Trend factor is a term that you’ve likely heard mentioned somewhere throughout the years but likely didn’t know how it impacted your employee benefits plan. First, let’s start with a simple definition: A trend factor is used to calculate the future cost of current claims along with anticipated claim trends.
How Does This Relate To Your Benefits Plan
Your annual benefits renewal can be complicated and there are many factors used to calculate your monthly premiums for the following year.
Aside from the typical conversation about needing the appropriate funding to pay claims based on the previous years’ experience, a trend factor also comes into play and is a large part of determining what you will pay the following year. When premiums do increase, we often hear feedback along the lines of “that’s way more than inflation and cost of living increases etc.” However, there is so much more that is utilized to calculate these numbers. Here are some examples of what is considered:
- Anticipated changes in family status
- Cost of services and drugs increase
- Dental fee guide is updated annually
- Trends on utilization to anticipated claims at future cost
In conclusion, aside from the fact we all know family dynamics change, as the cost of services, drugs and inflation go up we also need to consider the increase in utilization in services due to increased popularity. Just this year alone, we have seen Sports Therapy and Kinesiologists be introduced as an acceptable paramedical service for some insurance companies, so in part, the ‘trend factor’ takes into account these new, anticipated claims for your employees.