Dixon Greer is president of Liberty Benefit Insurance Services, a full service insurance consulting firm based in San Jose, CA, with areas of expertise in insurance auditing, HR consulting/outsourcing, cost containment programs, mergers and acquisitions, plan design, stoploss insurance, flexible benefit plans, ERISA compliance, executive benefits and purchasing alliances.
This year, one out of ten construction workers will be accidentally injured.
Because of this statistic, insurance carriers often view the construction industry as one of the most dangerous industries, even though the employees match a more positive insurance profile and lead healthy active lives. As a result of this perception, construction companies are offered some of the highest insurance premiums.
High insurance premiums can place a strain on a company's profit margin. Human resource departments can help keep companies financially viable by finding ways to cut benefit costs without losing much-needed coverage. One way they can accomplish this is by conducting a health insurance audit. Since most carriers inflate rates based on inaccurate risk assumptions, conducting a health insurance audit can help carriers focus on the positive profiles to get a better rate.
A Positive Profile
Demographically, construction company employees tend to be attractive to carriers, yet the companies usually receive poor ratings. Construction employees are generally younger, male, athletic and in good shape. They often lead active lives-on and off the jobsite-participating in sports leagues such as softball and bowling. Some even repair or build their own houses in their free time. Simply put, construction employees are physically active people.
Construction companies are often unfairly rated because there is a perception that their employees are more likely to be injured. While on-the-job injures increase each year, outside of work they tend to lead healthy active lives, therefore lowering the risk of conditions such as diabetes, heart disease and even some forms of cancer that are linked to obesity. Carriers tend to focus on the negatives opposed to the positives of insurers that fit that profile.
A Health Insurance Audit
Carriers are going to be risk averse and profit-motivated. This is not an indictment; it is the nature of all businesses- not just the insurance industry. However, an audit of the construction business health plan will provide a clear unbiased picture of what the rates should be. Audits are a powerful tool to guard against being unfairly overcharged for insurance.
The health insurance audit takes the "subjectivity" out of the process and allows for a fair and valid re-underwriting of the group. This is extremely beneficial for companies in the construction industry, since they are often unfairly rated by demographics and lifestyle.
Also, a health insurance audit will reduce a company's health care costs without compromising employee coverage or increasing employee rates. The audit offers strategies and ideas that will lower premium costs, therefore, allowing the company to have greater control over the renewal process, via education and transferable techniques. Ultimately, an audit will benefit the employees.
For example, a Sacramento-based construction company underwent a health insurance audit and was able to reduce its dental premiums $50,000 per year, without changing its dental carrier or reducing its benefits.
The auditor found the company had been unfairly rated after scrutinizing the underwriting formulas used to determine the rate. They found that the company was being massively overcharged based on the erroneous risk assumptions made by the carrier. The auditor concluded that the rate was inappropriate by employing risk modeling software programs, underwriting savvy and actuarial analysis.
The auditor approached the carrier, and the carrier agreed to reduce the rates.
What is an Audit and How Does It Work?
Health insurance premium auditing is a third-party model for controlling the cost of health care premiums. Human resource professionals can turn to an outside source as a creative way to evaluate benefit costs and cut unnecessary expenditures without adding additional costs to the company.
An audit is a complete, unbiased "re-underwriting" of a company's healthcare benefits package. It is a thorough review of the underlying assumptions of risk made by the insurance carriers, and an examination of the underwriting formulas carriers use to set a company's premium rates. The audit process is designed to scrutinize and de-construct these assumptions and formulas. They find discrepancies such as math errors, incorrect or unreasonable assumptions and subjective rating practices.
Once these problems have been recognized, an auditor can determine what a company's premium rates should be, simply by examining the difference between what a client is currently being charged and what they should be charged based on these discrepancies. After the auditor determines what the rates should be, the process of negotiating with a company's existing carriers to achieve unilateral price reductions can begin.
The human resource department should choose an auditor who is highly experienced in their audit practice. The auditor should be committed to the company and able to provide outstanding service and long-term cost reductions for the company's health and life benefits.
The auditor should also be able to reduce insurance costs for the company, helping it obtain the best rate in the open market. He should be able to design a custom benefits plan to fit the specific needs of the company and its employees.
Human resource professionals need to find an auditor who is paid via a percentage of the money that they cut from the company's premium rates. Auditors that work on a contingency basis will add no additional cost to the already stretched budget of the company.
Why Conduct An Audit?
Conducting an audit will keep the carriers in check and on their toes. Carriers are less likely to give a company an unfair rate when a company is closely watching them.
Employee contributions are continually being adjusted and increased to account for a company's steady increase in health insurance premiums. An insurance audit can help fix this problem, while promoting good ideas for a long-term health plan strategy.
Not only can the money saved from a health insurance audit fund additional staff members or increase benefit offerings, the process is highly educational for human resource departments. An audit will also send the message to senior company management that the HR department is very concerned with the costs associated with healthcare. That's a message they will love to hear.
Getting a Fair Rate
In an industry like construction, companies are paying very high insurance premiums. These are sometimes based on past accidents that are highly unlikely to reoccur or other unlikely risk factors. An audit can get premiums down to a fair level, based on real risk.
Construction Business Owner, August 2006