The fourth quarter is open enrollment season for most of our group clients. It's also the most difficult time of year to slow them down long enough to make a decision about their benefits. That's because, for many employers, the holiday season is their busy time of year as well.
So why in the world do we do this to ourselves? Are the benefits of having a Jan. 1 effective date really worth the hassle? It depends.
Arguments for a Jan.1 effective date
Jan. 1 is the beginning of the calendar year, so it seems logical to begin the plan year on the same day. It's certainly easier for employees to remember.
A 1/1 effective date might also save employees some money. For most plans, the members' cost-sharing responsibilities reset on Jan. 1. This means they have a new deductible, new coinsurance maximum, new pharmacy deductible, etc. And while groups that switch mid-year usually receive credit for any deductible already met, they don't receive coinsurance credit.
Tax code is also based on a calendar year, so a 1/1 effective date might work better for some tax-advantaged plans. For instance, HSA and dependent care FSA contribution limits are based on a calendar year, not a plan year. So are HSA minimum deductibles and out-of-pocket maximums. What this means is that a plan that's HSA-compatible on July 1 may no longer be compatible on Jan. 1.
Employees with a medical flexible spending account also might prefer a Jan. 1 effective date. That's because a lot of employees will "shoebox" their receipts for eligible medical expenses and file all of the FSA claims in the last two months of the year so they can get one big check to go shopping.
Arguments against a Jan. 1 renewal date
Everybody else is doing it, so you shouldn't. Carriers are very busy during the fourth quarter; It's more difficult to get final rates and the processing time is much longer.
To complicate matters further, a lot of carriers find themselves with skeleton crews during the holidays as employees with "use it or lose it" vacation days scramble to spend them up before the end of the year.
The huge influx of groups at the end of the year also allows underwriters to cherry-pick the ones they want, rating-up or declining the rest. A group that might be a peach during the slow months could easily end up in the "dog" pile during the fourth quarter.
The rates also might be higher for 1/1 groups. Even though they can reset their trends at any time, many carriers do so at the beginning of the year - actuaries tend to think in terms of Jan. 1 and on.
And right now we're seeing those trends exaggerated for several reasons:
- 1. Utilization is up as people who are nervous about health reform race to get elective procedures done.
- 2. Utilization also tends to increase in a down economy as stress levels are higher, there are more accidents, and people work longer hours.
- 3. Carriers are scared of what health reform may bring and are adjusting their rates accordingly.
Compliance with a number of federal laws, including COBRA, Medicare primary and maternity, is based on group size during the previous calendar year, and we don't know that until the calendar year has ended.
But the biggest con is that employers who are rushed during the holidays might make hasty decisions about their benefits. They might renew as is rather than moving to a better option because it's the path of least resistance. They might not spend as much time educating their employees and it might be more difficult to get all the employees together at one time.
Eric Johnson can be reached at 817-366-7536 or eric.johnson@agentallies.com.
