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State of the TPA Industry + Forecast for 2012

Written December 2011

SPBA’s new President, Anne Lennan, asked me to continue this custom as I have done for 30 years as President.  I am especially happy to do so, because the state of TPAs and the forecast for the future is the brightest it has been for many years (not to say that it is not an extremely tight marketplace).

These reports are designed both for SPBA members to use this perspective in shaping their corporate strategy, but also as a candid analysis for outsiders such as investors, researchers and others who want to understand the TPA world today and into the future.  SPBA is able to provide this insight because one of our major roles is as an information exchange.  We hear from SPBA members about 200 times per week with problems or challenges they are seeing in the marketplace, and/or brainstorming with them about their company strategy, or hearing about unworkable areas in laws and regulations.  They tell us about their new ideas and new markets. So, SPBA is an unmatched repository of real-world hands-on totally-candid insight.  Meanwhile, government policy-shapers often reach out to SPBA as a sounding board precisely because of this broad real-world perspective, and we also bring problem areas to their attention.  SPBA is non-partisan and non-political, so everything is based on professional respect and trust.  The combination of all this insight has meant that my forecasts in these reports have had an astoundingly-high rate of being accurate.

Note:  To avoid confusion, we refer to the Health Reform law by its full initials PPACA, because we found that the commonly-used ACA nickname overlaps with parts of some earlier issues.

In recent years, drastic “reform” of some kind seemed like a big cloud over the TPA, insurance, and employer/benefit plan sponsor community.  This led to a tendency for some TPAs to slide into a holding pattern (to see what would evolve, and/or not invest in improving a TPA operation that might soon be irrelevant in some reform).  In recent-year forecasts, I mentioned this as a concern I had for the TPA industry. 

PPACA solved that problem.  From the start of the legislative process, through passage, and in the 18 months since the law took effect, TPAs and Stop-Loss Service Partners have devoted extensive time and attention to mastering the ramifications of the law, and the nuances that will shape the final outcome and effect.  They’ve studied not only the parts that impact the TPA market, but also factors that will impact the future roles of states, insurance companies, and other players.  I think SPBA players truly are the most involved and proactive on issues of this law.  My fears about slackers is gone.

Part of the zeal for involvement of SPBA members is that the government offices and staff responsible for interpreting the law and writing rules and regulations have been seeking and the most receptive to real-world ideas from TPAs that I can remember.  This may be in part because the unorthodox manner of the legislative passage of the law meant that there was no “blue book” of the legislative intent of the various provisions.  So everyone is filling in the blanks of “Congressional intent” for sections of the law as we go.  Since SPBA is non-political and non-partisan, and has a long reputation for candor…and because SPBA’s perspective is the largest and widest*…it has been a very constructive relationship to be a resource to government  of real-world practical insight to avoid later compliance problems.  (*SPBA is “largest and widest” perspective because the majority of workers in non-federal employee benefit health plans in the US are in plans administered by a Third Party Administrator of some kind.  Also, the client plans of SPBA members include every size and format of employment (big, small, union, corporate, state/local government employees, religious organization workers, etc.).  Different sizes and types of employment, and industries raise different real-world ramifications which a law or regulation must consider.)  Consequently, SPBA has seen more instances of constructive impact in 2011 than any year before.

STOP-LOSS:  2011 saw a jump in cooperation between TPAs and Stop-Loss Service partners.  There has been good conversations in recent years, but 2011 had a Summit meeting of SPBA’s Board and about 100 leading Stop-Loss.  We had ideally hoped to agree on iron-clad vocabulary meanings.  However differences in vocabulary definitions permeate both TPA and Stop-Loss industries, so there was no magic agreement.  However, there was very candid constructive brainstorming about where both sides envision potential problems in PPACA, and how we can plan ahead, envision and avoid or minimize problems.  This cooperation will provide benefits in coming years. 

As we have gotten deeper and deeper into PPACA and related policies, we see more and more new opportunities for TPAs to expand and solidify their market and help employers and plans meet new responsibilities and needs.  It will be complex and often whole new concepts and services needed, but the proactive involvement of SPBA’s TPAs, mentioned above, to understand the evolving needs and the nuanced context of the requirements positions TPAs well.  SPBA and its members have also been watching how PPACA will impact other types of health coverage employers or employees might access. 

For example, insurance companies have been penalized, restricted, and generally scapegoated for everything in PPACA (even though PPACA will rely on the participation of insurance companies to implement several aspects of the law).  So, a key question is whether insurance companies will choose to remain in the US health insurance business.  They can afford to withdraw, because many insurers researched years ago what would happen if they “lost” (single payer was the fear at the time) the US insurance market.  Also, many insurers have been shifting their business mix to other services and to self-funding.

Several of the largest US insurance companies now have as much as 90% of their book of business in “ASO” (Administration Services Only, which is another marketing name for TPA services).  They will presumably remain in that business.  Will they drop the insurance company marketing name of ASO, and join more fully into the world of TPAs?  I think so.  The reason is that if they remain in the market as an ASO of an insurance company, even though the coverage is not “insurance”, some state or federal government officials will want to apply one or more punitive provisions of PPACA to the “insurance company”.  So, I think that they will want to dump any insurance company name, and adopt a different name as a TPA.  I think any hesitation is only residue of some competitive old family feud between “insurance” and TPA self-funding.  In fact, most large insurance companies and Blue Cross/Blue Shields already have non-insurance company-named TPA firms, so a structure is in place for large insurers to simply shift the ASO business into a TPA name.  Consequently, a merger of ASO business from insurance name to TPA name will not suddenly generate dozens more TPAs in SPBA’s membership.  It will simply be that several TPA firms will show gigantic “growth” as 90% of their parent insurer’s ASO business is shifted to the TPA’s name.

States are another lynchpin of PPACA
, such as the state Exchanges.  However, this law and the bad economy, and the fact that many states have balanced-budget requirements in their state constitution has states getting increasingly skittish about actually committing to the ongoing financial liabilities of Exchanges and PPACA’s expected 30% expansion of Medicaid enrollment in states.  (Medicaid has already been an unsustainable drain on many states’ budgets for several years.)  States also see that while PPACA is handing out millions and billions now, PPACA is going to run out of money about the time of official implementation in 2014.  This is because several of the biggest revenue makers or “savings” parts of the law have been withdrawn, and money originally allocated for PPACA is being re-directed for other things by Congress.  So, states are scared.  There is a chance, especially if there is a new President or Congress, that is willing to let PPACA just fade away, that states that do act now could find themselves out there with promises for things they can’t afford…and states that stall until the 2012 elections could find themselves out from under any pressure to proceed.

I’ll go out on a limb (now 6 months ahead) and say that I don’t think that the Supreme Court will rule the individual mandate or the whole PPACA unconstitutional and thus totally null and void.  (If only the individual mandate were eliminated the whole shared-risk concept of coverage would face actuarial disaster, because millions of people would game the system and only sign up for coverage when they discover they will have huge expenses soon.)

Will the 2012 election be a tremendous watershed for PPACA?  No.  Republican candidates who campaign as if they will be able to wave their hand and make PPACA disappear the first day are wrong, because they do not have the constitutional power to blow off a law passed by Congress.  Also, if the current rate of disappearing funding sources for the law continues, PPACA will be like a car with 4 flat tires…especially if a new President and/or Congress show no eagerness to steer new money into the law.  So, I think that if there is a different President and/or Congress, the effect on PPACA will be more an issue of disintegration than being specifically killed.

What impact does that have on the health coverage and employee benefits market?  Even if the law were totally wiped away by a Supreme Court decision….or if it rumbles to a halt because of lack of money, lack of willing insurers to participate, and/or lack of states willing to support, many of the PPACA requirements will be demanded by the public.  “Children to age 26, no pre-ex, etc. etc. each have enthusiastic supporters throughout the political sphere.  Trying to take such things away from people is like trying to take candy form a baby (note the riots in Europe).  So, there will be no return to the pre-PPACA days.  Also, frankly, there is no alternative or solution to the desire for womb-to-tomb cost-efficient quality health care for everyone.  I have been on the front lines for almost 40 years with leaders seeking that goal.  Our conclusion after candid conversation among entities with a stake in health care and coverage was that “There is not enough money in the world to provide every American with the amount of health care they think they deserve.”  So, that is a long way of saying that there is no laid-back easy option in America’s future, so that guarantees that there will always be a need for TPAs to guide and assist employee benefit plans through the mine fields.

This is the key question.  Will TPAs have customers to serve??  At first, when the PPACA landscape was described as easy and cheap, many TPAs wondered if employers would bail-out of sponsoring employee benefit plans and simply direct workers to state exchanges.  Not only would employers/sponsors no longer have the responsibilities of having a plan, but the penalty was “cheap” compared to having a plan.

Instead, all the surveys I have seen by various entities show that employers are overwhelmingly planning to stick with their own employee benefit plan for the foreseeable future.  In fact, employee health plans are taking on a higher priority for employers.  Why?  Previously, employers tended to think of employee benefits as “fringe” benefits.  However, they are now starting to realize that with all of the delays, limits, and bureaucratic red tape of the “easy” government-overseen plans, having their own customized employee health plan is the most bang-for-the buck”  plus a business-survival issue (like the instant service policy the employers have on their key equipment and IT).  Just as a business needs its equipment to be inspected, repaired, and back working very quickly, the business cannot afford to have workers caught in delays and red tape preventing a quick return to the job.  Also, employers are watching PPACA disintegrate, and programs like Medicare, Medicaid, and Exchanges facing financial and benefits cuts as described above, so bailing out of sponsoring an employee benefit plan is less and less of an option.


Part of the honesty of these reports is to candidly admit any worries or weaknesses the industry faces.  In recent years, (prior to the energizing described at the start of this report), I used to bemoan that too many TPAs were just sitting back “waiting to see” or to gliding into retirement without putting effort into keeping the firm and their minds on the cutting edge.  As described above, that problem seems to have solved itself.  TPAs are informed and active.

However, many TPAs, especially those who have merged or bought-out other TPAs are dangerously starving themselves of adequate access to information.  If a firm did not allow all key staff to have a computer to access information they need, we’d think the managers were nuts.  If a firm bought another firm or had branch offices and did not allow those remote locations to have computers to access the information they need, you’d say the managers were double-nuts.  However, that is what is going on.  It is counter-productive frugality and scary.

SPBA provides a wide range of information, often to save time and legal trouble, and sometimes needed instantly.  Also, designated “contacts” of member firms may call/e-mail SPBA to brainstorm issues which they need instantly to retain or gain a client.  The key to access is being designated as a “contact” by the member firm.  SPBA automatically provides several “contact” slots to every firm.  Extras can be added for $350 each (SPBA’s actual per-individual overhead cost to provide services).  However, especially among larger TPAs, there are a few thousand people in key roles (such as management planning, operations, marketing, claims, compliance, etc.) who are operating blind (like the no computer analogy) and only getting crumbs of information that may trickle down second-hand.  Needless to say, it is the non-contacts who unknowingly steer TPA firms into serious and scary legal problems….and digging out of such holes ends up costing the parent corporation far more than paying $350 per key player in the firm.

This failure to have enough “contacts” (and thus inadequately-informed staff doing things to get the firm and/or clients into delicate or expensive problems is the Achilles heel of the TPA industry today.  I live in fear that one or a few such avoidable uninformed mistakes will blow up into a ”horror story” to tarnish the reputation of the whole TPA concept and spur governments to implement draconian “reforms”.  So, TPA firms, outside owners, and others with a stake in the performance of the firm should examine this situation.

This is a lot of background on a wide range of factors in play that have an impact on the TPA market.  But is shows why TPAs are positioned for a very active (but no less intensely competitive) future.  It also shows why the dedication and enthusiasm of SPBA members over the past two years to be aware of and digest the impact of PPACA makes SPBA’s members well-positioned to prosper in their expanding role.