Short answer: In Texas a large group (51 or more employees) is experience rated: the carrier projects next year’s claims from the group’s own recent claims, blends that with its manual rate according to how credible the group’s data is, adjusts for large claims, cost trend and changes in enrollment or benefits, and then adds administration, commissions, taxes and profit.
The ACA’s limits on rating factors (age, area, tobacco and family size only) apply to the individual and small group markets, not to large group coverage outside an Exchange. Texas lets a large group carrier adjust the group’s rates for its experience, as long as the adjustment applies uniformly to everyone in the group.
Each carrier’s formula is its own, but most renewals follow the same steps:
- Experience period claims, adjusted for claims incurred but not yet paid.
- Large claims pooled: the part of any one person’s claims above a pooling point is removed and replaced by a pooling charge.
- Trend: the claims are projected forward to the new plan year for rising prices, utilization and new treatments.
- Adjustments for changes in benefits, enrollment and demographics.
- Credibility blend with the carrier’s manual rate.
- Retention: administration, commissions, premium taxes, fees and profit.
The result compared with current premium is the renewal increase. Asking the carrier for the underwriting exhibit that shows each step is the starting point for any negotiation.