Fate of Insurers? Growth of TPA Business?

Health insurance companies and their role in employee benefits and health insurance in general in a couple of years will definitely be VERY different.  PPACA has poison pills for insurers sprinkled throughout the law, designed to punish and/or squeeze them out of any profitable role.

Let me give just four examples:  >MLR squeezes their operations top to bottom and distribution network (commissions).  >Also,  I suspect that insurers will find participation in state exchanges will be money-losing.  >It looks like insurers are going to increasingly be squeezed into one-size-fits-all policy design, with little room for innovation.  >The power of bureaucrats to dictate what they feel is “unreasonable” premium for an insurer to charge is like a fatal cancer, since government officials are notorious for having no idea of the actual claims cost impact of things governments cavalierly mandate.  Any one of these would be enough to drive most companies out of the business.  If insurers become money-losers, then stockholders & management will rebel….and, ironically, the same state officials imposing many of the losing requirements will tell insurance companies that they are not adequately funded to remain in business.

So, it is hard to envision how or why insurers would want to stay in the US health insurance market.  They have an overseas option.  As I have mentioned before, because many entities check with SPBA as a resource on trends in the health & benefits arena, I had learned about two years ago that insurers were exploring other markets in case the US market was closed to them (such as a government single-payer plan).  They identified what look to be profitable markets in parts of Asia & Europe…and with the bonus of usually no government micromanagement.  So, you notice the trickle of announcements of insurers opening or expanding their overseas markets.  So, that will provide new income to replace withdrawing from the US market. Editor: Cigna in China, Humana in GB, etc.

HOW MIGHT INSURERS REMAIN IN THE MARKET?  Some may become the financial part of an ACO.  Some may find niches that work in state exchanges or other programs, especially if states are successful in getting waivers for MLR & state exchanges (but waiver simply means states will impose their own rules). 

Many insurers already have as much as 2/3 of their business in self-funding as ASO under their own name or via investment in independent-name TPAs.  Since anything with the name (or even erroneously perceived by government as in any way) an “insurance company” will tend to face the harassments in PPACA, even if they are not performing “insurance” functions.  So, I think the corporate decision will be to centralize all their self-funding into the independent-named TPA .  So, I think that the biggest chunk of continuing  insurance company corporate income will be via the independently-named (and…important…independent-acting) TPA.

Editor’s Note: This is an excerpt from Fred Hunt’s email blast of Dec. 20, 2010