Two new reports consider the effects of Patient Protection and Affordable Care Act (PPACA) on group insurers.
“Health Insurers Adjust to Changing Landscape; Pressures Build Toward 2014,” from A.M. Best, details a stable outlook for the majority of health insurers due to lower utilization and more diversified sources of revenue and a long ramp up time for the legislation.
“Winning the Battle for the Consumer,” from Deloitte, considers the ongoing increases in medical insurance premiums and details expectations for the continuing growth of voluntary products as employers look to offload some or all of the costs of group insurance to employees.
As more employers shift to voluntary products, the authors of the Deloitte report expect a battle to emerge between group carriers, brokers/consultants and third-party administrators for ownership of the relationship with employees, who are the ultimate consumers. Companies that own that relationship will be better situated to expand revenues through cross selling of additional products.
Exchanges are an integral part of the health care reform bill and present an opportunity to group insurance providers and a threat to those undiversified companies that do not offer medical insurance coverage, the reports find.
Though only 16 states currently have them, the expanded use of exchanges to offer medical insurance presents an opportunity for group carriers offering health insurance, the Deloitte report says, since they will likely receive “captive, hot leads to whom they can cross-sell group insurance products at relatively little additional expense.” Group insurers without medical insurance products wouldn’t receive those leads and conceivably would lose that business.
A.M. Best finds that many carriers have diversified their product mix to include individual, employer groups and both Medicare- and Medicaid-managed care, which provides for more diversified membership, revenue and earnings. Some larger carriers have expanded with service-oriented and nonregulated supplemental business, which provide medical insurers with varied sources of earnings and cash flows, enhancing the sustainability of operating results. For states that cannot or will not create exchanges, A.M. Best expects a shift to Medicaid managed care programs to help control costs.
A.M. Best has concerns about the profitability of smaller more specialized insurers that offer individual and small-group medical insurance, however, given minimum loss ratios and higher administrative cost ratios. Larger companies theoretically are more able to reduce administrative costs, reduce pricing and make it more difficult for less diversified companies to compete. “Over the past year, A. M. Best has observed that the effects of PPACA have led to some companies exiting and/or divesting blocks of health business or entities,” reads the report.
The Deloitte report suggest that group carriers, to gain market share in a crowded market, should plan on expanding support for employers by managing employee communications and education, and expanding their administrative support of both employers and employees.
Employers, Deloitte says, increasingly are looking to carriers for: recordkeeping, beneficiary management, leave management and compliance with regulatory developments, such as the Family and Medical Leave Act (FMLA) and Section 125. Employers also expect user-friendly billing, automation, self-service, reporting and analytics; carriers also are increasingly expected to offer educational materials through multiple channels, including in person, call centers, videos and online.
For now, there is simply no way to know how many, or how few, employers will decide to stop offering medical insurance in favor of paying mandated penalties, Deloitte says, adding that a variety of factors would go into such a decision, including: overall economic conditions, the rate of inflation in health care and group health insurance premiums, the speed of implementation of PPACA, changes in penalty levels, and the design and operation of the exchanges.
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