Cycle of Increasing Employee Benefit Costs
Some employers view employee benefits as an expense resulting in "penny wise and pound foolish" behaviour. They focus on shopping around for the lowest price, at the risk of losing great employees, wasting money and not achieving their organizational goals.
The Benefit Shopping Trap™ is when you are enticed by a low quote only to pay more in the second and third year then if you had not switched suppliers.
Changing benefits suppliers is a major business decision that should not be taken lightly. The allure of immediate cost savings needs to be tempered with the reality of higher prices in the near and mid-term. It is key to understand that the benefits business is an oligopoly market dominated by a small number of insurers.
The 3 Reasons Costs Increase After Switching Benefit Suppliers:
- Many suppliers give a 5%-10% marketing discount when quoting but not when they adjust prices one a year later.
- The claims of your group are a major component of renewal prices and claims increase because your new supplier does not have the detailed claims history of your employees and their dependents. For example:
- Frequency maximums are reset (dental visits) which allows employees to go to the dentist earlier than the plan design permits.
- Periodic maximums are reset (vision, hearing, orthotics, massage, etc.) which allows employees to make claims sooner than the plan design permits.
- Dental profiles needs to be rebuilt which allows health providers (dentists) to claim for services previously performed and billed.
- Many suppliers won't give a quotation to a group that has not been with their current supplier for 3 years. This leaves you little choice but to accept the rate increase.
So essentially, you get a good price for one year, your employees can claim more, the insurance company can charge more during the second and third year then if you did not switch suppliers.