOs help Mitigate Premium Increases?
Employers, especially small and medium-sized companies, should consider partnering with PEOs because they minimize premium increases. PEOs can help you expand your risk pool, minimizing the impact of individual medical claims on your premiums.
Businesses that partner with a PEO access cost-savings by joining the PEO’s master health insurance policy which creates a stable risk pool for all their employees. Afterward, PEOs negotiate for low-cost, high-value healthcare coverage with insurers.
Best-in-class PEOs help organizations engage in strong underwriting, which prevents overpayments and underpayments.
Why is Questco’s Renewal Percentage Better than the Average PEO?
If you offer group health insurance or a plan, you should partner with a best-in-class PEO like Questco. Our renewal percentages are single-digit because we use strong underwriting and large risk pools.
Questco’s success also stems from its flexibility. Companies can offer different health insurance options to employees depending on their preferences, position, or salary.
Partnering with Questco means access to Fortune 500 benefits at more affordable prices than a small business could get by itself.
It also means a lower premium increase than other PEOs.
