Risk management in the healthcare sector
July 2021 | TALKINGPOINT | RISK MANAGEMENT
Financier Worldwide Magazine
July 2021 Issue
FW discusses risk management in the healthcare sector with Karin Landry at Spring Consulting Group.
FW: What do you consider to be among the key healthcare risks currently facing companies in the US? How have these risks evolved over the last year or so?
Landry: All facets of healthcare are evolving at a rapid pace. We think the critical healthcare risk for companies right now is mental health, which has been severely impacted for the worse by COVID-19, which caused undue job loss, stress, grief, childcare gaps, and physical and emotional isolation. We recommend employers tap into tools like Employee Assistance Programs (EAPs), telemedicine and anti-stigma training to address these concerns. Chronic conditions like cancer and diabetes will also continue to be a challenge for many companies trying to limit their healthcare spend while still offering competitive benefits, as these conditions drive up the cost of claims. Also, specialty drug costs represent about 50 percent of drug spend but only 2 percent of the prescriptions written.
FW: To what extent are you seeing a hardening insurance market? What factors have led to an increase in rates?
Landry: We are, without a doubt, now in a hardened insurance market. COVID-19 has increased claims and reduced investment income for insurers, diminishing reserves balances. This means insurers need to shore up financials, and the easiest way to do so is to increase premiums. If you couple this dynamic with the fact that even before COVID-19, medical trend increases were outpacing inflation and causing employers to leverage cost-sharing tactics like high deductible health plans, the result is further rises in aggregate claims, which, in turn, causes the hardening of the health insurance markets.
FW: How would you describe the outlook for US healthcare under the Biden administration? What reforms might we expect in areas such as public exchange participation, for example?
Landry: As president Biden moves toward the potential broadening of the Affordable Care Act (ACA) and the expansion of Medicare and Medicaid, we expect to see changes including the reinstatement of the individual mandate, a shift from Medicare eligibility from 65 years to 60 years old or lower, the expansion of access to public exchanges for more consumers, individualised coverage options and prescription drug pricing reform. In general, we foresee president Biden’s policies creating an increased emphasis on healthcare with consumers from private plans, such as employer-sponsored health plans, to public exchanges that have been expanded and improved. Private options will then be less competitive and affordable for employers, who are turning to alternative options like unbundled health plans, referenced based pricing, Individual Coverage Health Reimbursement Arrangements (ICHRAs) and voluntary benefits at an increasing rate.
“We are likely moving toward a more digital, individualised system where healthcare may be delivered to the consumer directly with a different level of employer involvement.”
FW: Could you provide an insight into the unbundling of healthcare? What is the future of employee-sponsored healthcare?
Landry: The unbundling of healthcare is selecting ‘best in class’ point solution service providers to supplement their base health plan administration where the employer creates its own ecosystem in which employees have greater ability to pick and choose their benefits, which may be only partially paid for by the employer, but still more accessible and affordable to the employee than if they were to purchase coverage independently. Following this path, companies can integrate service providers that focus on tighter delivery of care, specific diseases such as diabetes, and other solutions for things like mental health.
FW: Is the voluntary benefits space growing in importance? What advantages can it offer to both employers and employees?
Landry: According to BenefitsPro, over the last decade voluntary benefits have grown 5 percent per year, while employer-paid benefits have declined. This uptick is driven by a combination of rising healthcare and benefits costs, the changes around federal healthcare reform, evolving workforce demographics, the economy and COVID-19. Voluntary benefits have been an attractive ‘win-win’ approach, gaining further traction in this climate. Employers can offer customised benefits targeted toward their workforce population with little to no increase in spend. Employees, on the other hand, have access to meaningful benefits at reduced rates, and they can select these benefits in an a-la-carte manner.
FW: Since the onset of the coronavirus (COVID-19) pandemic there has been a surge in telemedicine. How should companies factor this development into their plans?
Landry: While utilisation rates may fluctuate, telemedicine is here to stay as a primary, rather than periphery, mode of healthcare delivery. Companies need to ensure that not only do they offer telehealth services through providers like Teledoc, Amwell or Doctor on Demand, to name a few, but they need to weave training and accessibility into their benefits and open enrolment processes. Employees cannot take advantage of options they are not aware of, or do not know how to find.
FW: To what extent has the emergence of COVID-19 highlighted the existence of healthcare policy protection gaps in the language used? How should companies respond?
Landry: Unfortunately, many of life’s most important lessons are learned the hard way, and this is one of them. Throughout the crisis, there have been parties who thought they were covered for business closures through their property, business interruption or income loss policies, only to find out pandemics were an exclusion. Further, workers’ compensation insurance got more complex with a largely remote work environment and employee relocations. Companies should prepare themselves for a similar event in the future, if only to cover their bases. This includes a close look at policy language, diversification and correlation of risks, and programme flexibility. Captive insurance can play a key role in closing some of these gaps.
FW: Could you outline some of the healthcare-related risk management tactics that companies are using more frequently in the current market? What advice would you offer to those considering captives, medical stop-loss or group purchasing, for example?
Landry: Funding has become a big issue for employers, so there will be a rise in captives as well as group purchasing programmes. By using these tactics, employers can get coverage otherwise unavailable in the commercial market, that aligns more closely with their employees’ needs, and gain more control, transparency and reporting capabilities at the same time. For organisations lacking the bandwidth for their own standalone captive, the group route allows companies to spread risks across a pool of related parties and offers pricing advantages due to economies of scale. If you are considering an unconventional approach, always do your due diligence first. Hire a professional team with actuaries to conduct a feasibility study that will outline your options, their pros and cons, regulatory considerations, and the financial and administrative ramifications for your organisation.
FW: How do you envisage the healthcare sector evolving in the months and years ahead? What steps do companies need to take to ensure their risk management practices keep up with prevailing trends?
Landry: We are likely moving toward a more digital, individualised system where healthcare may be delivered to the consumer directly with a different level of employer involvement. We would encourage businesses to use COVID-19 as a fresh slate opportunity to assess how their exposures, risk appetite and profile have changed. By creating your own healthcare ecosystem and calling upon some of the alternative benefits tactics, organisations can avoid the undertow of the accelerating current of healthcare evolution and instead find calmer waters.
Karin Landry, CEBS, ACI, CLTC, managing partner of Spring Consulting Group, is an award-winning consultant with over 25 years of experience in insurance, healthcare, risk financing, retirement and benefits and holds eight patents in insurance. She is passionate about the need to adapt to the rapidly changing healthcare industry and landscape, rather than settling for the status quo. She can be contacted on +1 (857) 239 1242 or by email: karin.landry@springgroup.com.
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