There are various carrier fees that make up your overall employee benefits premiums. You might have heard the terms Target Loss Ratios (TLRs), Large Amount Pooling (LAP) charges, trends, inflation, reserves, etc.
Have you ever stopped and wondered how much of each dollar that goes into a traditional group employee benefits plan, actually directly pays for claims? You might be paying more than you should for some predictable benefit lines such as dental, vision care and paramedical services including massages, chiropractic and physiotherapy. Let us explain how you can save on these predictable transactions.
Large Amount Pooling (LAP)
Large amount pooling (LAP), also known as stop loss coverage, was initially introduced to protect against the financial consequences of catastrophic claims such as high cost prescription drugs, emergency travel coverage and hospital expenses. In return for this protection, providers will charge a premium, whether or not the protection has been used. For instance, for protection on any claims above $15,000 a provider may charge you anywhere from 15-25% of your overall premium, not including other fees such as trends, reserves and commissions, that make up your overall Target Loss Ratio (TLR). Any claims above this predetermined dollar threshold are paid for from this pool funded by all the participating employers with the provider, and are removed from the claims experience before renewal rates are calculated. This LAP charge is applied to the entire extended health care premium. A similar TLR is applied on the dental premium as the health premium leaving less of your dollars going towards paying dental claims.
For this example, let’s say the LAP charge and all the other admin fees come to 35% with a $15,000 pooling threshold. This 35% fee is applied on your paramedical premiums even though paramedical claims are predictable and are not protected under LAP. By carving out paramedical coverage from your traditional plan and covering these claims through a defined contribution in a health care spending account, that typically charges 5-10% of claims, you can save anywhere between 25-30% in fees on these predictable claims. It’s clear in this example that utilizing health spending accounts can free up 25-30% of every dollar that can be used to pay for these services directly.
Wouldn’t it be nice to provide employees with a solution where more of employer funded dollars are used to provide flexible healthcare for members and their families?
Health spending accounts provide cost certainty
Here at Aya Mastercard®, we developed a best-in-class platform that provides direct access to affordable health and wellness spending accounts. Reach out for a demo and we can show you how we can make the best use of your benefit dollars.