What will be the biggest trend in the health insurance business over the coming years? A tendency to shift risk from the insurance companies to the public.
How fitting for a sector that was created to manage risk to do this.
Why is it happening? Even before the recent health care legislation in the US, insurance companies were looking for a way to shift the rising cost of medical care to others.
This trend will grow because of provisions in the new law for benefit mandates, floors on medical loss ratios, guaranteed issue, and medical underwriting represent a challenge for payer balance sheets. Insurers will want to shift those risks away.
And -- as we have discussed -- so will employers, who will want to shift their insurance obligation for current employees and retirees to others.
Who's left? Ironically, it is the participants in the health care marketplace who are most unsuited to bear risk -- individual doctors and consumers. This will come in the form of global payments, higher deductibles, and higher co-pays.
These will be portrayed as means to greater efficiency and consumer-directed health care. And perhaps they are. But they are also a veneer that hides the fact that a large portion of the actuarial risk of care will be shifted to individuals. The insurance industry was designed with reserve requirements and a capital structure that acted as a shock absorber for the vicissitudes of risk. Consumers and doctors do not have that back-up.
Alan MacDonald, head of the MA Business Roundtable, makes this shift clear in a discussion about Governor Patrick's proposed legislation:
Up until now, where the insurer in the health plans accepts the risk of making sure the payment is there to cover the expenses. When we have a global payment, a payment is made to the organization, and that accountable care organization is responsible for the care. They've received the payment already, and so the risk is that more care is required than is covered by the global payment, so they would have to have a reserve to take care of that. (Dig Boston, Volume 13, Issue 8). Emphasis added.
There has been no talk of reducing the capital requirements of insurance companies in return for this shift in obligation to individuals. Are they going to be permitted to maintain large capital reserves, on which they earn money, while their liabilities diminish? Who will ensure that the savings that insurers gain from these changes will be passed through in lower rates to consumers?
On a lighter note, comedian Brian Donnelly is quoted in the same newspaper -- perhaps displaying greater insight that he knows:
I've been looking at the new health care proposal and I'm not sure what's going on. Most of it feels like that part in the "Star-Spangled Banner" where no one knows what it is and you sort of mumble through. I feel like there could be magic involved.