While many Canadian insurance carriers were slashing premiums in the first half of 2020, premiums may actually be going the other direction in 2021.

This news may come as a bit of a shock to most plan sponsors, who are expecting their 2021 benefits renewals to be a breeze. With paramedical and dental offices closed between March and May of 2020 due to the pandemic, the argument goes, surely that indicates a drop in claims for 2020–and a drop in costs for 2021.

But while historical data is often an indication of future budget needs, it doesn’t tell the whole story. And that’s where organizations are struggling.

If you’re planning for your 2021 benefits renewal, you need to set your budgets now to ensure you have enough set aside to offer appropriate coverage to your employees. The question is how to achieve that in an evolving and uncertain market.

Understanding The Landscape

It’s not exactly a secret that 2020 wasn’t your average year. Plan members struggled through lockdowns and virtual schooling, unable to take full advantage of their benefits plans. Even beyond the spring shutdown, the lack of childcare meant months and months of uncertainty and fear. Many of these plan members missed out on:

• Regular health care visits to head off any challenges before they become too serious;
• Regular dental appointments, with the possibility of further intervention needed;
• Mental health care, including relationship support, which has more than likely been under extra strain during this time; and
• Proactive, holistic self-care, including chiropractic services, massage therapy and physiotherapy.

The data shows that pushing off health care can lead to more serious problems down the road. Insurers also know that care is likely to cost more in 2021–whether due to simple inflation or because of the added expenses of Personal Protection Equipment (PPE) and sanitizing protocols in medical offices. Each of these factors will lead to increased costs for 2021.

Pandemic Benefits Planning

Plan sponsors who are preparing for benefits renewals in 2021 will need to think a little differently than in years past. If your organization doesn’t budget enough for coverage and you can’t find additional funds to absorb the difference, you may instead wind up cutting back on other benefits. It’s certain your employees won’t be happy about that.

It’s important to take all the factors into account. Some of these factors are obvious: the age and health status of your employees, their medical claims history, your industry, administrative costs and the amount of coverage. Others relate to engaging in tactics designed to lower costs, such as wellness programs, telemedicine options and the size of the drug plan.

Understanding the whole picture, however, can help. Consider these five factors that may result in an increase in benefits renewal rates:

1. Claims paid: Just because dental and paramedical offices were closed for several months does not mean the number of claims submitted over the entire year decreased. Many providers, such as mental health professionals, pivoted to virtual models. Other categories like pharmaceutical coverage, which typically make up a majority of a plan sponsor’s extended heath costs, may not have been particularly affected.
2. Premiums paid: Many, if not most, insurers reduced premiums due to the spring lockdown. Depending on the benefit and insurer, some reductions were as high as 70%. As a result, your organization may have already fully benefited from any dips in claims due to the shut down.
3. Health and dental trends: Insurance companies set a premium high enough to cover the cost of claims and expenses for the next year. They consider trends such as inflation, expected usage, change in demographics and the cost of new products and services. It’s likely that higher costs due to these factors outweigh cost reductions due to a decrease in utilization.
4. Limited experience: If you’re a smaller business, expect your organization’s experience to be dismissed. Insurers may apply only limited credibility to smaller organizations given the high volatility of claims year-over-year. In conjunction with the experience from an insurer’s overall business, the factors mentioned above will help determine the remainder of the cost.
5. Self-insured coverage: If your plan is self-insured, your advisor may recommend excluding the months of lockdown from 2020 data when planning for 2021. This minimizes the likelihood of putting your plan behind before you even start.

Preparing a budget is critical to future planning. There are many factors that contribute to your future premium rate, not just the number of claims. When planning for medical and dental renewals, set aside as much as you did in 2020, or even more if you can manage it. Reach out to your benefits consultant or advisor to confirm whether your expectations are reasonable.

Jimmy Dang, FSA, FCIA is an Associate Vice President in the Health and Benefits – National Accounts practice at HUB International Ltd, with over 11 years of experience providing actuarial and consulting services. Jimmy’s expertise includes the valuation of liabilities associated with non-pension post-retirement and post-employment benefits (including long-term disability plans). In addition, Jimmy has extensive experience in the designing, pricing, marketing, and communication of group benefits plans. He works with traditional and flex plans, and consults to both single and multi-employer clients.

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