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Is Your Carrier Working for You or Against You?
Remedy Advisors LLC > Insurance Basics > Is Your Carrier Working for You or Against You?

Is Your Carrier Working for You or Against You?

Most employers would assume their insurance carrier is working on their behalf.  Employers feel this way because it’s logical to assume the insurance carriers want to reduce their claims year after year, so they can earn more profit.  Continue reading to find out why this is not the case:

Although it’s logical to assume the insurance carriers want to earn more profit every year, therefore they should try to lower claims, this is not reality!  The Medical Loss Ratio of the Affordable Care Act says that an insurer must spend 80% of the premiums they collect, on claims.  If they don’t spend 80% on claims, they must rebate the money back to the employer. This is the law under the ACA, either payout 80% of the premiums on claims or rebate the balance to the employer.

Now, let me explain why these carriers are not working on the behalf of the employer, but rather on the behalf of their shareholders.  Let’s say your company pays $1,000,000 in premiums to the carrier.  Due to the MLR in the Affordable Care Act, the carrier must spend 80% or $800,000 on claims.  Now, what happens to the other 20% of the premium?  The remaining 20% or $200,000 goes to the carrier to cover administration fees and profit.  An insurance carrier who IS working on your behalf would, in the following year, attempt to lower the cost of your claims because your premium is derived from the number of claims and the severity of each claim.   Let’s say this admirable carrier successfully cuts your company’s claims in half, down to $400,000.  In doing so, they would have effectively reduced your premium to $500,000 ($400,000 claims + $100,000 admin/profit) which is great!  However, at the same time, by reducing the amount spent on claims, they are reducing their portion of the premium intended to cover administration and profit.  The national carriers are publicly traded companies with a fiduciary responsibility to increase revenue for their shareholders.  By reducing claims, they are cutting into their revenue as well and knowing that it becomes obvious the loyalty lies with the shareholders and not the employer.  Your carrier has no incentive to reduce your claims and therefore, your premium!