Understanding trend guarantees when performing TPA selection analyses

There has been increased interest from both employers and third-party administers (TPAs) about incorporating medical trend guarantees into TPA selection analyses. In general, a trend guarantee is defined as an agreement between a TPA and an employer that compensates the employer in the event that the year-over-year trend in medical claims costs exceeds the negotiated amount.

While trend guarantees may offer a useful hedge against unexpected increases in costs, employers should be diligent in understanding the fine print. A trend guarantee with a lot of caveats and a tiered payout schedule may not have a material impact on the value proposition offered by the TPA submitting guarantees.

Milliman’s Scott Cohen, Paul Sakhrani, and Brian Sweatman offer more perspective in this article.

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