If you are a CFO or HR leader who now owns the employee benefits program, you are in a position to make a real difference in your employees’ financial, physical and emotional well-being. I want to offer one piece of advice about a mistake I have seen new decision-makers make again and again.
What is the benchmarking mistake?
The mistake is withholding claims data on purpose to get a better price. You decide to test your broker and your health care strategy, and you ask an outside consultant for a proposal at renewal. The consultant sends a long data request. Instead of tracking everything down, you decide they should come back with their best offer on whatever you give them, and you hold back the rest on purpose.
It feels like smart negotiating. For a large group or self-funded plan, it almost always works against you.
What happened with one CFO.
A few years ago, I was asked to prepare a proposal for a 350-employee manufacturer in the northern United States. My team sent our usual data request so we could build a real recommendation. The CFO, who was running the benchmarking process for the renewal, pushed back hard. He told us to do the best we could with what we had and said he would not provide anything else.
We were missing critical pieces, including large claimant reporting and prescription data. He knew a few employees had chronic conditions and believed those claims would sink his numbers, so he decided an unknown risk would look better than his known one. We explained that this would not put us, him or his employees in a position to get a competitive offer. He told us to take it or leave it, because that was how he had shopped for health insurance for 20 years. So we took it.
He was treating group health insurance like personal car insurance: call three carriers and demand their best price. For an employer of his size, it is not a transactional purchase, and you shouldn’t want it to be. Giving the market as much information as possible about your population is what makes a long-term strategy work.
Why does withholding claims data backfire?
When you withhold information, an offer that looks good in year one tends to turn sour in year two. There are two common ways it happens.
| What happens | Why it happens | What it looks like at renewal |
|---|---|---|
| The carrier “buys” the business | It prices low to win the account, betting you won’t want to move carriers two years in a row | Claims run above the funding the carrier assumed, and the renewal arrives with a large increase and a report on how “high” your claims were |
| The offer was fair for what the carrier saw | Your data looked better than your real risk, so claims funding and stop-loss were built for that picture | Chronic conditions and specialty drugs push claims past what was planned, with no programs in place to manage them, and stop-loss renews with a large increase |
To spot the first case, look at the claims funding assumption inside the offer. If expected claims are well below what your own history supports, the low rate is coming from underfunded claims, and you will pay the difference later.
The second case is no one’s bad intent. The proposal was built on the risk you disclosed. If the chronic conditions had been known, the plan could have been designed for them from the start, with the right pharmacy strategy, care management and stop-loss terms.
There is also a third effect. Stop-loss carriers are conservative. The less they know about a group, the more cushion they build into the price. In practice, that looks like a market that won’t give you a competitive offer at all.
How the story ended.
That is what happened to the CFO. We came to the meeting with a proposal slightly below his renewal. He was upset, said we had wasted his time, and asked why we couldn’t produce results like the case studies we had shown him. We explained that if a plan has high-cost claims, the strategy has to be built to control the cost of those claims, and that requires the data. He told us never to call him again.
He renewed as is and took a double-digit increase that year. His plan’s public Form 5500 filings, available through the Department of Labor, showed the same trend the following year. His employees are paying more than they need to for the coverage they have, and the power to change it sits with one person who didn’t want to share the data.
My lesson was to stop benchmarking for an employer that won’t help us do our best work. We did what we could with what we had, but our values weren’t aligned, and we should have walked away at the first sign of resistance to sharing data.
When does claims data matter for pricing?
Claims data matters for large group and self-funded plans. Under the Affordable Care Act, fully insured small group premiums can vary only by age, tobacco use, family size and geography. Health status isn’t a rating factor. Small group generally means 1 to 50 employees, and a state may raise that to 100. Large group and self-funded plans are priced on their own experience, which is why the data matters so much there.
Privacy is a fair concern, and it is not a reason to share nothing. HIPAA lets a group health plan give the employer summary health information, which summarizes claims history and removes most identifiers, when the employer requests it to obtain premium bids. Share only what the decision needs, and keep identifiable detail with the plan’s HIPAA-covered vendors and business associates.
The takeaway: disclose the risk, then manage it.
If you disclose the risk properly, the right programs can be put in place to manage it. Over time, your premiums follow your claims, so controlling the cost of claims is what lowers them. Honesty really is the best policy when you benchmark your health plan, and it is the only way to get a recommendation built for the people actually on it.
For how Ethos Benefits compares your plan with employers like you, see benchmarking and modeling.