"To know history is to master the future."
July 14, 2005
Dear SPBA Members'
I"ve been asked to explain why my predictions in the annual Report & Forecast and the recent Q&A on the TPA industry seem so optimistic, when many TPAs are facing strangling challenges from insurers, "discounts", etcetera. It is a fair question. Let me give you an explanation of the historical perspective... give you some gratifying chuckles. It's important to understand the historical context of your work.
I started at SPBA on August 11, 1980. On my first day on the job, my predecessor said (as he was walking out the door), "Don't get too excited. It (SPBA) is going to go belly-up in about 90 days due to lack of interest by members and lack of money". On my second day on the job, I discovered that a proposal had been circulating among the Board to eliminate the whole staff function (meaning my job) which had disappointed the Board in previous months as "uninformed and disinterested". Meanwhile, friends thought I had lost my mind to leave a prestigious association for a "nothing" group (SPBA). All this may seem like a very bad start to a new job. However, it was actually a blessing. Figuring that I was about to be fired from a sinking ship, what did I have to lose in saying what was on my mind!?!
So, I wrote a long response to the Board... kind of blunt candor you would normally never give to new bosses. I told them that I had first noticed SPBA and been attracted because government staff kept referring to points raised by some obscure little group. Tiny SPBA was having more impact than the big-bucks and shiny-shoe lobbyists of the other associations. I told the Board that they had a unique perspective and a winning strategy, so focus on that. The rest is history. SPBA's technique in 1980 was to write informed credible insights, explanations & white papers based on the real-world wisdom of our members. It is still SPBA's winning strategy.
I tell that story, because it demonstrates, in several ways, the strength & resilience of SPBA. We are very truly a member-driven organization and SPBA's wisdom is merely the collective insights & experience of our members. It is astounding how often SPBA has been right when things looked foreboding and/or everyone else was caving-in.
When SPBA was founded in 1975, it and other benefits associations of the time assumed it would be sort of a death watch. The conventional wisdom throughout the decade-long evolution of the 1974 ERISA law was that the stringent fiduciary and other requirements would discourage existing plans, and no one in their right mind would start a plan under this onerous law. This was why the insurance industry worked hard to find a loophole for itself to avoid the main thrust of ERISA.
In the early years, 95% of SPBA's members' business was Taft-Hartley multi-employer. About 32% of the workforce was unionized in those days. Over the next 25 years, the percent of unionized workers (and thus that market for TPAs) shrank by about half. However, the TPA industry has evolved and grown many thousand percent.
So, neither the passage of ERISA nor the shrinkage of its prime market was the expected death to the TPA industry. TPAs have a way of turning lemons into lemonade. SPBA has also always had an uncanny way of forecasting and being on the right side of issues.
For example, on the issue when I first discovered SPBA, the entire benefits community and unions and media were in favor of a piece of pension legislation. Only little SPBA raised concerns of unintended consequences. There was significant client pressure put on SPBA's members to shut-up and support the legislation. SPBA stood its ground. The law passed, but within a few years, all the proponents were suddenly whining about precisely the things SPBA had warned. We were diplomatic and didn't say "We told you so!!!"
In the late Ô70's and through much of the Ô80's, it was assumed that government-run National Health Insurance was "certain" to pass. SPBA did not accept that inevitability, and took the unique strategy of advising government that THEY (the government) could not afford the cost & pressures of being the health care provider or payer for the country. In the end, it was SPBA's approach of appealing to the government's own protective selfishness that led to support draining away from the "certain" passage of National Health Insurance.
In the early days, HMOs were the darling of government. There was even a mandate so that HMOs could force employers to offer them. TPAs severely resented the mandate on both fairness and practical grounds. The disruption usually lost the TPA a client, and many TPAs were sure that HMOs would be the death of the TPA business. SPBA worked quietly behind the scenes, and even got the HMO association to advise its members to voluntary pull back on the mandate two years early. (Today, many HMOs have shown their confidence in the TPA industry by buying or starting TPA subsidiaries.)
The 1099-MED (now part of the 1099-MISC) was a pain in the neck in 1981, and served no value for IRS. We came within an inch of having it totally eliminated back then. In fact, we did get the 1099-MED eliminated, but IRS slipped it back in as part of the 1099-MISC. Twenty-five years later, (and after thousands of hassles & headaches for TPAs & plans) IRS sent a delegation to SPBA to request that we use a new process to formally request them to do something about the 1099-MISC medical reporting requirements. We made the formal submission to IRS this Spring, and we are waiting for what we hope will be good news.
In 1982, the largest insurance companies announced that they would be rolling out a new unified standard system (sort of a precursor of EDI). There would be no way for TPAs to compete. It was a death knell, and I remember TPAs at the Fall 1982 SPBA Meeting giving each other farewells, because they didn't expect to be in business much longer. The insurer threat either never evolved or had minimal effect, because there was no impact on TPAs. In fact, the rapid growth of new single-employer-plan TPAs was fed, in large part, by clients who felt abandoned by carriers. The insurers seemed to shift their target marketing plans each year, and dump or discourage various categories of employers in the process. So, the biggest boom in the TPA business was attributable to insurer board rooms.
When Ronald Reagan became President, every lobbyist & association wanted to curry favor with him. However, SPBA declared virtual war on one of his pet ideas. He was dedicated to "Competition Health" in which every employer would be required to offer and maintain at least three simultaneous health plans for employee choice. TPAs felt that, in most cases, this would lead to death of the TPA market. While most organizations smiled sweetly, we had some fierce face-to-face encounters, talking about administrative cost inefficiency, anti-selection, etc. President Reagan backed down (though he kept a small staff still brewing the idea the rest of his term). Did SPBA alienate President Reagan? No, he appreciated the constructive candor and fair play, and for the rest of his Presidency, he would send a letter of greeting to members arriving for the Spring Meetings, and a signed Christmas card of wishes for SPBA.
The first Bush Administration liked to talk about health coverage solutions. One time, they came up with an idea to have three advisory groups. One would have been collectively-bargained plan interests; one would be employers and single plans; and one would be association plans. SPBA was the only entity selected for all three. In those three preliminary discussion groups, it became clear that only SPBA had the technical insights needed for the kind of brain-storming the White House wanted. (The technical knowledge is thanks to our constant interaction with SPBA members on your real-world situations & challenges with clients & plans.) So, instead of three advisory groups, SPBA had ongoing discussions with the first Bush Administration. (Sadly, but realistically, the first Bush Administration recognized that health coverage was a political no-win, because there is no entity on earth that can afford to pay for as much health services as people believe they deserve. So, discussions were always hopeful, but never fruitful.)
In 1986, Congress passed the infamous Section 89 of the Tax Code. The intent was to ensure and enforce non-discrimination in health benefits. The rules and process was unbelievably draconian. It was forecast to be the death of employer benefit plans. Every association was upset, but most tended to accept the "conventional wisdom" that it could not be repealed. Two women probably played the greatest role in its eventual repeal. One was the old lady in Chicago who threw herself on the hood of the car of Chairman of the House Ways & Means Committee Congressman Rostenkowski to impress upon him the public anger over the issue. The other woman was SPBA's newly-hired Anne Lennan who first showed her dogged determination get the government to understand the real-world insights of SPBA members. So, another "certain death" was avoided.
Even before the first election of President Clinton, the Clinton health team met with SPBA because of our reputation for straight talk and practical insights & solutions. It was in those discussions that we learned the key information that "health reform" was truly about how to save states in their Medicaid financial problems, via cost-shifting or spreading size...rather than helping uninsured people. This was scary for the future of the TPA market, because it meant that the power of states and government states, not other competitors, wanted to gobble their clients.
When the Hillary Clinton proposal was being debated, the basic part of the proposal would be to force all employers below 500 lives, 200, 100 (the number varied from discussion to discussion) to enter state pools (which "just happened to let states spread their Medicaid risk & costs). Taking away all clients below 500 lives would obviously kill much of the TPA market. To our horror, most of the benefits community spent their time debating between which number, because passage in some form was "certain". SPBA borrowed the old phrase from Nancy Reagan, "Just say no!" We were ridiculed for being "unrealistic", but history proved us right.
Even if the Hillary Clinton proposal had passed, TPAs would have survived, and maybe seen their market grow. SPBA did the research to find that if the Clinton proposal were law, there were about 42 administrative functions which EVERY employer in the US would have had to perform. It would have been different kinds of duties, but SPBA was prepared, if needed, to get TPAs up to speed for the new market.
In the mid-1990's, Managed Care companies seemed to put a hammer hold on massive segments of the marketplace. They had the size and money to "buy" business. Many TPAs were being starved of clients. SPBA forecast that the Managed Care companies couldn't keep up the pressure too long, and their promises to patients were too good to be true. In a couple of years, that turned out to be true, and managed care companies were getting dragged over the coals in the media and government. Ironically, by the end of the 1990's, TPAs were seeing a stream of "HMO refugee" clients, and, as noted earlier, many managed care companies diversified into the TPA business.
Today, many TPAs are facing crushing competitive pressure from insurers in several forms, from refusing to share prior claims data to outlandishly high bonus commissions to brokers who pick the insurer versus TPAs. This, too, shall pass. Many TPAs who followed SPBA's advice to actively push their states to force insurers to disclose prior experience now have laws and ways in those states. Meanwhile the high-profile fraud investigations and prosecutions in the insurance industry for exorbitant commissions is reportedly having a trickle-down cooling effect on that practice in the TPA marketplace.
So, people have written the epitaph of the TPA industry a dozen times or more because "conventional wisdom" said that the end was "certain". Each time, TPAs have emerged stronger. That's why I am optimistic about you.
After thoughts & heroes: Remember when I was ridiculed, in 1980, for leaving a prestigious association to go to a "nothing" organization (SPBA)? Well, most of those "prestigious" associations either no longer exist or are minimal players now.
The difference between the success of SPBA and the fate of other organizations is attributable two great advantages. First, is the great information resource we can call upon. Your questions to us tell us what it hot, and your willingness to be completely candid means we are the source of "real stuff" (as one government leader called SPBA member insights).
Second, SPBA Board members over the years deserve tremendous credit. They have had nerves of steel not to panic when other groups did, and they have always maintained focus. What killed or crippled many associations is that the Boards would rush around in expensive panics. So, another reason for optimism for the future is that SPBA continues to have wise leadership who work well as a team.