98% of all employers in Canada have ‘experience pricing’ on their group plans. When the employer purchases their group plan from XYZ insurance company, the first plan they will get is from the “book rates”. They really have no idea what you are going to spend in the first year so they do their best to assess what you might spend.
If you have more than 3 employees on your employee benefit plan than everything is “guaranteed issue”, which means you can buy it no matter what the state of health is for the people that will be covered.
At the end of the first year, the insurance agent will give their clients a renewal report showing that the insurance company wants to raise their rates because their claims have been high. All insurance companies that use ‘experience pricing’ do not like to lose money and want to get all of it back in the second year.
If the employer received a 25% premium increase and doesn’t like it, the insurance agent will take their claims history, how much they spent on claims and shop that around to other companies. These insurance companies will then recalculate their rates based on the numbers showing what was spent in the first year. Now the employer has history when they shop around and the rates the insurance company gives them will be accurate when quoting their new employee benefit plan.
In the first year, the insurance company has nothing to go by except the book rates. In the second year, they have stats. The insurance agent can shop the market and come back with 6 or 7 different quotes to show you what the market is willing to offer after you have those stats.
Next year, you’re going to have the same situation because all the claims that you have that are what we call “maintenance drugs”, such as blood pressure and cholesterol medication, usually make up 40% of the claims and will be transferred to the secondary company as well. All you are doing is moving your claims from company A to company B and the third year you move to company C…but it hurts you.
If you are moving from one ‘experience plan’ to the other, your problems will just go with you but if you move the employee benefit plan from ‘experience pricing’ to a ‘pool pricing’, your problems will go away.
A pooled plan puts you in a group of companies that can support each other during high and low claim years to keep premiums stable since not everyone will have high claims at the same time.
Purchasing your benefits through a large buying group that’s represented by an insurance expert who can negotiate on your behalf will get you the best prices on your employee benefit plan.