A White Paper by Richard Stone, AIF, CPFA, CLU July 2024
Photo courtesy of Pixabay
An unusual rate anomaly has occurred in the Northern Virginia area for 2024.
Using an auto analogy:
Preferred Provider Organization (PPO) = Cadillac
Point of Service or Hybrid plan (POS) = Buick
Health Maintenance Organization (HMO) = Toyota
In Northern Virginia the Cadillac health plans of CareFirst BlueCross BlueShield are now lower than the Buick, and almost equal to the Toyota plans with similar benefits. Yes, you can upgrade your Toyota to a Cadillac for no additional cost (at least for renewals beginning in 2024). If you currently have a Buick plan, you may be able to reduce your rate renewal by as much as 8%. We recently reduced a 14% renewal to 6% by upgrading plans!
Why has this happened?
Based on the 2023 claims experience, the Cadillac plans had lower loss ratios than the Buick plans, and therefore the 2024 filed and approved rates were correspondingly lower.
Carriers need to “thread the needle” when it comes to filing rates for the following year. Rates that are too low will likely cause losses, but rates that are too high could lead to a loss of business relative to their peers AND a potential medical loss rebate being issued. If a carrier’s claims loss ratio is below 80%, a medical loss ratio rebate must be sent to all participating employers in that rate group. The administrative cost of issuing the rebates is often higher than the actual rebate, therefore carriers are generally prudent in their rate adjustments. Additionally, regulators require justification and claims experience for all rate changes.
Has it impacted all carriers?
Not as much as CareFirst, but we have seen a “narrowing” of rates for most carriers between their Cadillac, Buick, and Toyota plans. We have also seen a narrowing of spreads between high deductible plans and lower deductible plans.
Will it Last?
Not likely for an extended period of time, but it may take more than one year to “readjust” or reach a normal equilibrium.
So hey, I’m trading in my Buick for a Cadillac; at least for this one-year lease.
Richard Stone is The Lifetime Companies’ managing partner, a Tribridge Partners LLC division.
He has over 30 years of advisory experience in insurance benefits and retirement plans.
He can be reached at 301-840-9669 x115, richard@lifetimeco.com, www.thelifetimecompanies.com
