The Difference Between a Pooled Plan, Partially-Pooled Plan & an Experience Rated Plan

There are three types of group plans that make it easy for individuals to get the insurance they need, and for employers/associations to offer affordable plans for their employees/members.

Pooled Plans

The Pooled Plan: An Overview – Basically speaking, pooled plans insure many people/businesses as one large group in order to spread the amount of claims made over a larger group of people.

Pooled Plan Advantages for Individuals – Individuals and business owners can join pooled plans by taking advantage of insurance offered through groups in which they have membership, such as the Chamber of Commerce, alumni associations, and career associations (engineers, teachers, etc.). The advantage for individuals is access to lower premiums and more coverage than they would be able to purchase through personal insurance plans. The disadvantage is less flexibility to tailor the plan for your needs.

How Are Rates Calculated in a Pooled Plan – The insurance company will assess the makeup of the entire group. For example, a law firm downtown where most of the employees enjoy a short commute on public transit, the building is air conditioned and the average age of the employees is over 40 is going to have a different makeup from the group of young construction workers in a new company that labours outdoors year-round. Likewise, an engineering association with members of all ages in one specific career is going to differ from an alumni association with members in a very wide variety of careers. Once the makeup of the group is assessed, a rating will be applied and a premium set for your group’s members.

Partially Pooled Plans

The Partially Pooled Plan: An Overview – The makeup of a group changes over time. The initial underwriting is based on the assessment of the group, but that first assessment could have missed the mark. Perhaps there was an unusually high number disability or dental claims; perhaps the company opened up a new division that changed the company’s demographics. When it comes time to review a pooled plan after its first year, rates can be assessed on both the makeup of the group and on its claim history.

Partially Pooled Plan Advantages for Individuals – Individuals within a partially pooled plan are assured that their rates will flex with the group dynamic. This means long-term stability of the plan even if premiums go up (they can also go down). If a plan is not properly assessed, it becomes unsustainable, and having an insurance interruption due to bad management on the part of the plan sponsor or underwriter can have a significantly negative effect on the individual member.

Partially Pooled Plan Advantages for Plan Sponsors – As the group moves through its first year of offering benefits, the analysis (which is especially important for smaller groups) provides a much more realistic view of the group’s needs. Premiums based partially on claims experience and partially on the group’s general makeup can lower or raise sponsor’s costs for the year, but ensure the longevity and stability of the plan.

Experience Rated Plans

Experience Rating: An Overview – Experience rating for group plans sees the underwriter assessing the group based on demographics, trends, inflation and claims experience for similar groups. The plan is essentially rated on the “experience” the underwriter expects to have with that group over the course of one year. Groups that have been with one underwriter for several years can also be rated on experience, as the group’s claims history and demographics are easy to track.

Experience Rating Advantages: There can be significant premium savings in experience rated plans for groups that do not have high claims experience within the plan.  Plan sponsors under a refund accounting (retention accounting) model can, if the premiums for the year exceed the actual cost of the plan, receive the surplus. If the actual costs exceed the premiums, however, the next year’s premiums will be increased. As always, annual analysis of group plans ensure the best cost and administrative management for the sponsor, whether or not a surplus is realized.

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