Managed Care Organization (MCO) Insurance Trends: Expect Another Year of Double-Digit Rate Increases | Woodruff sawyer

MCOs pose unique challenges to the insurance industry

A recent development, emphasizing an already challenging environment for placements of large private and public companies, is that Chubb is taking a sharply conservative stance. Chubb is the market leader in these types of placements, so his conservative appetite is affecting the entire landscape.

While there was ample capacity in the market up until 2018, the last four years have seen capacity constraint across the MCO/Health insurance universe. This stems from a sheer lack of interest in the insurance community for MCO, particularly E&O and D&O lines. Simply put, the MCO industry is relatively concentrated, which poses challenges to underwriting risk diversification. Additionally, the “signature risks” for MCOs tend to hit multiple insureds at once, so a single event can destroy an insurance company’s claims ratio in the industry. We see that with the Multi-District Litigation (MDL) that made the Blues and Delta plans.

This lack of interest is reflected in the following developments in recent years:

  • 2018: BCS Insurance Company has exited the MCO market. BCS stopped writing E&O and D&O insurance and around 20% of the market’s capacity disappeared overnight.
  • 2019: OneBeacon Insurance Group exited the MCO market and sold renewal rights to TDC Specialty Underwriters. TDC re-signed the OneBeacon book and only renewed 60% to 70% of customers.
  • 2020
    • Allied World (AWAC) began to take a much more limited approach, not entertaining any new business at all in certain difficult venues and classes.
    • AIG withdrew from the MC E&O line, lowering D&O limits and coverage while increasing deductibles/premiums.
    • Interest in new business across the market is limited as COVID-19 has unknown liability implications.
  • 2021: Bowhead and Cap Specialty entered the market selectively and solely on a surplus basis.
  • 2022: Chubb sought a 50 percent rate on his entire book and under-limited the antitrust (class action) to $250,000.

With few exceptions on a case-by-case basis, the following list of alternative new business options remains:

  • Chatham MGA for Travelers/Berkley/Coverys: This really only functions as a single market and is selective, effectively making three markets into one.
  • iron shore
  • TDC specialty
  • Berkshire: Usually excess and very little activity
  • QBE: Excess only, mostly D&O only
  • Bowhead: Excess only
  • Cap Specialty: Excess only
  • Customer Developed Single Parents: These are notably among the Blue and Delta unification plans with sparse alternative commercial options.

A key reason for carriers’ reluctance is rising defense costs — and the catastrophic nature of multi-district antitrust class action lawsuits against Blue Cross/Blue Shield and Delta Dental Association members. Carriers responded with a market-wide disqualification for association-related claims.

YOY rate changes for E&O and D&O

Interest rate fluctuations have become the norm since 2017, but stabilization in 2021 has mostly reduced changes to 15% or less.

9 Key Risks for MCOs Today

Here are some of the key risks MCOs face in 2022:

  1. Increasingly aggressive regulatory environment: The Department of Justice (DOJ) and the Federal Trade Commission (FTC), the latter headed by Lina Khan, have signaled their desire to increase fines, penalties and enforcement efforts.
  2. Post-Roe (Dobbs) Decision increased process risks: This is especially true for HIPAA-related risks and compliance with law enforcement information requests.
  3. Challenges and opportunities related to the No Surprises Act 2021: While healthcare providers face financial risks due to the inability to pass “surprise” off-the-grid rates to consumers, this creates a framework for more transparent negotiations between plans and providers.
  4. Financial risks/impact of COVID-19: The past two and a half years have been very lucrative financially, as utilization has fallen significantly while premiums have remained high. This has led to consumer “headline risks” that remain as health insurers struggle to properly predict the rising costs associated with policyholders’ pent-up demand. Additional risks come from sicker patients and higher treatment costs due to a lack of preventive care.
  5. The Competitive Health Insurance Reform Act (CHIRA): The industry is yet to feel the full impact of CHIRA, but this law removes many of the safe havens that have plans to share rate information with each other, which will commonly result in costly litigation and enforcement fines/penalties.
  6. Antitrust claims relate to both E&O and D&O insurance: Then it’s nice to have the same carrier for both. You don’t get into a situation where two carriers are arguing about who is responsible for coverage. However, a carrier only defends under one policy. If you have coverage with a single carrier, your claim can be paid quickly, but you typically only have one set of limits due to anti-stack regulations.
  7. Cross-District Litigation: While the market has largely resolved this risk with its tie-in policyholders, its impact is still being felt by all in the form of higher prices.
  8. Transfer of Opioid Litigation: Patients or patient families can sue health plans for complicity in poor provider practices regarding opioid prescriptions. Meanwhile, providers can sue health plans for being kicked from a network. These litigation trends are particularly true for pharmacy benefit managers (PBMs), but we are now seeing a spillover to HMOs.
  9. Capacity problems with new providers: The “great resignation” has had a devastating impact on healthcare systems and providers of all shapes and sizes. Health spending has fallen for the first time in 60 years; At the same time, labor and utility costs increase by 20% to 30% or more. This will result in healthcare plan providers and/or health plan providers having insufficient provider coverage on their networks. This could trigger litigation from providers, policyholders and regulators.

Ongoing coverage developments in the 2022 market cycle

Here are the trends we’ve seen since early 2022.

  • Continued upward pressure on deductibles, sublimits and coinsurance, particularly for antitrust law. Shared retention/limits have become the norm.
  • A general reduction in Limits capacity both in terms of individual airline limit capacity and the reduced number of players. Any program with single-layer limits greater than $10 million will be reduced to a maximum of $10 million.
  • An opioid exclusion applies to PBMs in general. For all other tariff types, too, this is a case-by-case decision depending on the insurer and the insured. However, it is a sticking point for insurers in any renewal discussion. Nobody “gives it away”. The default position is an exclusion, which you may or may not be able to negotiate.

The final result

Carriers expect continued deterioration in results from the MCO sector. According to Laura Williams, vice president of managed care segment at TDC Specialty, “For example, we expect increased government attention as an aggressive FTC and DOJ enforcement apparatus emerges.”

Patients (insured) are returning to their healthcare providers and in many cases patients are sicker than before the pandemic. We have waived two years of screening and screening, and patients are experiencing declining quality of care while providers have reduced care capacities. When patients suffer poor outcomes, providers pay, which inevitably leads to higher costs and also increased litigation for payers.

The post-Dobbs and the Texas Heartbeat Law landscape is fluid and highly volatile as corporate employers/plan sponsors process and respond to its impact by balancing the law and worker demand for care.

Therefore, this market, although stabilized, is not likely to give way any time soon. There’s a real possibility things could turn for the worse once again as the broader carrier landscape feels the effects of Chubb’s fiercely conservative appetite.

In response to these conditions, Woodruff’s MCO brokers help our clients explore self-insurance, self-insurance and other alternative risk vehicles, and work with new carriers to create additional capacity and new markets.

This remains a challenging insurance market for health insurers, but with the right preparation, an experienced broker, and improved communication with the underwriter community, they can generate positive outcomes and avoid unwanted surprises.

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