In the ongoing debate over healthcare costs—and especially over the Patient Protection and Affordable Care Act (PPACA) mandates concerning medical loss ratios—it is interesting to revisit a 2011 Milliman report on the commercial health insurance market using financial and enrollment data from the “Supplemental Exhibit.” From the paper’s introduction:
What level of market competition exists in the current health insurance marketplace? Are administrative costs and underwriting margins in teh individual and small group markets significantly higher than in the large group market? How does claim cost experience vary between individual and small group markets?
In the past, these questions have been difficult to answer because insurance carrier financial experience was generally only reported on an aggregate basis rather than at the state level or for a specific segment of the commercial insurance market. Because of the introduction of a new financial exhibit that must be completed with each carrier’s year-end statutory filing, many of these questions can now be answered with greater clarity.
Some of the report’s interesting findings include:
- Significantly higher per member per month (PMPM) administrative costs for individual and small group markets
- Higher medical loss ratios for large group markets
- Market share is most concentrated in the large group market, with 44 states having five or fewer companies representing 90% of market share or more
The paper also covers the influence of rating rules on individual and small group premiums, showing how requirements for community rating affect claim cost ratios across different regulatory regimes.
Plan Sponsor picks up on a central question for employers who sponsor their own healthcare plans:
Should employees get their healthcare through us, the employer, or should we help them get it through the state insurance exchange?
This excerpt captures the challenge of the question at hand:
Employers need to ask themselves, “How do we attract and retain employees?” [Milliman consultant Jeff] Chanin says. “They need to start trying to project their costs from 2014 to 2020, and compare the post-tax differential in offering health insurance or not, or some intermediate option.” He thinks of a high-deductible plan with moderate to high employee deductibles as an intermediate option, for example, and he suggests surveying employees to understand how much they value their health-care plan.
Most employers likely will not make a final decision until they see how effectively the exchanges get up and running, Chanin predicts. Like some others, he thinks that, if a couple of well-regarded major employers switch people to the exchanges, others will follow in a domino effect. “The exchanges, if they work, will essentially compete with employer programs,” he says.
“If they work” is of course a key question for the state health insurance exchanges. Click here for a helpful library of information that illustrates what “working” means.
A new healthcare reform briefing paper by Jeffrey Chanin offers strategic considerations for large employers that provide health plans and are looking to navigate reform. The paper, which includes both short-term and medium-term implications, is available here. Here is an excerpt:
Employers will need to determine how to comply with short-term (2010 and 2011) requirements and should begin planning for medium-term implications of the new environment that is likely to emerge. Senior management will have to make benefit and compensation decisions, and should conduct financial analyses of all the implications of the coming reforms. They will also need to consider various tactical details in areas such as compliance and reporting.
Perhaps most importantly, for employer-sponsored healthcare benefit plans to remain viable, employers will need to continue to develop and implement strategies that will control healthcare costs and utilization. The new law focuses on providing insurance coverage and access to healthcare services, but includes few major cost-control mechanisms.