Monthly Archives: June 2016

The Health Insurance Balloon is About to Pop

If you are reading the headlines about Obamacare lately you can’t miss the articles about how 2017 is going to bring significant increases in health care costs. Here are some of the headlines:

“The Pennsylvania Insurance Department says insurers have proposed premium increases averaging 23.6 percent for individual coverage for 2017.” (NY Times)

“Obamacare 2017: Health Insurance Costs are Ballooning – Texans’ Premiums Will Soar By Over 55%”

And according to the Wall Street Journal premium increase proposals for some states are as follows:

NY Times List

As I had mentioned in a previous blog these increases are not sustainable. That being said, I think the health care balloon is about to pop. And this is not just the exchange plans. It is the health care balloon which includes all plans. Let me explain.

Those in the health insurance business are familiar with the term “squeezing the balloon”. The implication is that when you try to control health care costs in one place it often pops up somewhere else. The cost of health care doesn’t go down it just moves from one place to another. The balloon gets squeezed but does not shrink. In fact, the health care cost balloon keeps on getting bigger and bigger.

For the past 20 or so years benefits brokers have been trying to help employers manage costs but have seen little success. For the most part there is very little a broker or an employer can do because there are simply too many things outside of one’s control to control costs over time. So the whole industry has mastered the art of helping employers find better risk pools. PEO’s try to attract employers by moving firms into a larger risk pool. Smaller and smaller employers have been moving to self-funded plans. Now we see “Captives” which is essentially a methodology of creating another risk pool. The idea for many of these employers is to get smaller employers out of small group community rates.

This idea of having all these different risk pools is quite interesting. Even the insurance companies create different risk pools. They have their individual insurance pools; their small group pools; and their large group experience rated pools. They put these employers in different buckets and mange those buckets. It almost seems like within a single insurer they have their own death spiral going on. By segregating their risks eventually, the smart companies or individuals will find a way to get into a better risk pool leaving the bad risks in another pool.

It is my belief that the government, and maybe society in general, will not let this persist. There are already complaints about the “game being rigged” resulting is income disparity. In some ways the health insurance game is heading in the same direction too, with different groups of people having much different experiences. I will not get into risk and underwriting here because it really doesn’t matter. If a large part of society can’t get affordable health insurance it is everyone’s problem.

The day may be coming where there may no longer be a place to hide. In a recent NY Times article Kurt J. Wrobel, Chief Actuary of Geisinger Health Plan stated:
“Our rates for Medicare, Medicaid and employer-sponsored insurance have been relatively stable, but those products have to bear the cost of our losses on exchange business,”

Geisinger requested a 40% increase for their exchange plans for 2017. If they don’t get it they have to make up for the losses somewhere else.

This health care cost problem is not going away. In fact, it is getting worse. I often tell my staff that when you see a problem staring you in the face, do something about it. The health insurance problem is staring us right in the face, right now, and if the industry doesn’t do something about it then someone else will. That someone in the U.S. is the government.

Many have said that the reason incomes are flat is because employers have been bearing the brunt of the health care cost increases over the past 5 years. Health care cost increases are consuming dollars that could be used to raise wages. Employees have been also getting hit with higher contributions for health insurance. Flat wages plus higher health care costs equals a negative income.

This problem is coming to a head. The balloon has no more capacity. Will 2017 be the “tipping point” that will force changes in unprecedented ways? I think so and there may be no place to hide.

Understanding the Benefits Broker Role in a new HR Ecosystem

This was written for Employee Benefit Adviser Magazine. The link to the article on their blog is here.

When the iPhone first came out in 2007 there were no apps other than what Apple provided; no third-party products like phone covers, car chargers, headsets, or wireless speakers. If you dropped the phone and broke the glass you couldn’t take it to the local mall to have it repaired.

Here we are nine years later and there are over 1.5 million apps. There are add-on products sold online, in pharmacies, convenient stores, airports, and all kinds of other retail stores, that make the phone more useful. If you wanted to write an app for the iPhone there are skilled programmers available around the world. And if you dropped your phone there is some person at the local mall who could fix it.

The majority of these products and services are not provided by Apple. They are provided by some person or company that one day made a decision to capitalize on the success of Apple and build something that users of Apple products would value.

According to the Financial Times, “technology ecosystems are product platforms defined by core components made by the platform owner and complemented by applications made by autonomous companies in the periphery…the core firm’s product has important but limited value when used alone but substantially increases in value when used with the complementary applications.”

In the HR/Benefits technology world the same rules apply. There is a core product and there are periphery products and services. A core product with an advanced ecosystem will have much more value. If you are an advisor in the benefits business it is important to know which products are core and which are periphery. If you are providing services it would be important to know how your service fits into the HR/Benefits tech ecosystem.

Many benefits brokers are not recognizing these HR technology ecosystems. Many think the benefits technology vendor they have chosen is its own ecosystem or the center of the clients HR world. At one time people thought the Earth was the center of our solar system too. This belief caused many problems with keeping the calendar, sailors navigating at sea, and keeping track of Holidays.

Thinking that benefits technology is the center of the HR Ecosystem also results in problems. Benefits aren’t easily administered or communicated. Systems delivered by brokers often aren’t easy to use or have issues with “integration”.

Working in a vacuum delivering siloed software creates the problem.

The HR technology market is in the midst of big changes. The market leading vendors are making efforts to grow their ecosystems to create more value for employers and employees while also creating space between themselves and those that want to take their business.

If you are a benefits broker it will be important to recognize this market change. You need to make decisions as to who you think the winners and losers are going to be. You would need to think about how what you do will fit into these HR ecosystems. This could impact everything from the products one sells, advice one gives, and the services one provides. Private Exchanges, benefits administration and communication are all impacted by how the HR ecosystem evolves and how these products/services fit in.

When it comes to benefits technology I always remind brokers that it is important to understand the tools of one’s profession. Understanding how technology impacts the benefits business does not make someone a technologist. It makes someone a better broker.

HR Technology is going through an evolution much like the cell phone business except we are 7 years behind. A few years from now there may be fewer vendors with much bigger ecosystems.

Providing some product or service that enhances the value of the right core HR technology solutions is an opportunity that can become very lucrative. At a minimum understanding the “tools of one’s trade” is a requirement to simply being a better benefits advisor. Either way, pay attention, because the HR/Benefits technology world is about to change.