The Great Recession: as seen by Health Plan Executives

by Clive Riddle

There have been a number of depressions in the American economy since the days of Alexander Hamilton. We only refer to one as the “Great Depression,” and it seems joined at the hip with an entire decade (the 1930’s.) There have been a wide number and range of recessions in American history. It’s hard to know how today this one will fully play out, but it feels different. Perhaps we’ll move on from calling our current situation the “Current Financial Crisis” and we’ll end up calling this the “Great Recession.”

CSC yesterday released results from their November 2008 survey of 30 senior executives representing 26 health plans, with their report "Insuring the Future: Health Plans Respond to the Financial Crisis." Here’s what they found was going on in the minds of our health plan executives relating to whatever you want to call our economic mess; the following is a summary of the questions asked, survey results, and our comments:

• “Compared to 2001 – 2002, how will the current economic downturn impact your organization?” 73% answered “Bigger Impact; 13% said “About the Same” and 13% answered “Smaller Impact”, “No Impact” or “No Opinion.” [so three-fourths might agree with calling this a Great Recession.]

• “Which indicator does your organization use to predict and plan for the effects of overall economic changes?” 69% mentioned unemployment; 55% mentioned health care inflation; 31% mentioned investment performance and the answers tailed off from there [makes sense- employment drives membership, inflation drives the medical loss ration, and investment income is the difference between profit and a loss for many plans.]

• “What is your organization’s response to the downturn?” 48% will implement cost-cutting projects; 41% will implement revenue enhancing projects; and14% will lay off staff. [Revenue enhancement is going to be a challenge in this economic climate if premium increases are what they have in mind. We would project a drastic reduction in negotiated premium increases, let alone benefit buy-downs that will reduce revenue.]

• “How has the downturn affected demand for your products?” Regarding enrollment, 48% anticipate an increase in individual product enrollment vs. 10% projecting a decrease; while 45% predict a decrease in group sales compared to 7% projecting an increase [what are these 7% smoking, or maybe they just think their going to steal away competitors market share?]; and 69% project an increase in government program enrollment compared to 14% predicting a decrease. Relating to employer group renewals, 54% anticipate a decrease in small business renewals, and 31% project decreases in large group renewals [so the small group market will make significant cuts in providing coverage or eligibility, driving the individual and government program increases, and the group market will continue to diminish in size as it has this throughout this decade.]

• Also regarding the demand for product type, 67% see an increase in demand for Consumer Driven plans compared to 5% anticipating a decrease, compared to 29% increase/24% decrease for PPOs and 43% increase/14% decrease for HMOs. [So consumer driven plans, which many pundits have seen as an endangered species with the new Democratic administration and congress may still have some legs due to the impact of this recession, and HMOs may make a comeback from the managed care backlash starting ten years ago, as a stronger tool to stabilize costs.]

• “How will the economic downturn affect other business partners?” 73% anticipate cashflow/solvency problems with provider networks, and 54% predict network stability problems relating to access and availability. [As provider networks serve multiple plans, you can have a reverse supply chain problem compared to the auto industry. With autos, a collapse of the manufacturers can bring down the supply chain. Here a collapse of the provider network supply chain could wreak havoc with the health plans.]

Of course, how one sees the economic situation depends upon one’s personal stake and position at the time. The joke goes, a definition of a recession is when you lose your job. The definition of a depression is when I lose my job.