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State of the TPA Industry & Forecast as of May 2010

Mid-2010 TPA Industry Forecast
By SPBA President Fred Hunt

BACKGROUND:  I have been giving these industry & market report/forecasts for 30 years.  Most have predicted things that seemed unbelievable at the time.  However, the accuracy rate of coming true has been over 90%.  This is being written when the shock of the Obama health reform bill has not worn off, and we are only at the start of about a dozen more years of  regulatory decisions & implementation.  However, that uncertainty does not impact my forecasts here.

TIME OF CHANGE:  This is a time of change for TPA firms and for the whole process of health employee benefits.  However, our business has always been in evolution.  For example, when I wrote the first of these SPBA reports in 1980, the TPA market was 99% defined-benefit pension plans for Taft-Hartley collective bargaining plans.  Soon, the unionized percent of the US workforce dropped in half, and government policies inadvertently (but not without warning from those of us in the pension community) cut defined-benefit pension plans to a sliver of the market.  So, doomsayers of today should recognize that conventional wisdom over the years has forecast SPBA & TPAs’ demise a dozen times.  So, just like a TPA of 1980 would be amazed at the range of services, and types of plans & clients of TPAs of today, TPAs in just a coupe of years will have many new roles and services.

UPBEAT:  I am very upbeat about the prospects for our industry and our Stop-Loss Service Partners.  It sounds corny, but Franklin Roosevelt described our current situation best, “We have nothing to fear but fear itself.”  Even if the worst-case scenarios of a government takeover and universal coverage comes, TPAs will be busy, because the whole environment of health and employer needs and priorities will change.

WORST CASE SCENARIO:  For the sake of example, let me explore the worst-case scenario with you.  Fourteen major countries have sent official government delegations to meet with SPBA to learn more about the US health coverage & employee benefits system and self-funding.  Each of these countries has a government universal coverage system, and each one has candidly confessed that their government systems are not sustainable.  They say, “We need to be more like you.”  Also, SPBA has good relations with the TPA Association of Canada.  Most US TPAs wondered how TPAs could exist in the government-run Canadian health system, and what was left to do.  The Canadian TPAs spoke at SPBA meetings and explained that they have a very active market and services to sell.  Meanwhile, I started hearing a year ago that several health insurance companies were looking around the world for possible new markets in case the US private health insurance market disappeared or became unprofitable.  The insurers found that markets in several countries in Asia and Europe (with universal coverage) were eager for private health coverage options. 

So, the moral of this story is that we see proof today that even in the worst-case scenario of total government universal coverage, there is an active role for TPAs, and there will be a demand for private health coverage & services.

#1 - Within 5 years, there will be a major shift on the health scene.  Today, the concern has been people who do not have health coverage.   However, we are on the verge of a major doctor shortage due to retirements, exasperation, and fewer new doctors.  This also coincides with the start of the baby-boom moving onto the unprofitable (for health providers) Medicare rolls, and millions more people added to the unprofitable Medicaid rolls caused by Obama health reform. So, Americans will soon have that helpless feeling like when you have an airline ticket (health coverage), but most of the flights (doctors) have been canceled or are fully-booked.  Also, new bureaucracies, rules, oversight, “efficiencies” and cost-cutting will cause longer and longer delays to get medical care.  Among doctors who remain, more and more & clinics will become “boutique” (many terms are used) practices that do not participate in government programs and do not accept insurance assignment.  This new scenario of doctor shortage is already starting, so you need to include it in your strategic thinking.

#2 – Health reform & increasing government nit-picking will probably make the US health fully-insured market unprofitable for insurers.  I predict that they will (at the urging of their investors & stockholders) step away from the US fully-insured marketplace, and replace their US market with the new markets they researched last year in Asia & Europe (described above).  This does not mean that insurance companies will disappear from the US scene.  The majority of their business is already a form of self-funded, so I predict that the insurers will either re-label themselves as TPAs  (just as many suddenly relabeled themselves “managed care” companies several years ago)…and/or they will enhance their already-large collection of TPA firms.  The ill-will from government & media has been so intense that insurers, could, quite understandably, not want to be visible players under their insurer name, because governments will tend to impose “insurer” requirements on any entity using an insurance company name.

EMPLOYER REACTION:  Will employers gladly throw off the burden of offering health coverage for their workers??  No.  There has been bravado huffing & puffing about doing so for 35 years (since ERISA was being passed and considered the death knell to employee benefits because of the new strict employer fiduciary responsibility, and later because of COBRA and constant new mandates).  However, the real issue is that important employers need employee benefits to recruit & retain top-notch workers…and the side effects of Obama health reform and the change in the doctor/health market will make health-related programs & services even more important for the smooth functioning of the employer.  So, employers who back away from health-related benefits are being self-destructive.

What do I mean by the impact on the smooth functioning of the employer?  Today, if a worker has an ailment or hurts himself, he can probably see a doctor in a day or two, get a treatment, and be back on the job quickly.  However, what if it  takes a couple of weeks for the first appointment, and then another couple of weeks for each specialist just in order to get a diagnosis?  I have a friend in Canada who has a key skill at his job.  It has taken about 18 months off work to get the tests and diagnosis that would take a week or two here.  Receiving actual treatment has also been progressing at that slow rate.  The off-work time has been devastating to the employee’s income, and thus a drag on morale at the company, and his long off-work time has severely hampered the work of the employer.  So, the shortage of doctors and delays will mean that the new priority of employers will be to have whatever programs help keep workers on the job.  These new priority services will range from having their own or a parallel health coverage plan for their workers, to the whole very wide range of wellness & health promotion programs & services, to perhaps private clinics.  Employers will realize that personnel will need the kind of prompt careful maintenance & repair that precision machines need to keep them working. TPAs are perfectly positioned to implement and administer the kind of highly-personalized types of services each employer will want & need for its workforce.

TPAs CONTROL THEIR FUTURE:  A consistent and proven message in my report/forecasts in recent years is that TPAs control their own fate and future profitability.  The TPAs who remain in a 1990’s mindset and services mode will just bump along, and be vulnerable to fading away at any time.  Also, TPAs who do not proactively get up to speed and offer the new types of services to their clients are going to find those clients wooed away by insurers (90% of whom report that they are already creating these new services), or lured by other TPAs, or by the hundreds of new consulting & compliance firms & services that will pop up to try to dazzle your clients with their health reform compliance solutions.  Note: The consulting and one-service firms don’t offer the ongoing comprehensive services SPBA TPAs provide…and the new reporting & complexity and delicate data-collection means an employer is taking a risk to split up his sources of services because things can fall through the cracks.

WHAT NOW (mid-2010)?   We often hear that employers are not interested in proposals from TPAs to become the new claims processor.  However, instead, if you have the new services to help in the changed environment and serve the new needs & priorities and to streamline & secure the onerous new data collection & paperwork, you will have an attentive ear, because that is a current & evolving need employers & plans have.

SPBA wants you to be successful in the brave new world.  We have been and will continue to point out, services & opportunities, and the SPBA Fall 2010 Meeting (Oct 6-8 in Phoenix) will have TPAs & Stop-Loss sharing some fascinating new services & opportunities your peers are developing, and the thought process they use to remain on the cutting edge of thinking of new ideas & profit centers.  This is your chance.  Plan to attend.