The insurer doesn’t forget to apply inflation to traditional benefits, are you forgetting to apply it to spending accounts?
In a nutshell, spending accounts are a fixed allowance of dollars set aside for employees to use on eligible expenses; if said expenses are suddenly more expensive, the allowance won’t go as far.
Everywhere else, inflation is sort of forced upon us, but with HSAs – this adjustment falls to the advisor and the client for consideration. How many renewal conversations include bumping up the HSA to account for the rising cost of dental visits – check out the table below:
Many advisors, myself included, know all too well about trend rates in the traditional group world; the insurer isn’t always clear on how they arrived at their applied trend rate which can make relaying the increase to the client a bit complicated. When I was new to the industry, I would offer to fly and sit in with the underwriters to understand their reasoning, and how their rate was often higher than CPI inflation rates. But it was always kind of a black box – I never did get a clear understanding of how trend rates were exactly calculated or why all the insurers would apply roughly the same trend. Regardless, my thoughts were if I could better understand it, I could sell it to the client. Whether an advisor wants or thinks the insurer trend should be applied or if the CPI should be applied, you may be wondering where these inflation rates are going. Below are some resources that involve all types of inflation that you may want to factor in when thinking about increasing or changing plan limits.
I came across this article below that discusses what to expect for benefits inflation for 2023. We see the medical trend rate forecasted at 7.5%.
CPI information is easier to find and why you may find yourself having more difficult conversation with clients if the benefit trend is higher that CPI, as most business leaders know what the CPI rate is doing. The CPI, according to the Bank of Canada, is about 5.9%.
Dental trend rates, as we have already shown above, are increasing at a fast rate. This can be seen in the dental trend applied at renewal, as well as the shared Fee Guides dentists use to set prices that are Reasonable and Customary to be reimbursed by insured plans. Again, like the medical trend, these are above the CPI %.
Since we also are heavily involved in wellness spending accounts, there should be an argument or consideration for the CPI increase being applied since the costs for all these items are going up. Maybe not at the same rate as the medical HSA side, but it should also be going up.
I know that as an employer you cannot just always increase costs, and employee benefits are no different. With spending accounts, many people love that the employer gets to decide when an increase is given, but I just wonder if the conversation is even happening around plan limits.
Steve McEwan
COO & Co-Founder
myHSA
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