Five Emerging Market Trends

MyHealthGuide Source: Richard A. Raup, CEO, BAC, 6/1/2012,

Trend 1.  Insurance companies are now being regulated like utility companies.
Thanks to ObamaCare (AKA The Patient Protection and Affordable Care Act of 2010(PPACA)), Medical Loss Ratio (MLR) rules insurance companies can only keep 15% (20% for small groups) of each fully insured premium dollar for overhead and profit, with the balance to be paid out in claims. If claims are less than 85% a refund is due to the customer and if claims exceed this percentage the insurer must eat the difference. So, for $85 in claims, carriers may keep $15 or 17.65% of each claim dollar. ($15 / $85 = 17.65%) 

Insurance companies used to have an incentive to reduce your claim cost as that would improve their profit, but that is no longer true.

Are insurers more likely to overcharge or undercharge knowing that if they undercharge they’ll take a loss?

How interested are insurers going to be in helping you reduce your claim costs?

Result The only way an insurer can make more money per unit (think covered member or group) is to hope that your claim costs continue to increase year over year.
Trend 2.  Providers are being squeezed to more for less.
We now have a growing physician shortage which is expected to quadruple to 95,000 fewer doctors by 2020 according to an Association of American Medical Colleges report, “Physician Shortage to Quadruple within a Decade” by Karen Cheung, for HealthLeaders Media, 1/4/2011. 

Currently almost half of our country’s medical spend comes from Medicare and Medicaid. These numbers will grow as most of the uninsured to be covered under ObamaCare will be through the Medicaid programs while Medicare will swell thanks to retiring Baby Boomers. Many physicians are reluctant to treat Medicaid patients as reimbursements are less than what it costs them to treat these patients. While Medicare reimbursements are closer to their actual costs, ObamaCare would implement a nearly 30% cut in order to help pay for the new healthcare law. The only way providers can afford to practice medicine is to overcharge the rest of us.

Providers have no choice but to raise revenues from non-government plans by:

  • Negotiating increases in their PPO contracts,
  • Seeing and treating more patients per hour/day,
  • Billing for more services and supplies such as: tests, labs, x-rays, drop in blood pressure checks, and
  • In rare cases becoming very creative in their billing and benefit coding.
Result Patients can expect longer (days not hours) wait times to be seen while the actual time with a physician will be shorter. 

All of this will lead to maladies becoming worse before finally being treated which in turn could affect optimal outcomes, and thus costs.

Trend 3.  Preferred provider organizations are losing their leverage.
Preferred Provider Organizations (PPOs) originally received discounts from network providers for directing patients to them from other non-network providers. 

Now that we have a growing shortage of physicians (supply) and an increase of covered individuals (demand), you would normally expect prices to rise until the supply and demand equate. Unfortunately, because the government controls the pricing in half of the market place (via Medicare and Medicaid), we are left with what economists call an inelastic supply and demand curve.

Therefore, expect provider charges to rise for nongovernment plans, while the growing shortage of doctors means wait times will continue to increase.

Result The value proposition for Providers and Plan to use PPOs will become less advantageous. 

Providers looking to do private only work may reach out to directly contract with plans cutting out the PPO middleman and likewise, plans may set up a fixed fee schedule allowing their members to choose any provider who is willing to accept the plan’s fee as payment in full, similar to the old scheduled fee programs of the 70′s.

Trend 4.  Agents are getting squeezed.
Historically, agents received commissions from insurance companies to sell and renew their products and services; plus significant over-rides and bonuses based upon total sales volume, renewal persistency, and profitable loss ratios. 

ObamaCare’s MLR affects agents as their compensation must come out of the insurer’s 15% and thus the insurers are reducing or eliminating their agent commission amounts.

Result Pay attention to your agent’s insurer relationship, a salesman’s behavior is greatly affected by how he is paid. 

Insist upon complete transparency and disclosure of all compensation they receive relative to your benefit plans. If you have great confidence in your agent, offer him/her a fee to represent you so that there are no conflict of interests between you and the insurers’ multi-level compensation schemes.

Trend 5.  Employers / Plan Sponsors are experiencing out-of-control cost increaes.
Employers currently cover almost 170 million Americans on their health plans. 

In addition to the cost drivers already discussed, ObamaCare has mandated many additional benefits such as: unlimited maximums, children covered to age 26, 100% wellness and preventive care, expensive independent reviews for contested claims, and 100% contraceptive care for all plans, just to name a few.

Some employers are considering dropping their health plans and paying the penalty to the Feds. But when you add the costs of the $2,000 penalty not being tax deductible and the additional matching payroll taxes on the wage increases the employees would need in order to afford coverage through the new State exchanges, it may not be cheaper to drop coverage. With the average annual cost of health care per employee at more than five times the penalty and the Federal Government running huge deficits; how long before the penalty is raised?

In a recent survey of employers by the Midwest Business Group on Health; 71% said they were not very likely or unlikely to drop coverage while only 6% responded that they were likely or very likely to drop coverage according the article, “Employers Split on Health Care Reform” by Jerry Geisel, Business Insurance, March 26, 2012.

Even if PPACA is repealed by the Supreme Court or by the new Congress next year, these major trends will continue. Will the Public demand that some of these new mandates or the elimination of pre-existing condition exclusions be continued?

Result Change your health benefits strategy and the vendors you’ve been relying upon. 

Otherwise, your health care costs will continue going up at an increasing rate and your employees will miss more and more work as they wait longer to be seen and treated by a healthcare professional.

How to Change the Trends

Ask (insist, demand) that your employees and their adult dependents quit having so many claims, especially the really big ones. This means:

  • Changing how health care is delivered and received by your employees by emphasizing earlier intervention and prevention instead of waiting until someone crashes and burns ending up in the ER.
  • Adjusting your corporate culture to encourage wellness and early intervention.
  • Updating your health plan to support and reward these initiatives.

About the Author

Richard A. (Rick) Raup founded Business Administrators & Consultants, Inc. (BAC) in 1980 and has led its growth as a full service national third party administrator with offices in Ohio, Indiana and Texas. He is active in the Society of Professional Benefit Administrators and Past Board Chairman and the Self Insurance Institute of America. Rick is a frequent speaker and author on the issues affecting health care and employee benefits.  Contact Rick at and visit