It was just last month we reported that health insurers were living the good life with strong balance sheets. That's likely to change soon, however, as certain healthcare reforms kick in and insurers prepare for others still three years away. With this in mind, I asked Paul Keckley, executive director of the Deloitte Center for Health Solutions, what he thought we could expect from the health insurance industry in 2011.
HL: What major trends can we expect to see next year?
Keckley: Consolidation will be one of the biggest. M&A activity is happening at full speed as we head into 2011. Many insurers are taking advantage of health reform to buy smaller plans, and are doing so at a discount since the law creates some issues that will be difficult for smaller players to accommodate. We may even see some consolidation among the jumbo players because scalability and sustainability will be so closely related in the next few years. Health plans are operating at thinner margins and spreading costs over a broader footprint.
HL: What the major impetus for this?
Keckley:It's the composite of increased regulation of how the insurance industry manages its risk. They are disallowed from preexisting condition considerations for individuals under 18 years of age. They are also now required to cover a number of preventive health services without any co-pays and deductibles. And they have to operate under an increased set of rules around transparency. Insurers are looking to offset the additional 4 to 6 percent in costs it will take to operate under healthcare reform. With medical loss ratios regulations taking effect, they will not be able to pass on these costs to employers or individuals.
HL: And healthcare costs aren't likely to retreat anytime soon …
Keckley: Underlying healthcare costs are going up at a minimum of 6 percent this year, if not higher, and Medicare is projected to go up 8.4 percent. There is also an urge to merge with doctors, hospitals, and long-term care providers consolidating into integrated delivery systems, which makes contracting a challenge. When these factors are combined with healthcare reform, it's the perfect storm for health plans.
HL: Sounds dire. Is there anything positive that health plans can hang their hats on?
Keckley: The notion that the industry is somehow mortally wounded is simply false. There is a degree of clarity about what will happen with healthcare reform. No one is delusional. Each company seems to be developing a number of future-state scenarios. It's not that the industry is going uniformly in a single direction. Companies are weighing a lot of options. We are seeing substantial investments of health plan resources in new service lines. They have an enormously rich asset in data. We're seeing some plans monetize their data in various ways. Many see themselves in the personal health management business selling services around how patients care for their health—wellness and healthy living as a major focus of new services. The fact is, the industry will remain very viable and in fact grow, but don't expect it to look quite the same in five years.
HL: I'm hearing more and more about health plans considering global markets. Is this a bona fide trend, or just a strategy for a handful of plans?
Keckley: Some believe the global market has more growth potential. But it's very difficult to break into another country's health system. You need a balance sheet with substantial liquidity to really make that bet.
[Editor's Note: To hear an audio interview with Keckley on the topic of ACOs, click here.]