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State of the TPA Industry + Forecast for 2013



State of the Industry Report & Forecast for 2013

Personal candid comments from SPBA Active Past President Fred Hunt

January 2013

For over 30 years, I have had the privilege of sharing candid personal insights about the status of the TPA industry, employee benefits marketplace, and always-swirling government environment.  My reports & predictions over the years have sometimes seemed wild, but I am amazed that they have had about a 90% accuracy rate.   I usually write before the turn of the year, but I waited this time for the election, several ACA developments, and the fiscal cliff.  2013 will continue to bump from one “crisis” or deadline to the next. So, the scene, marketplace, and stock market will be like a roller-coaster, with a big gulp as so much comes into play when the clock strikes 2014.

I continue to be optimistic about the prospects of TPAs & self-funding.  In fact, our biggest challenge right now is jealousy from those facing challenges imposed by ACA, or actuarial science, or human psychology.  For example:

>>  ACA expected states to eagerly clamor to have Exchanges, which would attract most of the population and become the 800 pound gorilla in the marketplace.   Instead, many states are leery of the long-term costs of such a program.  Insurers have legitimate concerns if and how long to participate, because of fears of government micro-management & actuarial anti-selection.  I have shared with SPBA members almost weekly the many serious practical problems facing the birth & flourishing of the envisioned Exchange concept.  I think government Exchanges will play a much lesser role in this scene than envisioned.

The bad side of this situation is that supporters of Exchanges in federal & state agencies are scrambling to find ways to tilt the marketplace playing field to artificially steer warm bodies into Exchanges.  

>>  Because of careful education by SPBA & others during the legislative process, and because self-funding & ERISA have always had built-in consumer protections and an absence of profit motive, self-funding was spared the many punitive controls & limits (rate review, MLR, etc.) that are imposed on insurers.  Will insurers decide that participating in Exchanges or even the US health insurance market is simply not a viable business plan and pull out (but keep ASO)?  People forget that most of the business of the largest insurance companies is self-funding ASO.  Also, years before ACA, insurers started exploring options if the US health insurance market should disappear (the original worry was single-payer).  They can afford to walk away from the US health insurance market and replacement markets overseas have been prepared.  So, the ongoing role of insurance companies is not a guarantee for the ACA law that relies on them.

>>  ACA was designed to provide highly-regulated formulaic health plans and coverage.  However, almost 3 years of confusion and programs within the law not living up to expectations has spurred a new appreciation among employers for personalized attention & expertise in plan design & administration.  Surveys repeatedly show that the more employers know about ACA, the more they want to keep their employee benefit plan.  So, those loyalties to plan and desire for personalized expertise feeds directly to the strengths of TPAs.

>>Flexibility and most-bang-for-the-buck has always been an attraction of self-funding.  The steep rise in health premium costs in the wake of ACA, and drastic changes on the horizon in the medical provider community make flexibility all the more desirable.

>>SPBA’s TPAs, Stop-Loss, and their client plans have lived up to their tradition of being on the cutting edge of shaping and understanding government guidance & compliance.  ACA is the largest and most comprehensive realignment of government controls & rules ever seen.  The pace of new complex regulations & interpretations (and subsequent confusion & opposition) means that people who have not been doing ongoing intensive education for the past 3 years will probably never catch up or will find themselves facing serious legal problems.

Other factors impacting the TPA industry and marketplace

>>Medical community:  The medical provider community is on the verge of massive change, with ACA implementation in 2014 as the main trigger.  There will be a mass exodus of doctors from practice due to early retirements, unaffordable costs of business, moving from clinical medicine, “boutique” concierge practices, etc.  Also, the majority of doctors have traditionally been in private practice.  However, the demands of ACA and other changes means that private practice is more and more impractical, so doctors & practices are being bought or absorbed by hospitals.  That changes the doctor/patient dynamic, because the doctor now serves the employing hospital, not his customer patient.  This new hospital/doctor format sometimes adds significantly to health costs for patients, because the hospital may add an overhead/facilities fee….which is sometimes more than the fee for the medical services.  Small hospitals are also being absorbed by larger hospitals as a way to be more efficient in obeying the technology and other requirements & government cost cutting.   Because of all these business-survival pressures on hospitals, they must operate in a very hard-nosed mode to maximize revenue.

The relevance of these changes is that the “product” (doctor & hospital medical services) bought and managed by TPAs & plans will be a very different animal very soon.  This whole less-friendly medical environment will also discourage customer “patients” from going for medical care in a manner that maximizes preventive care and other services that the nation is expecting to lower overall health expenditures.  The impersonal image may even discourage young & healthy people from enrolling for health coverage.  So, this trend is a lose-lose.

In the case of the doctor shortage, there will be a massive reality shift.  Previously, having health coverage was considered synonymous with having prompt access to a doctor of choice.  Henceforth, unless a person contracts with a personalized “boutique” medical practice, there will be delays for appointments similar to other countries with government-managed health care.

>>  Employment scene:  The employment scene will also be different.  The complexities & punitive nature of ACA, plus the many cost-increase drivers, will make it worthwhile for employers to minimize the number of workers for whom they will be subject to the law (employees who work 30 hours per week or more).  Consequently, more and more positions will be created as part-time 29 hour jobs.  This will impact not just hourly workers.  College professors and bank branch managers are finding their jobs are now part-time 29 hours.  This means lower income, and probably little or no employer-sponsored health & pension benefits.  29 hours may become a new norm for a broad segment of the workforce.  If you don’t believe this, think how many middle-manager positions were simply eliminated over the past 20 years or so.

>>  The number of uninsured will probably be the same as before the health reform law was written.  Why?  Various “protections” such as no pre-existing condition exclusions remove any disadvantage to waiting until you’re sick before signing up and paying for health coverage.  When the law first passed, I actually had some vendors call me about machines that could be installed in ambulances & hospital or doctor admission offices so that the patient could sign up for coverage just before getting very expensive treatment.  That is actuarial suicide.  No risk-pooling “insurance” concept can survive that.  What about the mandate to have coverage?  I think it will be a toothless tiger.  Judging by the nation’s record identifying illegal aliens in society and large holes in many state mandatory care insurance programs, the chance of being fingered early is small, and the penalty is also small compared to the “profit” of not having coverage until needed.  Many of the uninsured who may get caught will have no assets to pay a fine, so it is a hollow threat to those people, and media & public opinion would explode at big mean Uncle Sam punishing some poor person while they are sick or injured. Besides, as noted above about the doctor shortage, it may be faster to go to an Emergency Room uninsured than to try to make an appointment with a doctor.

>>  Taxes & cliffs:  We have several years ahead of economic policy floundering & changes related to budgets & government spending.  These could have huge side effects or unintended consequences on employee benefits.  The most obvious are the employer & employee tax incentives for employee benefits.  The largest “revenue loss” (uncollected taxes) to the federal budget is tax exclusion of employee health benefits.  The second largest is pension benefits.  Add to that the business tax deductions employers take to sponsor the plan.  So, to budgeteers, we are a gigantic target whom many see the “solution” to be eliminating or limiting/capping these deductions by workers.  The resulting “savings” would be hyped as a giant step forward to solving the budget deficit.  This is not a never-could-happen political suicide idea.  The idea has been proposed by several key conservative Republicans dating back to the Reagan Administration as a fairness issue to people who have to buy their own health coverage without the tax advantages.  (The logical solution of extending the tax advantages to self-buy coverage would cost the budget even more, so gets rejected as an option.)  The idea has also been proposed by some single-payer liberal Democrats over the years.  So, this is not a new idea, but the deficits and hard choices needed to attempt to avoid “cliffs” will increase its potential.  The problem is that Uncle Sam has tunnel vision.  One minute, politicians & public opinion will celebrate the great success of such large “savings”.  Later, there will be uproar over the “crisis” of whoever lost the tax advantages bowing out.  Some new program will be demanded as a “solution”.  

>>  If ACA bombs, such as insurers decline to participate or anti-selection starts a downward cycle, or enough people fail to participate, government will feel politically obligated to do “something” to continue to provide the ACA-promised coverage to “everyone”.  The failure will be attributed to the failure of private plans to make a system work.  Therefore, public opinion will decide that “the only answer” will be some form of government plan.  

<<>> In conclusion:  These potential effects seem awfully glum.  It is my job to spot and alert potential problems so that you can avoid and be prepared if they materialize.  So, go back to the first part of this report, because that good news is the known factors.  TPAs, sponsoring employers and plan participants will survive & thrive.

In closing, all of us in the SPBA office wish to thank & congratulate every SPBA TPA, Stop-Loss firm & staff person for their unwavering diligence & professionalism.  You often ask us how we can keep our sanity tracking the laws, regulations & trends.  However, YOU are the people who have to find and apply solutions for each plan and employer’s workforce.  That is astounding dedication, skill & professionalism.  So, we not only appreciate & salute you…..but YOU are the best news and sign for a successful future of this industry.  Thank you, and please extend our thanks to your entire staff from Anne Lennan, President, Elizabeth Leight, Rhonda Reed, Kathy Strauss, Arlette Peterson, and…


Fred Hunt
SPBA Active Past President