Lindsay Resnick on More Effective Medicare Marketing

by Clive Riddle, August 13, 2009

Lindsay Resnick, a fellow member of the MCOLBlog team this week provided an exclusive 34 minute podcast for MCOL on Reducing Medicare Marketing Costs ... While Boosting Enrollment which includes a companion follow-along presentation. I encourage you to check it out if Medicare Advantage is of interest to you.

Here’s some selected takeaways from his discussion:

· Medicare Advantage payments to plans will reduce to equal to Medicare FFS payments by 2014, and payments to plans in 2009 were cut by an average of 4.5%

· For 2010, member premium increases will range from $25 to $80, and on the chopping block for plans will be value-added benefits and zero premium products

· Regulatory scrutiny over the marketing and sale of Medicare products will intensify

· It takes 3 to 7 prospect touches—through a combination of media—to get a qualified Medicare lead

· 56% of Internet users who are age 64-72 make online purchases; 45% of all seniors age 70-75 are Internet users

· Post-sale for Medicare members:  4+ touches/year can yield over 90% retention

· Agent distribution- a key strategy in enhancing enrollment while reducing marketing costs, requires significant commitment in credentialing and monitoring agents

· Agent Credentialing: Gather demographic information about your agents and use it to verify their credentials. A credentialing program needs to include: –Agent portal for establishment of e-file for agents; –Verification of licensure; =–Check state regulatory actions; –Verify and store E&O; –Background checks; –Link documents to agent file on an ongoing basis; –Manage agents slow to submit required documentation; –Agent contracting

· Agent Monitoring: A Monitoring Program should be developed that can: -Accumulate agent data; -Track allegations by agent; -Manage disciplinary actions; -Audit-friendly print views; -Track investigations; -Offer Remedial training information; Provide Licensure confirmation. Agent oversight should address and incorporate: Complaints (Allegations); Credentialing; Training; Certification; State DOI Notifications of Terminated Representatives; Accurate & Timely Commission Payments; and Targeted Sales Audits.

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.

The Future of Individual Plan Underwriting vs. Guaranteed Issue

By Clive Riddle

United Health Group betting on continued patchwork of State Regulations

An ongoing conundrum central to health coverage reform is the chicken and egg issues of health plan acceptance of individual health care coverage, mandates and guaranteed issue.

If all plans were required to accept all individual applicants for all policies (full guaranteed issue), the argument goes that significant adverse selection would occur, as only those uninsured with funds that could reliably project their actual health expenses would exceed the insurance premium costs would purchase coverage. In order to correct for this, it is argues that a mandate is required (requiring all of an applicable population to obtain/receive coverage.)

For example, the health plan industry, through America’s Health Insurance Plans (AHIP) have just proposed guaranteed issue in exchange for a mandate, stating in a press release: “Health plans propose guaranteed coverage for people with pre-existing medical conditions in conjunction with an enforceable individual coverage mandate. To help working families afford coverage, advanceable and refundable tax credits should be available, phasing out as income approaches 400 percent of the federal poverty line. Right now, in most states, individuals can be turned down by insurance plans when they apply for individual health plan coverage, if they do not satisfy the plan’s underwriting criteria. The only sure way for an individual to get coverage is to live in one of the few states with guaranteed issue, or obtain employment where group health plan coverage is offered.” (Refer to AHIP December 3rd, 2008 Press Release: Health Plans Offer Comprehensive Reform Proposal.)

But will a health care reform package include such a mandate that extends to the individual, non-group market, particularly in the current economic climate? The Obama reform proposal had focused on employer mandates.

In the current group environment, employees and dependents whose group coverage is ending can self-purchase continuing coverage to maintain their group policy benefits, at 102% of the cost of their group policy under provisions originally set forth under COBRA continuation of benefits regulations, but this coverage is generally limited from 18 to 36 months, depending on the circumstances (refer to http://www.cms.hhs.gov/COBRAContinuationofCov/ for details on COBRA continuation of coverage provisions).

Also in the current environment, guaranteed issue for all individuals just in Maine, Massachusetts, New Jersey, New York and Vermont. Washington provides guaranteed issue for some classes of individuals, and of course many states have incremental provisions extending coverage provisions. (refer to Kaiser Family Foundation StateHealthFacts.org for a summary of Individual Market Guaranteed Issue.)

So the question is, assuming health care coverage reform isn’t so far-sweeping that the individual market is removed due to full universal non-group based coverage, will the future of individual health plan coverage involve:

A. Federal Guaranteed Issue With Some Type of Coverage Mandates
B. Federal Guaranteed Issue Without Mandates
C. Continued Patchwork of State Regulations

United Health Group is betting on the latter, and now selling the right to Guaranteed Issue to qualified prospects. They have announced in a December 4th press release and as reported in the New York Times (refer to the Times December 2nd, 2008 article, UnitedHealth to Insure the Right to Insurance ) that UnitedHealth has unveiled “a ‘first of its kind’ product: the right to buy an individual health policy at some point in the future even if you become sick. Called UnitedHealth Continuity, the product is not actual medical insurance, but is aimed at people who may have insurance now but are worried they may lose it — and may not be able to obtain replacement insurance on their own.”

United states that “with Continuity, consumers only need to go through the medical underwriting process once, at the time of application. Once they are approved, their coverage is guaranteed when they need it regardless of any medical conditions that may have developed in the meantime...With Continuity, consumers can choose from a wide range of health plans, deductibles and optional benefits including traditional health insurance plans, health savings account plans and lower-cost high deductible plans. Once the plan is approved and issued, the Continuity rider gives policyholders the option to leave the plan deactivated while covered by group insurance or activate the plan when they lose or voluntarily leave group health insurance coverage because of early retirement, job loss or simply because the employer no longer offers health benefits.”

The Times reports the cost for holding the Continuity Guarantee is 20% of a standard individual premium, and is subject to underwriting before the Guarantee is issued. On the surface, it is difficult to imagine a large market for United’s Continuity product at such a steep price, given that COBRA is available as an interim stopgap for those with group coverage. The Times quotes a broker who states “I think it’s got very, very limited application.”

However, United’s innovation does open the door to variations on this theme that could have more widespread appeal, if in fact, federal requirements for guaranteed issue do not materialize. Health Plan competition for group coverage could result in rider provisions for no-cost or low-cost individual coverage guarantees, as part of the group policy, so that the employer can advertise improved continuation of coverage or portability in the event employees lose their group eligibility for whatever reason. That type of product could have widespread interest in the group market.

Medicare Prescription Drug Coverage in a Big Box

By Clive Riddle

Retail health care will continue to emerge and develop in new arenas. Retail health care started with prescription drugs decades ago, and now retail, convenient care clinics have been the rage. But there are certainly more retail avenues to develop, starting with health insurance at the individual level. Marrying individual Medicare distribution with prescription drugs at the retail would seem a natural. At least it has to Aetna and Costco.

This week, Aetna and Costco announced an alliance to offer a Medicare Part D Prescription Drug Plan: the Aetna Medicare Rx - Costco Plus Plan, to be available in 17 states, with Costco providing sales distribution to its members, and preferred Rx benefits provided for prescriptions filled at Costco pharmacies.

The plan will be available in Alaska, Arizona, California, Colorado, Florida, Hawaii, Idaho, Illinois, Michigan, Nevada, New Mexico, New York, Ohio, Oregon, Utah, Virginia and Washington. Monthly premiums will range from $50 to $70, depending upon the state. Under the plan generic copays, typically $10 at other pharmacies, will be $5 at Costco, or in some cases, zero copay.

Costco operates 545 “membership warehouses”, including 400 in the United States, and also operates Costco Online, an electronic commerce Web site at costco.com.

The Venus and Mars of Actuaries and Underwriters

By Clive Riddle

For many of us, what goes on behind the closed doors of actuarial and underwriting offices, if not the stuff of Tom Clancy novels, is still a bit mysterious. Many of us in fact confuse the two functions, thinking that they are interchangeable terms to be applied within an organization, when in fact, they are not. In this month's Predictive Modeling News, editor Russell Jackson interviews actuary Joseph N. Romano ASA MAAA, and underwriter James A. Minnich, discussing what Russell refers to as " the Martian and Venusian aspects of each side.”’

Russell cited a recent predictive modeling conference presentation the two, representing Ingenix, had given where they addressed the “stereotypical extremes of actuaries and underwriters. Here are characteristics of the stereotypical actuary: conservative, analytically accurate and precision-seeking, medium- to long-term focus, action-oriented, but with limited urgency, financially results-oriented and biased, program-oriented, a shy, quiet numbers person with some people skills. Here, on the other hand, are characteristics of a stereotypical underwriter: moderate to conservative, analytically accurate but flexible, short- to medium-term focus, responsive and oriented to fast-paced action, balances financials with growth, customer-oriented, an approachable “people person” with good conversation skills. The best actuaries and the best underwriters, the two said, understand those extremes and have a little bit of both in their approach.”   
 
Russell asked the two point blank,  what is the difference between what actuaries do and what underwriters do?. Joe Romano the actuary responded "There are a lot of different ways to describe the roles, of course, especially around pricing. That’s where the two disciplines -- actuary and underwriting -- intersect, interact and overlap. Actuary also does reserving and other peripheral activities, but the primary interaction is on pricing. I would argue that an easy definition is that actuary tends to look at macro activity, at issues in the aggregate. Underwriting, on the other hand, while staying aware of that aggregate, works more with the specifics, with a particular group, for example." Jim Minnich the underwriter added "I’d also use that 'micro' and 'macro' distinction. Also, I’d add that actuary is responsible for coming up with the revenue you need on a per-member-per-month basis, on average, for a set of benefits. The underwriter does the analysis on a group-by-group basis, to do a risk assessment to determine if the group is average, healthy or sick. Underwriting starts with the average revenue needed, then the underwriter adjusts it to the particulars of the group. There’s another dynamic at play, too. None of this happens in a vacuum, so the 'best practice' is where they’re linked together -- actuary, underwriting and sales. What if the PMPM rate is consistently too high to be supported by the market? We need to make sure we get enough revenue, but we have to strike a balance between profit and growth. Sales is focused on growth, while underwriting and actuary focus more on the profit piece."

This led Russell to ask them, is there a difference between medical and financial underwriting? Romano replied "There is, indeed. A medical underwriter traditionally is someone who reviews individual health insurance applications, which typically include health questionnaires. So medical underwriting looks at the presence or absence of diabetes, cancer and other chronic conditions to determine the medical health status of the applicant. The financial underwriter, by comparison, works on smaller groups with the other underwriters, but is much more similar in actual function to an actuary, using algebraic calculations to determine the rate needs for a particular group."

Russell Jackson comments that "It doesn’t sound exactly like one is from Mars and the other from Venus, to borrow from the book title, but it sounds like personality types could contribute to a disconnect between actuaries and underwriters." He then asks if  there any way to account for that in staffing, or in setting up communications processes between them?  

Romano tells Russell that "part of what attracts people to the different professions, absolutely, is differences in personality traits. Both disciplines are math-oriented, of course, but while the typical actuary is a math major, an underwriter may be a math major, but we also find folks with a lot broader backgrounds in underwriting because those professionals need a math bent but other skill sets as well. It gets into the different scopes of training the two disciplines undergo; for example, the actuarial profession has a formal examination schedule. The point is, if you have the wrong kinds of interactions between the stereotypes of actuaries and underwriters, you can have problems. But when you get the right kinds, when you get the interactions of people who recognize the stereotypes but who really understand each other’s disciplines, you have the best possible scenario -- the underwriter who understands the actuary’s introversion or the sales agent who understands math. That’s the ideal interaction of the disciplines, and that starts with the interaction of the individual actuaries and underwriters themselves."

Minnich weighed in as well. "I was trained in the early 1980’s at an insurer, and I was surprised that, in that office, we had 50 underwriters, but only five or so of them had math backgrounds. Mine, in fact, is in theology, and I once taught religion to high school students. In other words, you find a wide variety of backgrounds in underwriting, but it’s rare to find an actuary who doesn’t have a math background. Of course, there are stereotypes, too. Are all actuaries very analytical and introverted? Are all underwriters a little less extroverted than sales agents and a little less technically adept than actuaries? Are all sales agents very extroverted with very limited math aptitude?"

Russell also asked how valuable is a formal education program to train each discipline about the other and about respecting the differences between them?  Romano responded that "The Society of Actuaries’ educational processes continually evolve, and we’re trying to get more than math major personalities in terms of thought processes, more of a business orientation; in fact, we talk about the same issues for actuarial and for predictive modeling audiences. There’s great interest in people understanding how they work together. A challenge for better integration of actuary and underwriting, though, is the fact that, while underwriters attend educational forums as well, I don’t know that we have a formal approach to learning each other’s discipline. We have opportunities for that kind of education, but I don’t know that you’ll see it formalized. Rather, that integration is really going to result from the dynamics of people working together and sharing information."

Minnich tells Russell that "My background is in underwriting, so I’m aware of something of an unspoken dynamic; unspoken but worth knowing about. In a traditional insurance company 25 years ago, the actuary held a role that was higher than the underwriter’s. In many cases, the actuary was responsible for coming up with what was needed as far as averages, but also for the formulas the underwriters would be expected to use to go from the average to a community rate for a particular group. It was very clear that, stature-wise, the actuary was much higher. In fact, there are still actuaries working with clients who don’t like to turn the case over to underwriting because everyone knows that “an actuary can underwrite, but an underwriter can’t actuary.” That dynamic is certainly changing, but there’s still some underlying tension out there. What’s changing it? With the advent of HMOs, you see smaller, regional plans that, because of their size, couldn’t afford to hire an actuary. So they’d look to the underwriter on staff to do the traditional actuarial duties and hire an outside firm for consulting actuarial functions. Now, at the huge insurance companies, which have huge actuarial staffs, some of the more stereotypical actuaries still exist. If that person is one of, say 30, actuaries, he or she may not ever have to interact directly with underwriting or sales. But in the smaller plans that have cropped up, if you’re the only actuary, you don’t have that luxury. The good news for all of us is it’s the actuaries who have personalities closer to underwriters and sales agents who will advance. Likewise, it’s the underwriters who are analytical who will succeed."

For More Information:

Predictive Modeling News
www.PredictiveModelingNews.com

“Personal” is more than a word

By Laure Gelb

In my last post, I speculated as to whether 2008 might be the year that disease management communication from MCOs finally got personal. The next one-page MCO piece I saw (an EOB insert) offered the following snippets:  

“We think getting personal is a healthy idea.”

“We know that nothing is more personal than your health.”

“Do you take a healthy interest in good health?”

This piece of paper attempts to induce enrollment in the personal health coach program. But where are the benefits offered for this proactive behavior?  

“If you qualify…one person to call for answers and advice. It’s confidential and it’s free.”

o      OK, so you want me to transfer the expectation that my physician will offer answers and advice, to a nurse whom I’ll never meet.

o      You want me to believe that it’s confidential, when I’m reading every week about health insurance data privacy breaches.

o      And you want me to celebrate that it’s “free,” when my premiums and copays have never been higher.

 Health coaching should ideally align with the patient’s medical home. Can we more strongly link that proposition to premiums and copays? Talking points could include:

 

• The relationship between OOP costs, medical errors and drug interactions
• The higher risk of unidentified ME/DI among patients with multiple conditions/polypharmacy
• The opportunities for improved outcomes that multiple conditions can obscure
• The importance of a “medical home” in reducing ME/DI
• What a health coach actually does, and indications that having a coach might help; how the coach and the medical home can support each other

 Although managed care has been “doing” disease management since the 80’s, a patient’s “buy-in” to disease management, with the time, effort and emotional costs it entails, will be short-lived unless it’s obtained through honest discussion of its potential benefits, rather than demanded or condescendingly waved in front of someone with many conflicting priorities. And I haven’t seen an EOB insert yet that addressed questions like:

 

• Why I am on two drugs that are supposedly “contraindicated” in combination?
• Does anyone at the MCO know or care about all that treatments I’ve had?
• Isn’t a health coach going to refer me to a doctor for the tough calls anyway?
• How will a stranger get me to do all the things I already know I should do?
• Why can’t the health plan just find me a better physician?

There’s a real shortage of health content in member communication, and it’s no wonder that members find it difficult to read, let alone remember (or act on) any of it. The next time you want to change a member’s mind or otherwise influence behavior, you might want to check your communiqué for a few basic points:

 

1. Is it clear what you are asking members to do?
2. Is a coherent value proposition for them to take this action presented and are potential objections addressed?
3. If members to whom your request is directed are not appropriate candidates, how will they know?
4. Is there a high ratio of important content to buzzwords like “personal,” “healthy” and “wellness”?

 All this is no more than Marketing 101, of course. When disease management diverges from marketing exchange theory (equal value achieved by all parties to a transaction), it is less likely that any transaction, change or improved outcome will result. And, at the end of the day, the evidence suggests that clinical outcomes are more durably and significantly improved by self-imposed than externally-imposed change. Yes, the MCO (and the physician, nurse, et.al.) can help present the rationale for change, a means for implementing it and incentives for doing so. But only the patient “pulls the switch” each and every day. Every day brings new health decisions (like self-dosing qd), challenges and opportunities. It takes more than a few clichés to frame and support optimal choices. And there has to be a balance between “happy talk” and the certain knowledge that some “good” decisions and intentions go horribly wrong.

Next month: domains, measures and thresholds -- the keys to behavioral change.

Individual Medical: Opportunity Is Now

The individual health insurance market has reached a defining moment. Demographic, economic and workforce trends point to a tremendous market opportunity. These powerful dynamics are creating favorable conditions for individual medical insurance:

§ Shifting work-force (self-employment, early retirement, small business formation)

§ Movement toward Consumer Directed Healthcare, High Deductible Health Plans and Health Savings Accounts

§ Decreasing employer-based coverage options with increased employee cost sharing

§ Favorable Federal tax environment

§ Growing numbers of “non-poor” working uninsured.

An estimated seventeen million people under age-65 are covered by an Individual Medical (IM) insurance policy. Thousands of new eligible policyholders continually enter the market every day. Almost 16% of the U.S. population is has no health insurance. Of these 47 million individuals it is estimated that 20 million could afford an individual policy with tax, employment or other purchasing incentives.

It’s Not Group

Historically, lackluster products, legacy technology, high-cost business acquisition and poor pricing characterized the individual medical market. Few carriers had the resolve to embrace new ways of doing business and learn from past mistakes.

What does it take for success in the Individual Medical market – get in synch with both customer needs and profitable risk management. IM insurance is a blocking and tackling business requiring intense data analysis, administrative efficiency, sales acumen and proactive customer service.

However, the most important factor for health plans considering Individual Medical is recognizing that it’s not group insurance. Time and time again, carriers substitute “group” experience in formulating and executing IM business strategy. They do not fully appreciate the essential differences between the two product-lines.

For example, when pricing an IM product, medical loss experience patterns are vastly different. Underwriting with the “accept/reject” rules has significant consequences on the long-term effect of risk selection and needs to be built into baseline pricing assumptions and performance benchmarks.

Selling is another critical difference. Prospecting and selling IM is a one-to-one venture, impacting both the number of sales agents needed and how they are supported. And, complementing traditional field distribution with telesales can make a significant difference in production volume. On the customer front, servicing individuals without the intermediation of a group’s human resource department takes different front-end customer service training and skills. Individual Medical isn’t group insurance!

Controlled Growth

Competition in the IM marketplace is at an all-time high as health plans seek growth opportunities outside the saturated group market. These plans know that they need to offer a market-segmented product matrix that includes serving the needs of individuals.

The individual health market has attractive fundamentals. There are favorable operating cash flow characteristics and, given current opportunities for strategic outsourcing, fixed cost overhead can be contained while deploying state of the art technology and operating processes.

A successful foray into the IM market requires disciplined accountability. Several areas of focus can be identified:

1) Financial Control

AAAAAAA At the financial core are solid risk management tools and premium adequacy --- a focus on pricing, underwriting guidelines and claims practices. Risk controls are targeted to properly designed products and various customer and distribution segments.

2) Operational Efficiency Competitive advantage will come from innovations in information technology and bandwidth that renders traditional health insurance backrooms obsolete. Alignment with the “right” partners (without yielding accountability) can leverage an investment in intellectual property to contain expenses and broaden a company’s reach.

3) Marketing Expertise Understanding your target customer, whether young invincibles, empty nesters or prime market self-employed, goes a long way to ensuring success. This means data-driven marketing and direct response skills able to deliver the most effective ways possible to connect with customers—capture attention and interest of target audience, answer the question “What’s in it for me?” and, a call-to-action that motivates prospects to start a relationship with your company.

4) Performance Benchmarks Business metrics need to be in place to measure performance across functions: underwriting and claim costs, staffing and productivity, sales production and risk management. These benchmarks need to be buttressed with a robust decision support capability to ensure mission critical information is available and actionable.

Profitable Diversification

If you’re already in the individual medical market, but not meeting expectations, the cost of delay far exceeds the cost of action. Given IM pricing and cost structure volatility, there is a very short timeframe for crucial decisions if growth and financial results are falling short. A “wait-and see” approach can mean trouble comes fast in the form of an “underwriting death spiral” where healthy lives go elsewhere and severe anti-selection causes unrecoverable losses. These companies must act quickly to implement corrective actions and improve performance.

For new market entrants, the advice is simple - - - do it right! Study and learn from others’ mistakes. Establish a business platform built on disciplined management. Recruit knowledgeable leadership and engage expert external resources – risk and care management, marketing and telesales. Bring a commitment to change the way the market thinks about the individual medical insurance in terms of premium adequacy, product design, customer segmentation and sales distribution. Demand profitable growth. And always remember, it’s not group insurance.

For questions and comments contact:

Lindsay R. Resnick
Chief Marketing Officer
Finelight
150 N Michigan Ave, Suite 2900
Chicago IL 60601
312.419.1973
BLOG: www.lindsayresnick.com

Benefits Cycle

Benefits Cycle

Mercer, the national human resources and benefits consulting firm, in their annual employer health plan sponsor survey findings, recently projected that the average total cost to renew health plans for 2008 with no changes would yield a 9% increase, but actual increases for 2008 are projected at 6.7% dues to changing plans, adding lower-cost options or by altering benefit design. (see “After a three-year lull, health benefit cost growth picks up a little speed in 2008”, Mercer Press Release, September 5 2007,
http://www.mercer.com/pressrelease/details.jhtml/dynamic/idContent/1279545

Thus what health plan premium rate an employer winds up with from year to year is a result of negotiations and changes in the plan design.

Earlier this month, The Wall Street Journal ran an article by M.P. McQueen, “New Health Plans Tout Predictable Premiums” (see Wall Street Jouranl, October 9, 2007; Page D3; http://online.wsj.com/article/SB119188282779652669.html - subscription required)

The article cites an example of Guardian Life offering muti-year premium rate contracts and guarantees, that build-in the ability for Guardian to alter cost-sharing provisions if actual costs for the group exceed specified thresholds. The article also cites multi-year rates from Humana, based upon other requirements.

Multi-year rate guarantees are a sign that premium rate competition may be heightening, which is of course is addressed in the concept of the Underwriting, or Premium Rate pricing cycle.

The pricing cycle phenomena has existed for more than four decades. Under the cycle, during profitable periods for health plans, the plans desire to expand or protect market share and intensify price competition. Competing plans keep pace, triggering mini price-wars and multi-year contracts. Depressed pricing in turn triggers unprofitability, which ultimately escalates to the point where market leaders accelerate their price increases. Other plans follow suit, and soon escalating industry wide increases bring the sector back to profitability and the cycle begings anew.

They cycle has softened during this decade, as plans have grown less competitive due to product and market consolidation, and changes in plan behavior. This softening of competitive behavior, combined with the advent of consumerism and cost sharing, brings us to the concept of a benefits cycle.

Under a benefits cycle, benefit coverage and cost sharing can fluctuate based on plan competition for consumer enrollment during profitable and unprofitable points in the cycle. Guardian Life’s strategy would seem a step in that direction.