Group health loss ratio calculator

Calculate the loss ratio

Enter the premium and the paid claims for the same 12 months, the part of any large claim above the carrier's pooling point, a target loss ratio and the trend you expect for the coming year. The default is a group paying $540,000 in premium with $486,000 in claims, $30,000 of it above the pooling point, priced to an 85% target with 8% trend.

The calculator runs in the browser and stores nothing. Claims reports contain sensitive information; this page only needs the totals.

When a group's own claims set its rate

Not every group is experience rated. In the ACA small group market (up to 50 employees in most states, up to 100 in California, Colorado, New York and Vermont), a fully insured plan's rates come from the carrier's single risk pool for the state. The group's own claims don't change its premium; age, area, tobacco and the carrier's filed rate do. Running a loss ratio on a fully insured small group is a good conversation, but it won't predict the renewal.

• Larger fully insured groups are experience rated, often with a credibility blend: a group's own experience gets more weight as the group gets larger, and the carrier's manual rate fills the rest.
• Level-funded plans are underwritten on the group's expected claims, and the renewal reflects the year's actual claims, the stop-loss carrier's view of the group and any large claimants.
• Self-funded plans pay their own claims, so the loss ratio is the budget. The stop-loss renewal is where the experience shows up as a rate.

A worked renewal estimate

Carriers don't use exactly this formula. They add their own trend, a credibility blend with their manual rate, administrative loads, pooling charges and sometimes an adjustment for known ongoing conditions. The calculator gives you an independent estimate to negotiate from, not the carrier's answer.

Reading the claims report

• Paid versus incurred. A paid-claims report counts claims when they were paid; an incurred report counts them by date of service. A 12-month paid report includes claims from before the period and misses claims incurred near its end. Ask which one you are looking at.
• The lag. Claims arrive weeks or months after the visit. Carriers often run the renewal on the latest available 12 months, which may end two or three months before the renewal date.
• Large claimants. Most reports list members above a threshold by claim amount, without identifying them. That list is what drives pooling and, for level-funded and self-funded groups, stop-loss.
• Pharmacy. Pharmacy is a growing share of claims and is sometimes reported separately. Make sure both are in the total.
• Enrollment changes. A loss ratio on a group that shrank or grew during the year is harder to read. Compare claims per member per month alongside the ratio.

Treat claims reports as protected health information even when they are aggregated. Share totals with the client, not member-level detail, and store reports with the same care as a census.

Using the number in a negotiation

An independent estimate changes the renewal conversation from "is this fair?" to "why is this different?". If your estimate is 7% and the renewal is 18%, the carrier has to explain 11 points. The common answers are a large claimant who is still in treatment, a change in the carrier's manual rate, an increase in the pooling charge, or a lower credibility weight than you assumed.

Bring a competing quote, too. A loss ratio argument is stronger when the client has somewhere else to go, and a quote for the same plan design is the clearest test of the incumbent's number. Our broker renewal calculator puts the renewal and the alternative side by side.

How credibility changes the number

A carrier doesn't trust a small group's claims fully. It blends the group's own experience with its manual rate, the rate it would charge a typical group of the same size, age mix and area. The weight on the group's own experience is called credibility, and it rises with the number of covered lives and the years of data.

Suppose a carrier gives a group 40% credibility. If the group's own experience points to a 7% increase and the carrier's manual rate points to a 12% increase, the blended indication is 0.40 × 7% + 0.60 × 12%, or 10%. A large group with 100% credibility is renewed on its own experience; a 30-life group may get very little weight.

Ask the carrier what credibility it used and what the manual rate change was. Those two numbers explain most of the gap between your estimate and the renewal, and they are fair questions for any experience-rated group.

For level-funded and self-funded groups, the same idea appears in the stop-loss quote: the stop-loss carrier sets the claims fund and attachment point from a blend of the group's claims and its own expectations for a group like it.

Keep a copy of every year's estimate next to the renewal the carrier actually sent. After two or three renewals you will know how far each carrier's numbers sit from a plain experience estimate, which is the most useful thing to bring to the next negotiation.

Limits of a loss ratio

One year of claims for a small group is mostly noise. A single premature birth, cancer diagnosis or transplant can double a 20-person group's claims and say nothing about next year. That is why carriers pool large claims and blend small groups' experience with their manual rates, and why a loss ratio is far more meaningful for 200 lives than for 20.

The calculator also doesn't model plan design changes, network changes or the effect of a different contribution strategy on who enrolls. Run it on the plan the group has, then price changes separately.