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What's the Future for Insurers?

Before the ink was dry on the President’s signature to make PPACA law, I made what many thought was a shocking prediction that insurance companies might well exit from the US health insurance business.  Why?  Insurers became the political kickball in the passage of PPACA.  Every evil to be controlled or remedied seemed to be blamed on insurers.  Consequently, PPACA is full of limits, costs, penalties & disincentives, and the often-mentioned threat was that if insurers did not do everything the federal or state officials wanted, they would be banned from participating in the one big potential market left to them…state exchanges.  With all that in mind, it seemed to make no business sense to stay in the health insurance business and continue to get blamed, harassed, and threatened.  So, I felt that insurance executives, investors, and stockholders would decide to pull out as 2014 approached or as soon as the details of the new market is discernible.

Besides, I happened to know that pulling out of the insured market would not actually hurt most insurers’ bottom line.  For the prior two years, I had had calls from insurance market planning executives and their corporate consultants exploring what would happen if they lost the US market (single payer was the fear back then).  Over time, I learned that insurers had had success in their search for new markets to replace the US insured market.  Parts of Asia & Europe have people eager to buy coverage to provide speed or quality not available in their nationalized health plans.  So, claims would be the only things the person could not get in a timely manner from the government plan, and there would be little or no government interference, since the insurer would be seen as taking on what would otherwise be costs to (or dissatisfaction with) the government plan.  So, it is a win-win-win replacement market.  Several major insurers have quietly announced  the start or expansion of overseas offices or divisions.

Meanwhile, the majority of insurance company business today is actually self-funding (sometimes under various marketing names such as ASO, minimum-premium, etc. and/or under differently-named TPA firms)   So, giving up their insured business is giving up less than half of their book of business.  

PPACA supporters have had some reality check humility that could make a less hostile environment for insurers, but the exit strategy could still very well happen.  Everyone is just waiting to see how things will settle out in court cases, regs, Exchanges, waivers, MLR, etc.  Some profitable markets may remain for insurers, and some of the punitive & expensive aspects of PPACA may be eased.  This part of the story is still evolving.

Meanwhile, there are some “cultural” changes taking place in insurance companies.  Biggest is that insurer ASO operations are already looking into dropping their insurance company visibility.  They can rename and become TPA firms or place the ASO business into an already-owned firm with a TPA name.  Why does the name matter?  PPACA’s wording tends to be loose and refers to “insurance company” often.  So, some federal, state, or local government official could at any time decide to impose insurance company rules, restrictions, and/or fees on an “insurance company” even if the product is a self-funded ASO.  So, the strategy will be, “Who?? Me??? I don’t have insurance company anywhere in my corporate name!”

Medical Loss Ratio (MLR) is also causing a change.  The original government decision to include commissions & bonus payments to brokers in the small administrative portion of the MLR formula meant that those commissions & payments had to be removed or stopped from being part of the premium bill.  There is a legislative attempt to repeal this, but that outcome is not known.  In the meantime, many insurers have started notifying agents & brokers of the change in the way they should plan to get paid.  Even if the “solution” is to have commissions simply not counted in the MLR formula, the amount of money going for commissions will be discernible. The longer the uncertainty of the commission status goes on, the more entrenched separate payment will be.  So, if the MLR policy is changed to be blind to agent & broker commissions & payments, it may be too late, because insurers will have evolved from the old system.

Even the exit strategy would not be the “end” for insurance companies.  Even without doing any insurance, they have many health, wellness, and other services which individuals, and plans will want.  For example, there are reports that insurers are showing an interest in buying & consolidating medical practices.   So, insurers may well become favorite suppliers or partners to self-funded plans & TPAs.  The details are not known and so it is too early to make a clear forecast. However, I think we can count on the insurer role looking different after New Year’s 2014 and in the future.