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The most common type of Employee Benefits Plan that Employers implement is what I refer to as a “Traditional Benefit Plan”. This plan is most often fully insured and administered by an Insurance Company. The plans offer defined insurance benefits such as Life, AD&D, Dependent Life, Short Term of, Long Term Disability and Critical Illness Insurance along with “square box” or defined Extended Health and Dental benefits.
For many employers, especially larger companies with hundreds or thousands of employees, the Fully Insured Traditional Benefit Plan remains the number one choice of Employee Benefits Plan for the two following reasons:
1. The Fully Insured Traditional Benefits Plan provides the insured protection necessary for all employees by spreading their claims experience over a very large pool.
2. The Fully Insured Traditional Benefits Plan allows for full eligibility of coverage for each employee regardless of pre-existing medical conditions.
However, it has been expressed by many Employers that they see two major disadvantages of the Fully Insured Traditional Benefit Plans as follows:
1. The Fully Insured Traditional Benefit Plan does not allow for the Employer to participate in the “ownership” of the Extended Health and Dental components. The reason for this is that the Fully Insured Traditional Benefit Plan is priced and administered on the fact that 100% of the premiums collected by the Insurer will always remain with the Insurer regardless of the usage ratio (claims versus premiums). The Insurer continues to price these programs using a Target Loss Ratio (TLR) which simply means that out of every premium dollar submitted they must retain a certain percentage of that dollar to be profitable. An example would be a 72% TLR meaning that the Insurer must retain 28% of each premium dollar to reach their margins. When these TLRs are not achieved each year, the Insurer will increase their premiums for the following years. These TLRs consist of Claims Experience and Expenses.
2. The Fully Insured Traditional Benefits Plan inevitably “surprises” Employers every year at renewal time with increased premiums that they were not expecting and had not budgeted for!
The reason for these “surprises” is that the Insurance Company is simply administering your plan, they are NOT MANAGING YOUR PLAN!
Contact us to learn how Health Risk can assist you in learning more about Fully Insured Traditional Benefits Plans and the advantages of using Health Risk as your Insurance Brokerage of Choice!
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