For brokers and carriers, getting an accurate figure for how much plan sponsors are spending on particular benefits can be a challenge. We spoke with data analyst Eric Ryles, our colleague at ALM's research arm, Judy Diamond Associates, about how to solve this problem. The key, he says is modeled premiums.

BenefitsPRO: So what exactly do you mean by modeled premiums? What are they?

Eric Ryles: OK, I'm going to try to keep this as simple as possible even though it's really complex. On each 5500, the insurance carrier completes a section called Schedule A. This schedule lists all of the benefits that the carrier provides to the plan sponsor.

The problem with this form is that a carrier can say “We provide health, life, dental, and vision,” but they only have to list a single dollar figure for what they collected in premiums, regardless of how many different benefits they are actually providing.

So if you have a plan that offers health, dental and vision and the carrier collected a million dollars in premiums, how do you know what the dental part of the plan is costing the company and the plan participants? The answer is that you couldn't until now.

BenefitsPRO: You figured out how to break those premiums apart? How do you know you're doing it correctly?

Ryles: We did. We worked on our model for years, and once we thought it was good enough we took it to a number of insurance carriers and asked them if they could match our data up against theirs, to see how close the model was to how they actually allocated the money from the plan sponsor.

After a lot of iterations, we eventually got to the point where we were consistently plus or minus about 10 percent of the actual value the carriers themselves were ascribing to each line of coverage.

BenefitsPRO: Why is it important to break this number apart? Can't you just eyeball the policy and get an idea of what goes where?

Ryles: It's important because it allows brokers and carriers to accurately gauge how much a plan sponsor is spending on a particular benefit type.

If I'm a specialty carrier like Delta Dental, I can't look at a plan offered by someone like UnitedHealthcare, where both health and dental are covered on the same contract, and get any idea of what's being spent on dental. It makes market share analysis and territory planning extremely difficult, if not downright impossible.

With the new modeled premiums, I can now separate the chocolate from the peanut butter, as it were. This opens up all kinds of exciting new options, like creating visualizations based on modeled premiums, tracking the rise in a certain kind of premium backwards across years, or finding plan sponsors where their health premium is going up faster than market average based on their size, industry, or location.

BenefitsPRO: Is this model available to industry? Is it part of the new tool you launched this week?

Ryles: Yes, though it's probably more appropriate to say that we released a new version of an existing tool. Our Group Insurance platform got a major upgrade, which we've internally been calling Group Insurance 3.0.

We brought in several major new features and, more importantly, changed the way we looked at some of the insurance data.

BenefitsPRO: Changed in what way?

Ryles: Two big changes and about a dozen smaller ones. The first big change is that we're looking at the information in a more holistic way and have organized the data and the various screens/graphics around all of the benefits offered by a plan sponsor, not just whatever can be found on a single 5500 form.

The second and arguably more interesting of the two big changes is the one I mentioned earlier — our new method of modeling premiums.

BenefitsPRO: So existing users will upgrade to this new version?

Ryles: In fact, they already have been. Any existing Judy Diamond Group Insurance user has access to the new tool. There was no upgrade fee, premium membership, or contract papers for anyone to sign.

New users will simply slot right into the new version of the tool. We upgraded our base platform because of this great new way we found to corral and present data, and we want everyone to be able to use it.

I can't wait for people to get into the new tool and develop their own insights. I may even be working on a report that analyzes market trends based on modeled premiums.

Read more at BenefitsPRO:

5 ways to keep benefits costs down in 2018

Harnessing the power of sentiment analysis to streamline benefits

3 ways to know if you're overpaying for health care

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