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Tuesday
Nov172009

PEOs Adjust to Group Health Renewal Rate Increases

Health Insurance Premiums for Employee Leasing Companies & PEOs Surge

Small and mid-size companies are not the only ones who have been hit with unusually high group health renewal rates this year. Many employee leasing companies and professional employer organizations have seen their health insurance carriers announce rate increases that are 2 and 3 times what they have experienced in the past.

Aetna and Blue Cross Blue Shield are the predominate health plans offered by employee leasing companies and PEOs across the country. With few exceptions, PEOs are reporting rate increases of 16% to 24%, much higher than the 6% and 12% premium hikes they have been accustomed to.

Adding insult to injury, Aetna offered a class of plans that became very popular with employees and executives alike. They were HDHPs (High Deductible Health Plans) with 100% coverage in-network after $1,250 or $1,500 deductible. Earlier in the year, Aetna sent out notices complaining about adverse selection and high utilization, and that alterations were necessary. Many PEOs saw their HDHP plans eliminated, or the coverage was radically changed, so they were no longer an attractive choice. These were not only the most affordable plans offered, they also provided the greatest value for individuals and their families. Now, many employees who selected these inexpensive plans are left with few affordable options to choose from.

PEOs Make Innovative Adjustment to Benefits to Remain Competitive

PEOs understand that most employers cannot afford to absorb these additional premium increases (even during good times). Small and mid-size companies are looking to reduce costs in this challenging economy, and are looking to their PEO partners for solutions. Some employee leasing companies simply passed the higher costs on to their client companies. This has proven to be a costly mistake, as business owners left for more affordable options from some of their competitors. Many professional employers fought back to get concessions from their health plan providers, this helped to limit some of the increases.  Some PEOs took more creative steps to reduce the effects of the rate hikes by eliminating their best plans and introducing new “value” plans. Now the platinum plan is gone, the old gold plan became platinum, silver became the gold plan and so on.

Many leading professional employer organizations utilize employee benefit experts who developed innovative plan designs that helped to bring down premiums without having a significant adverse affect on the base coverage. Alphastaff HR for example, capped their lifetime plan maximum at $2 million dollars, down from $5 million. The likelihood that this will impact any insured is almost zero, however it does help to reduce overall plan cost. Another step was to introduce deductibles to the drug card. Most healthy employees rarely see any significant benefit from their drug card. Employees who have high utilization will still have copay’s after the deductible is satisfied, and anyone filling a prescription will only have to pay the health plan’s discounted price for the medication. Tweaks like this help to reduce costs, but more importantly, do so equitably and without having to shift large out of pocket expenses on the backs of their employees.

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