Health+Benefits the May 2010 issue

2020 Vision

Looking back from the year 2020 to explain the impact of 2010 healthcare reform. Benefits brokers shift from the roles of their predecessors.
By Mike Turpin Posted on May 1, 2010

It’s May 2020. Healthcare reform has now been active for a decade with the majority of reforms having kicked in as of Jan. 1, 2014. Several healthcare amendments have been proposed and passed in the interim period, including the 2016 All-Payer Act normalizing reimbursement rates for hospitals and specialists between Medicare, Medicaid and private insurance. That bill precluded public-to-private cost shifting, improved the percentage of providers accepting government-based insurance, and arrested the rate of employers dropping private healthcare.

The American Family Practice Reimbursement Act, ratified in 2013 by a Republican-led Congress, created incentives to expand the use of “accountable care organizations,” or ACOs, the groups of providers that are held accountable for the cost and quality of care delivered to Medicare or health plan subscribers. The act also normalized reimbursement levels for primary care providers to Medicare plus 20% and included a package of incentives for medical graduates and nurse practitioners to practice primary care. A particular emphasis of the bill was the establishment of federally qualified health centers in urban and rural areas, where Medicaid statistics revealed high rates of chronic illness and minimal levels of compliance with requirements for preventive care to chronically unstable patients.

Companion legislation that passed in December 2016 increased the individual mandate penalty for failure to purchase healthcare so that it was made equal to the average cost of the lowest cost plans within state health exchanges. This approach was a response to actuarial forecasts showing adverse selection in exchange healthcare plans—with younger, healthier people paying the penalty of 2% of income instead of buying more costly coverage.

Rising healthcare costs are now finally moderating, with Medicare forecasting its lowest increase in five years. The private healthcare trend has moderated substantially for small businesses and individuals, but expenses continue to rise as larger employers resist adopting more aggressive lifestyle-based population health management plans. About 58% of workers are covered by employers, with the remaining 42% covered by Medicaid and the budding individual market. Some employees are taking advantage of voucher provisions, but others have been forced into guaranteed-issue individual health exchange markets by employers that have opted to pay fines instead of offering coverage.

After hitting a high-water mark for overall medical rates in 2014, the forecasted trend is for hospital costs to increase at only 4%. Prescription drug cost increases continue to hover at 10% in the private sector, with lower costs in public care.


Managed care companies have blended medical loss ratios (MLR) approaching 86%. They have ceded 200 basis points of higher profit margins in their fully insured individual book. Medicare Advantage and small-group businesses have adhered to mandated MLRs and the full loss of the 14% Medicare Advantage subsidy. Some states continue to enforce prior approval laws on rate filings, making it difficult for pricing to keep pace with costs.

Insurer market share has increased, helping profits, but the all-payer legislation has removed barriers to entry for new consumer-focused insurers. Insurers have shifted from opaque and complex provider contracting to focus on consumer activation, public health improvement and patient advocacy and satisfaction.

Reduced commissions and higher costs have created a wave of consolidation among brokers.

Insurers are now better branded and enjoy a more accepted role as a consumer ombudsman. Aetna’s purchase of Athena Health and Iron Mountain and United’s acquisition of WebMD and Revolution Health demonstrate the commitment insurers are making to health-information technology and consumer/provider data-management services.

Insurers have aggregated clinical data on quality and efficiency of doctors and hospitals to help patients choose providers wisely. High-performance networks have become the norm to ensure optimal value over an entire episode of care. Primary care reimbursement has increased for ACOs largely because of insurer incentive programs that reimburse family practice providers to keep healthy patients well and chronically patients stable.


Brokers in 2020 are predominantly fee-based, working with mid-sized and larger employers. The 85% MLRs imposed during the initial phases of healthcare reform slowly eroded commissions as the sole basis for compensation. Insurers seeking to protect traditional administrative and profit percentages within increasingly regulated markets have reduced fully insured remuneration to per-employee per-month payments and lower fixed commissions.

Reduced commissions and higher costs have created a wave of consolidation among brokerages.

State exchanges have established “connectors” that develop direct relationships with employers with fewer than 10 employees. Small brokerages and general agencies have merged in response to the connectors’ additional administration cost and reduced remuneration. Carriers have stratified compensation and distribution relationships based on broker business volume and year-on-year growth.

Brokerages and agencies serving employers with more than 100 lives also have been driven to consolidate because of declining margins, the inefficiency of a highly distributed broker network and the increasing sophistication of their clients. Brokers and agents who failed to justify their intermediary role have disappeared. The shrinking private insurance market has induced major houses to look beyond large employer business and focus on individual, small-group and middle-market segments. Four major houses control 50% of market share, bringing the resources necessary to add value to employers. Performance-based pay and incentive compensation are increasingly common.

States have modified laws prohibiting rebating to allow brokers to offer a range of services to support understaffed HR and benefits professionals. Brokers now routinely consult with customers on risk identification, risk mitigation, risk elimination, risk financing and risk transfer. Brokers harness in-house and third party clinical, underwriting, administrative, compliance and population health management programs.


Tertiary care facilities have endured substantial turmoil and change as all-payer legislation and market forces have pushed facilities to focus heavily on outcomes and value. Hospitals have accepted value-based healthcare and risk transfer through global case rates—helping to actively manage the care delivered by multiple providers within the inpatient setting. Clinical and customer quality outcomes are marketed over clinical capabilities.

Waiting times for elective surgeries have increased in some markets as over-saturation has eased. A private equity consortia has backed concierge hospitals with the expectation that demand for alternative access will grow. Consumers are increasingly using tourism benefit plans to pay for elective procedures outside the U.S.

Rising healthcare costs are now finally moderating, with Medicare forecasting its lowest increase in five years.

Hospitals are restructuring and closing due to reimbursement reforms linked to quality and efficiency. The number of registered hospitals has fallen from about 5,800 in 2010 to fewer than 5,500. Many of these closures have occurred in over-saturated urban markets.

Certain rural and inner-city hospitals once perceived to be most at risk due to their dependence on Medicare and Medicaid reimbursement have become models for business transformation as bigger systems have struggled to maintain their cache with lower reimbursements. Total transparency has become the norm.

A controversial but equally effective decision to regulate rates for certain types of admissions at teaching hospitals has better aligned disparities in charges where improved clinical outcomes could not be proven.


Specialists have reluctantly yielded to a brave new world of reduced reimbursement, consolidation and the first decline in new practice growth as medical graduates have been redirected to family medicine. Graduation rates for family practice docs have gained on pathology, radiology and anesthesiology from historic lows of 2% in 2010. A huge specialist-capacity problem looms because Americans are living longer with chronic illness and fewer providers are available to treat them.


Federal and state agencies have made modest strides in controlling the cost of existing entitlements through clinical and medical management services, not just through serial underpayment. With improved oversight of Medicare and Medicaid, states and the federal government have successfully clawed back up to $35 billion annually in fraud and waste. The additional savings have helped finance continued subsidies for the expansion of primary care. States now regularly enforce certificates of need to moderate the medical device and specialty care arms race that led to escalating costs in the early 2000s.

States are still struggling with obligations for retiree healthcare, specifically long-term care obligations that were not addressed in prior healthcare reform legislation.


The $40 billion of investments appropriated during the 2009 fiscal stimulus package in health information technology and physician and hospital practice transformation paid huge dividends in coordination of care and the reduction of waste. An impressive 85% of medical records are now maintained by providers and hospitals. The information technology transformation has drawn the U.S. closer to other industrialized nations for digital medicine and is hailed as an unmitigated success by the White House healthcare czar.

Tort Reform

Government has finally struck a middle-ground deal with the powerful plaintiff’s lobby by focusing on practical changes designed to reduce the frequency and size of medical liability awards. The guiding principle is to limit punitive damage claims through health tribunals when physicians have followed proven clinical best practices.

Reductions in health risks are rewarded with higher subsidies for individuals buying their own coverage or with lower contributions to employer-based plans.

Liability premiums have fallen 40%. The additional insulation from risk now affords doctors greater confidence in avoiding expensive over-treatment and reduces clinical variability that results in billions of savings from unnecessary care each year.

The Deficit

The projected net present value of the Medicare deficit has been moderated by declining Medicare recipient costs and all-payer reimbursement legislation. The projected savings should extend the life of the Medicare trust as well as bend the medical inflation cost curve. U.S. debt standing has improved, which in turn has reduced yields on Treasury bills, improving credit availability for many businesses. The dollar is slowly strengthening.


Medicare recipients now accept the “medical home” model as a necessary access point to the healthcare system. The focus is on personal responsibility and the elimination of barriers to care, reversing years of rising co-pays and deductibles that characterized employer-sponsored care at the turn of the century.

Employers and providers now understand that they must engage consumers to keep healthy. Health plans can offer consumers up to a 50% “incentive” to participate and comply with expectations for regular care and maintenance. Electronic medical records allow providers to better manage the treatment of patients with multiple conditions, such as diabetes, cardiovascular disease and chronic pulmonary complications.

Compliance with biometric tests, such as A1-C for blood sugar, is standard for the chronically ill. Home healthcare is delivered through accountable care organizations and federally qualified family practice centers that seek to reach underserved, high-risk populations using telemedicine and nurse practitioners, whose roles have been broadly expanded.

Now, 72% of Americans are accessing healthcare through a primary care provider. Emergency room visits for non-emergency treatment are declining from the early years of healthcare reform, when newly insured patients accessed care through hospitals due to a lack of primary care doctors.

Individuals now check their biometric health indicators through worksite and public kiosks, health clubs and primary care offices to measure progress on key health management indicators. Reductions in health risks are rewarded with higher subsidies for individuals buying their own coverage or with lower contributions to employer-based plans.

Consumers are encouraged to engage in end-of-life care discussions with providers who are graduating medical schools with a greater focus on life quality versus life extension.  The hospice and alternative home healthcare industries have expanded to accommodate a new set of incentives designed to give patients greater control and dignity through the process of coping with catastrophic illness.

With healthcare guaranteed, job mobility has increased. Small businesses have developed in myriad industries, and the economy has begun to see a new generation of cottage industry workers evolve out of a model that offered the best protection for employees covered under employer-sponsored plans.


Big Pharma and intermediaries, such as pharmaceutical benefit management firms, have seen margins squeezed. Costly specialty drugs are being held to a higher standard of value-based efficacy. Pharmaceutical companies substantially pruned their sales forces to partially offset margin declines as physician-decision support tools transformed doctors’ offices and allowed for better-coordinated on- and off-label use of medications.

2020 Vision

Pessimists may dismiss this crystal ball gazing as too idealistic a vision of a public/ private partnership emerging out of the Patient Protection and Affordable Care Act.  Others may argue that 2010 mid-term elections will be the beginning of a referendum on reform and those who might seek only to expand access without possessing the will to attack our affordability crisis. Many remain unconvinced and uncertain.

One thing is for certain: Any unsustainable trend eventually ends, and with that, a new era begins, forged out of the failures of the past and the enlightened promise of a better future.

Mike Turpin EVP & Managing Consultant, USI Insurance Services Read More

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