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State of the TPA Industry + Forecast for 2011

TPA Forecast & Industry Trends for 2011
By SPBA President Fred Hunt
Written November 2010

BACKGROUNDFor 30 years, I have been providing these very candid insights & prognosis.  They are provided to all SPBA members as well as available for the outside world to read. To my own surprise, the accuracy rate of the forecasts has been extremely high.  This time, I think the forecast will again be accurate, but the outcome more circuitous, with so many specific issues in flux right now.  Flux will remain for about 4 years.

OUR FINEST HOUR:  As overview, this report shows why 2010 could have been a terrible year, and it will cause chaos in the insurance, medical, and other industries.   However, for the reasons outlined below, 2010, and looking ahead to 2011 has turned out to be (to use Churchill’s phrase) our finest hour. Why?  
(1). SPBA’s behind-the-scenes role with Congress helped insulate TPAs and their self-funded clients from the worst aspects of health reform during the legislative and now the regulatory phase. 
(2).  Because the legislative process was so haphazard, leaving much vagueness in the legislative language, SPBA’s long trusted relationship as an advisory resource for regulation writers has been more needed than ever by those regulation writers, and that has yielded even more fruitful opportunity to alert them to real-world issues & factors.  That input avoids problems for TPAs & employers that would otherwise be in the regulations.
(3).  Health reform makes employer sponsorship of their own health plan a corporate survival factor, not a ‘fringe benefit”.  Employers will drop their plans at their own peril.
(4).   Health reform is spawning many new requirements and services, which TPAs are the best-positioned to serve.  It will be almost impossible not to hire a TPA.
(5).  Health reform is expected to remove or open doors for TPAs and their clients to replace or side-step factors which had been obstacles or competitors in the past.

GOVERNMENT EXPECTATIONS:  In politics, 2011 will be a hectic gridlock prelude & staging ground for the 2012 elections.  Both parties are facing internal civil war, so Democrat & Republican are no longer predictable cohesive categories, and neither side can achieve what they are promising to do with health reform.  Balance-of-power provisions in the legislative system prevent the new Republican House majority from achieving their stated goal of totally repealing health reform or even applying major “de-funding” to aspects already in the law.  Only new requests for funding can be stopped by non-action by the House.  By Inauguration in 2013, too much will be entrenched to simply repeal.  Consequently, wisely, most employers, TPAs, & plans are proceeding as if there will be no legislative changes and focusing on regulatory developments.  They will be prepared no matter what. Any significant change to the employee benefits provisions will come via regulatory not legislative action.

Health Reform is still evolving in terms of the rules of the game (regulations), and then what pieces will be changed or eased, and how will the various players (insurers, medical providers, employers, etc.) adjust to the new realities.  For example, will insurance companies withdraw from the health insurance market in the US because of the many limits and unsustainable rules & requirements imposed on them throughout health reform?  The health insurance business will be unprofitable by 2014, and insurance companies need to make money.  Even if insurance companies try to branch out into new services in their own name, the term “insurance company” will probably trigger the punitive treatments.  (Insurers that have had independent-named and independent-thinking/operating TPA subsidiaries should be fine.)  I had noticed in recent years that insurers had been searching for and found profitable new markets in parts of Europe & Asia to replace their US health insurance market.  If insurers withdraw from the US health insurance market, there is a large vacuum in the market for TPAs & self-funding to fill.   Meanwhile, doctors, hospitals, employers and individuals will all be adjusting their actions,… from who they serve, how they practice, “gaming” the system, ACOs, etc.  Those new approaches will, in turn, cause other changes.  For example, if insurers exit the market, what happens to state exchanges, which the government sees as the key to the future health payment system?  Exchanges rely on insurance companies.  Similarly, doctors & hospitals may find it uneconomic to take Medicare & Medicaid patients at a time when both programs are expected to grow tremendously.  So, health reform is like reshuffling the cards and dealing a new hand to each of the players.

PREDICTION:  For those and other reasons, TPAs & self-funding will find health reform a net boost to their business.  Why?  The punitive and suffocating aspects were applied to insurance companies, not self-funding & TPAs.  In some cases, new requirements that do apply are simply factors similar to ERISA fiduciary and reporting self-funded plans have always had. 

EMPLOYER DEFECTION??   Health reform also deals employers a new hand. 
Employers have sometimes resented the hassle of employee health plans because they have been considered a “fringe benefit”.  However, as health reform unfolds, the market offerings from state exchanges and elsewhere become more cookie-cutter and bureaucratic.  Self-funding with TPAs becomes the only place to find personalized service & plan design flexibility.  Those two factors have been the drivers of the many-thousands-percent growth of the TPA self-funding market over the past 30 years.  The giant new importance for employers is that employee health benefits become a tool of corporate profitability & survival.  How?  Why? The doctor shortage and regimented health plans means that promptly getting a valuable employee medical care and back to work is vital.  A worker off the job waiting weeks for diagnosis & treatment (as happens in virtually all government-designed plans around the world) drains money & productivity from the employer.  Unless the employer sponsors his own plan which is designed and administered for the maximum efficiency of that employer & workers, the employer is helpless.  Sponsoring a heath benefits plan will soon become as important as having a service contract for valuable machinery the company needs.  Most people have not yet seen this coming, but the reality will hit suddenly & quickly, and within just a couple of years.  So, what will become vital to employers is the personalization, flexibility and cost-efficiency that has always been the greatest advantage of TPAs & self-funding.

Don’t get me wrong.  In pursuing a profitable post-health-reform future, TPAs will have many headaches, obstacles, and mazes to endure.   TPAs will look & think differently from a pre-2010 TPA.  The evolving new TPA will need to be alert and pro-active to opportunities for many new services which employers will want to hire TPAs to do.  SPBA meetings in recent years have provided case studies and new profit centers which proactive TPAs are already preparing and discussing with clients.  Those sessions & sharing will continue, so SPBA TPAs will have nationwide perspective & braintrust.  Health reform and other factors are generating more services & requirements employers & plans will want handled, so TPAs will find the menu of services & profit centers they offer growing.

In summary, the future outlook for TPAs and their main market of self-funding is optimistic.  It will take dedicated brain power to envision as well as energy  & patience to bring into reality, and to explain to clients the evolving new menu of available services for sale.  Health reform will be a case of TPAs turning lemons into lemonade.

ATTITUDE SHIFT: The best news of this report is that there has been a wonderful change in TPAs’ attitude this year!  For several years, a main theme of my industry forecasts has been that TPAs need to maintain the pro-active attentive energy & focus on government rules, regulations, industry trends and interacting with other TPAs.   I saw too many TPAs getting lazy and just coasting along.  They were becoming a risk to themselves and to the whole TPA self-funding concept.

In 2010, when things seemed scariest,  I have seen TPAs rise to the challenge.  Whether from just plain anger or a determination to master the new challenge, I have seen a big  jump in the pro-active professionalism of TPAs & SPBA’s Stop-Loss Partners.  That is the best news in years, and makes my prediction, about a bright future for TPAs & self-funding all the more certain.  This is a reinvigorated industry!  SPBA members have taken the leadership role of becoming resources of insight for clients and their communities on the big, small and unseen agenda aspects of health reform.  TPAs & Stop-Loss Partners are instantly digesting every new batch of insider insights & analysis on how the laws will be applied.  They have actively submitted real-world insights to the reg-writers, and been rewarded with many regulatory decisions that recognize & accommodate those real-world needs.  More than in past years, SPBA’s TPAs & Stop-Loss are acting like a team determined to build an active role in whatever evolves.

A major goal of SPBA’s founders was to have SPBA members be the best-informed players in the employee benefits field.  That has generally been achieved, and it has been especially clear in 2010 and looking ahead to 2011.  THAT is the big news and forecast.

Let me end with some organizational good news.  On January 1st, I will end my 30 years as President of SPBA, and Anne Lennan becomes President.  Anne has been with SPBA 25 years, and as part of our disaster planning, she has essentially been co-President with me since 9/11.  She has asked me to remain on a part-time basis as Active Past President to continue to handle “my” issues and commentary.  I am pleased and excited about this good development for SPBA.

Fred Hunt