Rick Koven, Koven Consulting & Coaching
With the introduction of the AHCA the Republican Congress attempts a first step to repeal and replace (or repair) Obamacare. The weeks ahead will likely bring a tempest of twists and turns, and how it all eventually unfolds is abundantly unclear. One way or another, the individual and Medicaid markets are in for rough sailing ahead.
What about ASO?
In my view, no matter what happens with AHCA, there will be no sea change for self-funding. True, ACA was mildly positive for self-funding and particularly great for the stop loss market. While the expected upsurge in small group self-funding didn’t come about, the overall upward trend for ASO continued right through ACA implementation. In fact, we saw record-setting levels of self-funding among employers in 2016. While anything is possible in this environment, self-funding is not on anyone’s political hit list, so no direct assault on its highly-entrenched market position is likely.
One way to think about the prospects for ASO in the next generation of health care reform is this: what’s good for employment based benefits is likely to be good for self-funding. That’s because self-funded is the lion’s share (63%) of the employer market. Short of earth shifting changes for employment based coverage, such as the entirely unlikely move to single payer, self-funding with its enduring value proposition (lower taxes, lower admin cost, no risk charges and increased employer control) is on solid ground.
The headline news including the Medicaid changes, the elimination of the mandates and the move to tax credits from subsidies, all certainly impact the individual and small group markets, but are essentially non-events for self-funding. Still, in this first chapter of the Republicans’ turn at health care reform, and in the chapters to come, there are some uncertainties but also opportunities for ASO.
On several AHCA proposals the self-funded industry will be playing “defense.” The postponement to 2025 rather than the hoped-for elimination of the 40% excise or Cadillac Tax is a big deal for large employer and union plans with generous benefits that are most often self-insured. Likewise, the industry will continue to resist any renewed call for a cap on the deductibility of employer premiums.
The CBO has hypothesized that the elimination of employer mandate and the introduction of uniform tax credits could incent some employers to drop coverage. However, for mid-size and larger—self-funded employers in a tight labor market competing to attract workers—it seems unlikely to have much effect.
The AHCA brings welcome news on the Health Savings Accounts (HSAs) front. HSAs are the fastest growing self-funded market segment, particularly in the mid-size employer market. Health plans that excel at HSAs and can make HSAs work on a self-funded platform will be in good shape to catch this wave.
After the AHCA
If annual or lifetime caps are re-adjudicated at some later date, the impact will be not so much on ASO but on the stop loss market. Stop Loss grew vigorously under Obamacare, doubling in size in the last five years to $15 billion market in no small part due to employers seeking protection against unlimited shock claims.
Association Health Plans (AHPs) appear to be a centerpiece for Republican next step reform plans. Industry veterans will be familiar with AHP’s and their more notorious counterpart on the self-funded side---MEWAs. The Self Insurance Institute of America (SIIA) is offering qualified support for AHPs at this point. In theory AHP’s offer small businesses the leveraged purchasing power of larger employers, including adequate risk pool size to open up the option to self-insure. The self-funding of MEWAs is mostly disallowed by state regulation and it will be interesting to see if Congress seeks to pre-empt such constraints. Underwriting these groups can be tricky, and the opportunity here is something to think carefully through.
Narrow Networks & Direct Contracting
It seems unlikely that even a full repeal of ACA would mean a market course reversal on alternative provider reimbursement arrangements. The ACA encourages these but its repeal wouldn’t preclude them. So, they’re likely to evolve and grow as a cost management strategy. The ability to offer narrow, high performing networks with providers at risk on a self-funded platform could be a market differentiator going forward. The national carriers (“BUCAs”) have not been particularly adept at providing self-funded employers with these custom network solutions, presenting an opportunity for independent health plans to distinguish their market positions.
All market predictions are risky in a time of unprecedented uncertainty. Still, I see smooth sailing ahead for ASO. At the end of the day self-funding has (a) a strong, empirical value proposition, (b) an entrenched market position and (c) no natural political enemies. Thus, Health Plans with focused strategies will find safe harbor, and even new horizons, in ASO.
Attend the ASO & Commercial Products Value Visit
Changes in the market raise the question of how can Alliance members get our share of the growing business and what role do we play in the evolving market? It takes rethinking our marketing, operations, network contracting and care management strategies. Join Rick Koven and your colleagues as we dive deep into what it takes to succeed in the ASO market at the Alliance ASO & Commercial Products Value Visit, May 17-19 in Chicago, IL.
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