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Negotiating Lower Premiums

Many employers and employee benefit managers do not realize that health insurance premiums are negotiable – if you know what to do.

Our negotiation skills usually result in premium savings of five to ten percent per year for organizations with at least fifty employees.

We start sooner.

Sixty to ninety days may sound like a lot of time, but it is not enough time to negotiate lower premiums. We start developing our strategy at the beginning of the current plan year – 365 days in advance. Then, 150 days prior to renewal, we will re-evaluate your benefit plan design, the claims history that is available, industry trends and other factors in preparation for the renewal request.

We don’t accept the first offer.

Upon receipt of the initial renewal offer, we develop a counter-offer by doing our own calculations using the same methodology as the insurance carrier. We will challenge their assumptions and provide them with hard data and sound mathematical analysis to justify our stance.

We know how to prepare requests for proposals that appeal to underwriters.

We are able to generate a lower initial premium offer because we know how to present appealing requests for proposals. We are usually successful in our request for a lower premium because we use hard data, industry facts and figures and sound calculations to justify our counter-offer.

We consider your options.

If our counter-offer is rejected, requests from other carriers haven’t helped and the cost is still too high, we will look at changing the benefit design and contribution strategy to help make the renewal more manageable.

We understand the methodology used in premium calculations.

Insurance premiums are calculated from formulas based on a series of factors and assumptions. We have a thorough understanding of these formulas and use that knowledge to your advantage. Changing just one assumption can have a dramatic effect on the final premium.

The four main components of premium calculation are expenses, trend, reserve change and adjustment for large claims.

  • “Expenses” are an insurer’s costs to administer the plan.
  • “Trend” refers to the rising cost of medical claims.
  • Reserves are the amount of money an insurer sets aside to pay claims. “Reserve change” is the increase in reserves needed for the following year.
  • “Adjustment for large claims” is based on your specific experience.

After carefully analyzing your specific situation, we will decide which factor(s) can be used to negotiate lower premiums with your existing carrier or, if necessary, a new provider.

For example, we may find that the “reserve change” assumption is too high. We may be able to justify our position based on your claims history, the number of years you’ve been with the carrier and other factors. Or we may find that the “trend” assumption is too high when compared to industry statistics.

© 2004 Hannaway Associates