Survey Reveals U.S. Payers' Priorities and Pain Points in Response to Healthcare Reform

TAMPA, Fla. – Oct. 7, 2010 – When it comes to complying with the Patient Protection and Affordable Care Act of 2010, meeting the 80% Medical Loss Ratio (MLR), acquiring and retaining the best risk, establishing cost-effective distribution channels and working with exchanges are U.S. payers’ top priorities.

That is according to an independent national survey conducted by The Gantry Group on behalf of HealthPlan Services (HPS), a leading provider of outsourcing solutions to insurers in the individual, small business, association and union trust markets. The online survey solicited insights from operational executives representing 26 health plans with a commercial product line and at least 50,000 members enrolled in individual/small group products. It explored what respondents perceive as their most acute pain points and top priorities resulting from the legislation, which ushered in an era of uncertainty and unprecedented change in the health insurance marketplace.

The most notable expected finding was the unanimous agreement on the top three priorities. What was not expected was the order in which they placed. Ninety-two percent of all respondents identified compliant risk acquisition and retention as being among their top three priorities, while 58% identified both the MLR mandate and cost effective distribution. Another 54% gave one of their top three spots to working with exchanges.

“Managing the MLR is a top carrier priority due to the heavy focus that has been placed on reigning in administrative costs. It is an especially complex task because a significant portion of administrative expenses are difficult to scale back due to the nature of what is defined as non-claims expenses,” said Dennis Prysner, chief project officer, HPS. “Thus it was surprising to see it rank second, although one possible explanation is the indirect tie between managing loss ratios and retaining risk. When the best risk is acquired, the claims experience is more positive, which can impact the MLR.”

Also unexpected was the low ranking for premium rebates, which less than 1% of respondents identified as their top priority and just 15% placed among the top three.

“This is surprising considering that the rebate mandate is one that will be particularly challenging from a compliance perspective,” said HPS CEO Jeff Bak. “When coupled with MLR, rebates become a double-edged sword and evoke processes that few carrier systems are equipped to manage.”

Respondents identified their top three pain points as 1) uncertainty/ambiguity, 2) the complexities and profit impact of meeting compliance requirements, and 3) the need to assess the viability of existing products and potential new products.

Further, 58% of respondents were still considering the impact reform will have on agent commissions. However, 27% had already decided to reduce commissions to meet the MLR floor.

In terms of introducing new non-medical products to shore up revenues, 62% were undecided. Just 4% considered sales, distribution, cross-selling and administrative aggregation to be critical priorities. These findings appear to run counter to prevailing wisdom, which holds that expanding portfolios to include voluntary and ancillary products and implementing processes and systems to aggregate multiple product administration will be the most effective means by which carriers can offset profit losses and reduce the chances that they will be required to issue rebates.

“The good news is that insurance carriers do not have to go at it alone in terms of retooling critical business processes and supporting them with the scalable technology that is necessary to survive and thrive in this new environment,” said Bak. “HPS has established a solid track record of providing cost-effective distribution, administration and retention services through proven technology and internal expertise. In the Individual market, we have achieved significant efficiencies and scale servicing $1.1 billion in individual premiums through established, proven business processes which our clients can leverage to efficiently deploy and manage the changes necessary to remain competitive in this new healthcare reform environment.”

About HealthPlan Services

HealthPlan Services (HPS), a Water Street Healthcare Partners affiliate, is the largest independent provider of service and technology solutions to the insurance and managed care industry. Since 1970, HPS has offered customized administration and distribution services to insurers of individual, small group, voluntary and association plans, as well as providing valuable solutions to thousands of brokers and agents that sell into this market. HPS’ proprietary, scalable technology provides innovative consumer-facing solutions that are turnkey self-service tools for our insurance carriers and distribution partners. HPS offers an ever-expanding array of services to a diverse and growing client base, and administers products that include medical (PPO, HMO, indemnity, consumer-driven), dental, vision, life, disability, cancer, critical illness, accident, long term care, limited medical, as well as various other ancillary insurance. HPS is committed to providing extraordinary service to its customers. For more information about HPS, visit www.healthplan.com.

About Water Street Healthcare Partners

Water Street Healthcare Partners is a leading private equity firm focused exclusively on health care. With more than $1 billion of capital under management, Water Street is one of the most active investors in the health care industry. The firm has a strong track record of building market-leadership companies across key growth sectors in health care. It has partnered with some of the world’s leading health care companies on its investments, including: Gentiva Health Services, Inc., Johnson & Johnson, Medtronic and Smith & Nephew. Water Street’s team is comprised of industry executives and private equity professionals with decades of experience investing in and operating global health care businesses. The firm is headquartered in Chicago. For more information about Water Street, visit www.wshp.com.