Before you grab your swimsuit, let’s clarify something: pooled employee benefits have nothing to do with swimming pools. There’s no shallow end, no diving board, and definitely no ‘no running’ signs. What pooling does offer is protection from the deep end of catastrophic claims. And that’s important for employers to understand.
Curious to know happens behind the scenes when an insurance carrier sets pricing for an employee benefits plan? Pooling can have a significant impact on your benefits pricing. So in this blog, we’re going to peek behind the curtain to look at how pooling can impact employee benefit costs for small and mid-sized employers.
1. Pooled Employee Benefits
Unlike experience rated benefits (where an insurance carrier bases renewal pricing on past usage), pooled benefits cannot be priced based on claims experience and past use. Pooled benefits represent types of claims that are generally catastrophic, rare, and less predictable.
Examples of pooled benefits include life insurance, accidental death and dismemberment, long-term disability, and critical illness.
Insurance carriers pool these benefits together to essentially protect employers’ budgets in the event that there is a significant claim. For example, if an employee were to pass away unexpectedly resulting in a tragic life insurance claim, your plan pricing would not be impacted in a major way.
Insurance companies set the pricing for pooled benefits by looking at demographics in the employee population (like gender and age). They also look at your industry as a whole, geographic location of your business, and the types of occupations held by your employees. For example, when it comes to gender, life insurance claims tend to be higher with men whereas long-term disability claims are more common for women. Occupations are also is important because some jobs may pose higher risk or impact one’s health in different ways.
2. Pooled Claims
While pooled benefits refer to entire categories of coverage (like life insurance or long term disability), pooled claims work differently. They apply thresholds to individual claims within experience-rated benefits like drug coverage or extended health. This is where insurers set a dollar limit to protect your plan from any single individual’s high-cost claims. Once the claims reach the threshold, the remaining balance is pooled.
Pooled claims do not count against the employer’s claims experience. As such, they will not impact your employee benefit plan pricing at the time of renewal.
To determine the amount of claims that are pooled, insurance carriers set a dollar threshold for what an individual before pooling kicks in. Let’s look at an example: pooled claims for prescription drugs. In this scenario, imagine that the insurance carrier set a threshold of $10,000 per individual per year. This means that any amount spent by the individual for prescription drugs within the $10,000 threshold would count towards the group’s experience rating. If the individual were to go over that threshold and spend $15,000 in a year, the extra $5,000 would be pooled. Meaning that it would not count against the overall experience rating of the group plan which reduces the cost pressure at renewal time.
There are some types of pooled claims that do not have any dollar threshold. For example, out of country claims, private nursing, or virtual care. Coverage for these types of claims is pooled from the pool at the first dollar and does not count against claims experience.
Keep in mind that pooling is designed by insurance carriers to protect clients against catastrophic claims. The concept is to minimize client’s exposure to expensive claims by “pooling” different parts of a plan’s design in specific ways to optimize how dollars get spent.
Why pooling matters in employee group benefits
Understanding how pooling works in your plan isn’t just academic. It directly impacts how insurance companies set pricing at renewal and where you have leverage to negotiate. If you’re looking at a renewal and the carrier is citing ‘pooling charges’ or ‘pooling adjustments’ without clear explanation, that’s exactly where we dig in. We’ve spent 20 years inside carriers and know exactly which pooling levers actually move and which ones are just noise in the pricing conversation.
If you’d like to understand more about pooling and how it impacts your employee benefit costs, connect with us to go through your questions and we’ll be happy to answer them!