Change in Thinking of Major Medical Carriers

     The Affordable Care Act (ACA) sets the Minimum Loss Ratio (MLR) for major medical plans at 80 or 85 percent, depending on the number of employees in the group. In this, if this ratio is exceeded for groups that are on certain benefit plans in the home state of the group, any amount less than the ratio must be returned to the employers who maintained that plan, in the home state. Major medical carriers will never make the profit margin needed in order to sustain themselves long term. If they have a large loss, they eat it. If they make a nice profit, they have to give the majority of it back. Worst of all, they can’t offset the losses of one plan in one state against the profits of another plan in another state. You can see this problem – the long term making sustained profits is not viable.

    But these are smart business people running these large corporations and the smaller carriers have been driven out of this industry long ago. The large players – Blue Cross, Anthem, Cigna, Aetna and United Healthcare – have decided on various methods to solve the profitability problem. All of the following methods have an effect of us as brokers in the marketplace.

  1. Most of them have been purchasing businesses, whose charges make up part of the 80 or 85 percent of claim costs. Nurse hotlines, physical therapy centers, and largely pharmacy benefits are types of businesses being bought with the idea to make a profit on the claims cost. Some carriers have purchased Pharmacy Benefit Managers (PBM), such as Cigna buying Express Scripts. In a surprise move in reverse, CVS Pharmacy purchased Aetna.
  2. Some carriers have decided to get deeper into the Medicare Supplement market and Medicare Advantage market. All of the major carriers have previously been in the senior market but are now expanding these efforts. The businesses previously mentioned also work to help increase profits in the senior market claims, especially in Part D, prescription coverage.
  3. Another method that has recently been introduced is major medical carriers beginning to buy third party administrators. Self-funded employer plans are not subject to the MRLs. There are many new self-funded plans in the marketplace and even some that will now cover as few as twenty-five employees. Also, self-funded plans are not subject to community ratings, which increase the cost of fully insured plans.
  4. The final method, and the one most interesting to me, is the increased presence of the ancillary products market. I have had several conversations with major medical carrier representatives who have been told by their management team to begin the development and distribution of ancillary products. Dental, vision, accident, critical illness, group term life, short term disability and long-term disability are all being sold on employer paid and voluntary basis to major medical group employees. Some may ask why these carriers don’t get into the Gap Plan product business, and there’s a very good reason. The “excepted benefit rules” require that a gap type product must be written by a different carrier than the major medical, in order to not be subject to the MLR requirements. The other products mentioned are also excepted benefits, but do not have the MLR requirements.

While there are some state loss ratios requirements for ancillary benefits, most leave enough room for commission and profit. This is where we, as brokers, have the best opportunity to assist these carriers and continue to make commissions in the major medical marketplace. We have to understand what steps the carriers that we are working with plan to take and make sure we can participate in those products and distribution. It is vital for our future success.

    With all that is going on currently in Washington, the Affordable Care Act may not continue to be the law, however, many of its provisions will remain, including coverage up to age 26 for dependents, full coverage for pre-existing conditions and many believe that MLRs may also make the cut. As brokers, we must keep up with the regulations because they are imperative to our industry and our careers.  

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