Mid-2010 TPA Industry Forecast By SPBA President Fred Hunt
I have been giving these industry and market report/forecasts for 30 years. Most have predicted things that seemed unbelievable at the time. However, the accuracy rate of coming true has been over 90%. This is being written when the shock of the Obama health reform bill has not worn off, and we are only at the start of about a dozen more years of regulatory decisions and implementation. However, that uncertainty does not impact my forecasts here.
Time of Change
This is a time of change for TPA firms and for the whole process of health employee benefits. However, our business has always been in evolution. For example, when I wrote the first of these SPBA reports in 1980, the TPA market was 99% defined-benefit pension plans for Taft-Hartley collective bargaining plans. Soon, the unionized percentage of the US workforce dropped in half, and government policies inadvertently (but not without warning from those of us in the pension community) cut defined-benefit pension plans to a sliver of the market. So, doomsayers of today should recognize that conventional wisdom over the years has forecast SPBA and TPAs’ demise a dozen times. So, just like a TPA of 1980 would be amazed at the range of services, and types of plans and clients of TPAs of today, TPAs in just a coupe of years will have many new roles and services.
I am very upbeat about the prospects for our industry and our Stop-Loss Service Partners. It sounds corny, but Franklin Roosevelt described our current situation best, “We have nothing to fear but fear itself.” Even if the worst-case scenarios of a government takeover and universal coverage comes, TPAs will be busy, because the whole environment of health and employer needs and priorities will change.
Worst Case Scenario
For the sake of example, let me explore the worst-case scenario with you. Fourteen major countries have sent official government delegations to meet with SPBA to learn more about the US health coverage and employee benefits system and self-funding. Each of these countries has a government universal coverage system, and each one has candidly confessed that their government systems are not sustainable. They say, “We need to be more like you.” Also, SPBA has good relations with the TPA Association of Canada. Most US TPAs wondered how TPAs could exist in the government-run Canadian health system, and what was left to do. The Canadian TPAs spoke at SPBA meetings and explained that they have a very active market and services to sell. Meanwhile, I started hearing a year ago that several health insurance companies were looking around the world for possible new markets in case the US private health insurance market disappeared or became unprofitable. The insurers found that markets in several countries in Asia and Europe (with universal coverage) were eager for private health coverage options.
So, the moral of this story is that we see proof today that even in the worst-case scenario of total government universal coverage, there is an active role for TPAs, and
- Within 5 years, there will be a major shift on the health scene: Doctor Shortage. Today, the concern has been people who do not have health coverage. However, we are on the verge of a major doctor shortage due to retirements, exasperation, and fewer new doctors. This also coincides with the start of the baby-boom moving onto the unprofitable (for health providers) Medicare rolls, and millions more people added to the unprofitable Medicaid rolls caused by Obama health reform. So, Americans will soon have that helpless feeling like when you have an airline ticket (health coverage), but most of the flights (doctors) have been cancelled or are fully-booked. Also, new bureaucracies, rules, oversight, “efficiencies” and cost-cutting will cause longer and longer delays to get medical care. Among doctors who remain, more and more and clinics will become “boutique” (many terms are used) practices that do not participate in government programs and do not accept insurance assignment. This new scenario of doctor shortage is already starting, so you need to include it in your strategic thinking.
- Health reform and increasing government nit-picking will probably make the US health fully-insured market unprofitable for insurers. I predict that they will (at the urging of their investors and stockholders) step away from the US fully-insured marketplace, and replace their US market with the new markets they researched last year in Asia and Europe (described above). This does not mean that insurance companies will disappear from the US scene. The majority of their business is already a form of self-funded, so I predict that the insurers will either re-label themselves as TPAs (just as many suddenly relabeled themselves “managed care” companies several years ago)and/or they will enhance their already-large collection of TPA firms. The ill-will from government and media has been so intense that insurers, could, quite understandably, not want to be visible players under their insurer name, because governments will tend to impose “insurer” requirements on any entity using an insurance company name.
Will employers gladly throw off the burden of offering health coverage for their workers?? No. There has been bravado huffing and puffing about doing so for 35 years (since ERISA was being passed and considered the death knell to employee benefits because of the new strict employer fiduciary responsibility, and later because of COBRA and constant new mandates). However, the real issue is that important employers need employee benefits to recruit and retain top-notch workersand the side effects of Obama health reform and the change in the doctor/health market will make health-related programs and services even more important for the smooth functioning of the employer. So, employers who back away from health-related benefits are being self-destructive.
What do I mean by the impact on the smooth functioning of the employer?
Today, if a worker has an ailment or hurts himself, he can probably see a doctor in a day or two, get a treatment, and be back on the job quickly. However, what if it takes a couple of weeks for the first appointment, and then another couple of weeks for each specialist just in order to get a diagnosis?
I have a friend in Canada who has a key skill at his job. It has taken about 18 months off work to get the tests and diagnosis that would take a week or two here. Receiving actual treatment has also been progressing at that slow rate. The off-work time has been devastating to the employee’s income, and thus a drag on morale at the company, and his long off-work time has severely hampered the work of the employer. So, the shortage of doctors and delays will mean that the new priority of employers will be to have whatever programs help keep workers on the job. These new priority services will range from having their own or a parallel health coverage plan for their workers, to the whole very wide range of wellness and health promotion programs and services, to perhaps private clinics. Employers will realize that personnel will need the kind of prompt careful maintenance and repair that precision machines need to keep them working. TPAs are perfectly positioned to implement and administer the kind of highly-personalized types of services each employer will want and need for its workforce.
TPAs Control Their Future
A consistent and proven message in my report/forecasts in recent years is that TPAs control their own fate and future profitability. The TPAs who remain in a 1990s mindset and services mode will just bump along, and be vulnerable to fading away at any time. Also, TPAs who do not proactively get up to speed and offer the new types of services to their clients are going to find those clients wooed away by insurers (90% of whom report that they are already creating these new services), or lured by other TPAs, or by the hundreds of new consulting and compliance firms and services that will pop up to try to dazzle your clients with their health reform compliance solutions. Note: The consulting and one-service firms don’t offer the ongoing comprehensive services SPBA TPAs provideand the new reporting and complexity and delicate data-collection means an employer is taking a risk to split up his sources of services because things can fall through the cracks.
What Now (Mid-2010)?
We often hear that employers are not interested in proposals from TPAs to become the new claims processor. However, instead, if you have the new services to help in the changed environment and serve the new needs and priorities and to streamline and secure the onerous new data collection and paperwork, you will have an attentive ear, because that is a current and evolving need employers and plans have.
Steps to Consider Now to Reduce Health Reform Cost Impacts
Employers have a set of immediate action items to comply with newly promulgated federal health reform laws. How employers implement those changes will determine whether health coverage costs remain steady after health reform exigencies are met.
The Patient Protection and Affordable Care Act (Pub L. 111-148) and the Health Care and Education Reconciliation Act (Pub. L. 111-152) contain health insurance changes that very likely will increase the cost of providing health coverage. However, some of these increases can be tempered by changes in plan design and other measures, he notes. Since some reform provisions go into effect in 2010, employers should not delay thinking about these issues.
HHS is drafting regulations and guidance to clarify requirements; meanwhile, employers can expect to be under tight deadlines to finalize plan designs, update enrollment forms and complete modified enrollment processes before the end of 2010.
Dependent Rule Won’t Save.
One such rule clarification — details on how plans and insurers must admit newly qualified dependent children up to age 26 — has been issued as interim final rules published in the May 13 Federal Register (75 FR 27122). These do not offer much promise for cost savings.
Not only do plans have to take all dependent children up to age 26, they may not vary age eligibility due to student status, residency with the participant or financial support. (Common models like: “Dependents up to 19 and not in school and dependents up to 23 who are full-time students are eligible” will no longer be allowed.)
Plans and insurers also won’t be allowed to deny coverage to a dependent child under 26 based on eligibility for other coverage — although grandfathered group health plans will retain that right until 2014 (see below for details).
And moves to pin the costs of extending dependent care coverage on workers by increasing worker contributions was expressly addressed in the May 13 rule. “[A]ny difference in benefits or cost-sharing requirements constitutes a different benefit package,” the rule states, using language that reads like such a move could jeopardize grandfather status.
In spite of that, there are some strategies be best for making the most of a potentially costly reform situation.
Don’t implement changes that may jeopardize your plan’s grandfather’ status. Plans that were in existence on March 23, 2010 are considered “grandfathered” and exempt from implementing certain reform requirements. HHS has begun drafting rules on grandfathered plans, and the question on all employers’ lips is: What changes to the plan or coverage, if any, will compromise grandfathered status?
“Implementing changes and controlling costs will challenge a plan that does not want to lose its grandfathering [status],” warns attorney Alexander Clark, Fulbright & Jaworski, Dallas.
The law provides no guidance on how a grandfathered plan may lose its grandfathered status. However, HHS is expected to issue guidance on grandfathered plans (including how to lose the status) this summer, so “grandfathered” plan sponsors should hold off on the following changes until it’s clear that these changes will not threaten a plan’s grandfather status.
- Changing third-party administrators or insurers.
- Vast changes in plan design.
- New PPO networks.
- Imposing higher employee cost-sharing to cover a reform mandate (for example, new dependents who must be allowed to join under reform).
New employees (and their families) who join a plan and family members of current employees who join for the first time will not impact grandfather status, under the legislation.
Take advantage of the retiree health subsidy.
The law creates a temporary reinsurance program to reimburse employer-sponsored health plans up to 80% of early retirees’ (ages 55 through 64) health care costs between $15,000 and $90,000. But the government has only funded $5 billion for this program, so if you quality for it, file your application quickly. “This money will go fast,” warns Dean Hatfield with Sibson Consulting in New York. The program is to be established by the government no later than June 23, 2010. Interim final rules were published May 5, 2010; comments on the rules are due June 4. To learn more about the subsidy, view the rules and obtain instructions for filing comments on them, go to http://edocket.access.gpo.gov/2010/pdf/2010-10658.pdf.
Remove ineligible individuals.
Remove ineligible individuals from the plan before the rescission prohibition becomes effective. The law bars employers from rescinding health insurance coverage for any reason other than fraud or intentional misrepresentation as of Sept. 23, 2010. If the plan has ineligible dependants on its roster, it will be easier to remove them before that date, suggests Brennan Clipp, senior VP for sales at HRAdvance, Dallas, a company that helps employers deal with the eligibility process. You should review and update your list of eligibles accordingly.
Think about reducing benefits.
Revisit your stop-loss insurance policy.
Since some of the provisions in the health reform law, such as the prohibition on annual and lifetime limits, can potentially increase an employer’s exposure, it’s more important than ever to make sure that your stop loss coverage is adequate. Employers with stop loss insurance coverage may need to change their stop loss coverage amounts, says Hatfield.