By Jody Bright
In the world of risk pools such as Multiple Employer Trusts (METs), Multiple Employer Welfare Arrangements (MEWAs), Interlocal Governmental Agreements, and other risk cooperatives and even Captive Insurance Companies size is not the real magic. Yes, there are inherent benefits to size and creating opportunities to bring home greater savings are among these but without a differentiating risk strategy the risks could outweigh the advantages.
Historically the bubonic plague of these risk pools was known industrially as the “death spiral”. Why was it so ominous?
We know that there is growing recognition that the status quo BUCA “solution” with its age-old strategy called “managed care” and not-to-forget what many see as an abusive relationship with the pharmaceutical industry, might not be a tenable one.
Can the cohesiveness of the co-op strategy, in itself, prove more effective than the BUCA “religion”? In a word, no. Not if the co-op employs the same problematic strategies of the BUCAs.
Also, historically, we have said “a claim is a claim” and “claims are claims” meaning risk is, if not unforeseeable, largely unmanageable or unmitigable, and definitely unavoidable, that a group will have claims that are inherent. Well if this last is true how can claims be “unforeseeable”? Then a “bad group” is a “bad group”. All of this cannot be true and the fact is really none of it is.
But back to the “death spiral”. What is it? Essentially when a cooperative risk pool stops growing and particularly if it has underestimated or underfunded its actual risk, and say it finds it necessary to call for additional funds, and it further loses the confidence of its membership, groups will begin to leave. The groups that leave are those that can find better financial opportunities elsewhere. Those that remain are those that either still drink the Koolaid or those that cannot find a better deal. If we accept any of the above premises then this pool will be in a downward spin, with rising costs and rates and a smaller pool to share that risk, and that only gets smaller and worse. When a risk pool goes bad it can go bad quickly and the spin can be unsurvivable. …if you accept the premise that a risk profile cannot be changed.
In fact the only way to survive this once it has begun is to change that profile or shut it down.
How do you change the profile? Let’s just say the previously mentioned, industry-accepted “managed care strategies” and pharmaceutical abuse cannot continue to be embraced.
In the modern world of cooperative risk pools such as TSHBP, among some others, this scenario is very real. Challenges have already opened up. In fact the TRS Active Care program itself has the very real same problem. The only thing that keeps it afloat is increasing annual tax-money infusion. And is that the real solution? If so our problems are even bigger than we may want to consider.
So can you, and if so, how do you change risk profile?
