Navigating Healthcare Reform: Acquire & Retain the Best Risk
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Enactment of the Patient Protection and Affordable Care Act of 2010 (PPACA), as modified by the Health Care and Education Affordability Reconciliation Act of 2010, has redefined the health insurance marketplace. To survive, carriers must deploy strategies to achieve and maintain compliance with multiple regulatory mandates impacting every facet of their operations, from product design and sales models to distribution channels, compensation and plan administration. A recent independent national survey conducted by the Gantry Group on behalf of HealthPlan Services identified the top priorities among carriers in terms of their response to healthcare reform. Heading up that list was compliant risk acquisition and retention.
Market Impact
Driving the urgency behind carriers’ need to acquire and retain the best risk are several mandates within PPACA. These include:
- Guaranteed issue
- Ban on pre-existing condition exclusions
- Ban on lifetime and restrictions on annual limits
- Full coverage of select preventive, primary care and emergency services
These mandates will drive up plan costs due to an increased number of services that must be provided without any contribution by plan members and the inability to balance the risk pool. They also make it more difficult to manage high lapse rates that threaten profitability and require more intensive customer care touch points.
Expectations are that lapse rates will increase by 30%-50%. Specifically, in the individual market, lapse rates are projected to increase from the 2010 monthly average of 3.5% to more than 5% in 2014, by which time the vast majority of reform changes will have taken effect. In the small group market, monthly lapse rates are expected to increase from 2% in 2010 to more than 3% in 2014.
The new insurance marketplace will also be characterized by a greater number of consumers, who tend to be highly price sensitive, and employees in the system without the benefit of agent representation to help them navigate plan options – a situation exacerbated by the fact that reform will create a sizable influx of newly subsidized and first-time insured requiring higher levels of intervention. Further, it will generate an increased need for persistent touch points and multiple products to improve longevity.
Finally, reform-driven market changes will usher in projected commission reductions of 50%-75% in six months, which will force brokers out and place 30%-50% of sales at risk. As legacy distribution channels decline and internal sales costs increase, it creates pressure to launch or expand internal and direct-to-consumer distribution channels to reclaim lost territory coverage and sales.
Strategic Objectives
To mitigate the risk of non-compliance while ensuring acquisition and retention of the best risk, carriers must focus on retention strategies that impact revenue and gain competitive advantage. These should focus on key retention drivers:
- Dynamic integration of multiple data elements, including outside “corporgraphic” and demographic and inside customer service data, which is important to developing an effective risk profile
- Ability to quickly operationalize counter intuitive findings
- Varying actions to retain small business case vs. individual case
It is also important to recognize that retention issues do not always emerge at the most obvious times. A client study conducted by Seer Analytics for HealthPlan Services found that 71% of all terminations happen off renewal, compared to just 28% which take place on renewal.
To counter declining commissions and slow the flood of agent and broker representatives out of the market, carriers need to adjust existing sales models and introduce new ones that leverage the push toward higher consumer touch points. For example, models that enable brokers to collect service fees directly from insured and that reward enterprise case volume and “grandfathered” business can help recoup sales that would otherwise be lost along with agents and brokers.
Tele- and direct-to-consumer sales provide new models that will bridge the changes rolling out 2010-2014. By investing now into the technologies and business processes necessary to deliver these sales capabilities, carriers can maintain control of distribution, which will be critical to gaining market share.
Carriers also need to attract large populations with unique positive risk dynamics. Doing so will be aided by the creation of proprietary lead sources, which will serve as a key differentiator in attracting brokers and agents.
It is important to note that expanding sales models should be undertaken only after taking inventory of group disenrollment rates, ancillary and stand-alone cases, lapsed policies and associations. This will provide the detail and data necessary to design cost-effective and efficient distribution channels.
Finally, multi-product aggregation enables carriers to reach new customers, extract more value from existing customers and improve retention rates. This is particularly true when portfolios are expanded to include non-medical products, which also serves to maximize commissions and move some administrative costs outside the 80% minimum loss ratio restriction. The key will be development of effective cross-selling techniques and implementation of technologies capable of seamlessly aggregating multiple products.
HealthPlan Services
Partnering with HealthPlan Services (HPS) enables carriers to efficiently and cost-effectively retool business processes and support them with the scalable technology necessary to survive and thrive in today’s health insurance marketplace. A leading provider of outsourcing solutions to insurers in the individual, small business, association and union trust markets, HPS has a solid track record of providing cost-effective distribution, administration and retention services through proven technology and internal expertise refined over more than 40 years.
HPS, which covers more than 2 million members formore than 25 health plans, has achieved significant efficiencies and scale, as well as proven business processes that meet or exceed industry best practice, all of which can be leveraged in future implementations. Partnering with HPS frees internal resources to focus instead on such mission-critical mandates as the transition to ICD-10 and ANSI 5010, adoption of electronic health record (EHR) systems and the secure exchange of patient and billing data.
HPS provides carriers with advanced technology, domain expertise and agility, which allows them to be aggressively proactive in developing and deploying the strategies and processes that will enable them to achieve compliance and remain financially sound.