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


MCOs present unique challenges to the insurance community

A new development underscoring an already challenging environment for large private and public company investments is that Chubb is taking a very conservative stance. Chubb is a market leader with these types of investments, so its conservative appetite impacts the entire landscape.

Although there was ample capacity in the market until 2018, the last four years have seen capacity tightening in the MCO/health plan universe. This stems from a sheer lack of interest from the insurer community in MCO, especially the E&O and D&O lines. Simply put, the MCO industry is relatively concentrated, which presents underwriting challenges related to “risk allocation”. Additionally, “signature risks” for MCOs tend to affect multiple policyholders at the same time, so a single event can destroy an insurance company’s loss ratio in the industry. This is what we observe with the multi-district litigation (MDL) which hit the Blue and Delta plans.

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

  • 2018: BCS Insurance Company left the MCO market. BCS stopped writing E&O and D&O insurance, and about 20% of market capacity disappeared overnight.
  • 2019: OneBeacon Insurance Group exited the MCO market and sold renewal rights to TDC Specialty Underwriters. TDC re-subscribed the OneBeacon book and only renewed 60%-70% of customers.
  • 2020
    • Allied World (AWAC) started to take a much more limited approach and didn’t entertain new business at all in some tough locations and classes.
    • AIG withdrew from the MC E&O line, reducing limits and D&O coverage while increasing retentions/bonuses.
    • There is limited interest in new business in the market as COVID-19 creates an unknown impact on liability.
  • 2021: Bowhead and Cap Specialty entered the market on a selective, surplus-only basis.
  • 2022: Chubb requested a 50% rate on his entire portfolio and underlimited the anti-trust (class action) to $250,000.

With some exceptions on a case-by-case basis, this leaves the following list of alternative options for new business:

  • Chatham MGA for Travelers/Berkley/Coverys: This really only acts as one market and it’s selective, effectively turning three markets into one.
  • Ironshore
  • TDC specialty
  • Berkshire: generally in excess only, and there is very little activity
  • QBE: Franchise only, and usually only D&O
  • Bowhead whale: surplus only
  • Cap Specialty: Franchise only
  • Customer Developed Single Parent Captives: These are unique among Blue and Delta association plans with few alternative business options.

A major driver of carrier reluctance is increased defense spending and the catastrophic nature of multi-district antitrust class action lawsuits against Blue Cross/Blue Shield Association members and Delta Dental. Carriers responded with a market-wide exclusion for association-related claims.

YOY rate changes for E&O and D&O

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

9 main risks for MCOs today

Here are some key risks MCOs will 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 willingness to increase fines, penalties and enforcement efforts.
  2. Job-Deer (Dobbs) decision increased litigation risks: This is especially true for HIPAA-related risks and compliance with law enforcement records requests.
  3. Challenges and opportunities related to the “No Surprises Act” of 2021: As healthcare providers face financial risk due to the inability to pass on “surprise” out-of-network tariffs to consumers, it creates a framework for more transparent negotiations between plans and providers.
  4. Financial risks/COVID-19 impact: The past two and a half years have been very lucrative financially as utilization has dropped significantly while premiums remain high. This has introduced “flagship risks” from consumers, which remain as health plans struggle to properly forecast the rising costs that come with pent-up demand from policyholders seeking care. Additional risks come from sicker patients and higher treatment costs due to lack of preventive care.
  5. The Competitive Health Insurance Reform Act (CHIRA): The industry has yet to feel the full impact of CHIRA, but this law removes many of the safe harbors provided for sharing pricing information between them, which is expected to lead to costly litigation and fines/penalties .
  6. Antitrust claims affect both E&O and D&O insurance policies: That’s when it’s nice to have the same carrier for both. You won’t find yourself in a situation where two carriers are arguing over who is responsible for coverage. However, a carrier will only defend under one policy. Having coverage with one insurer can allow you to pay your claim quickly, but you will usually only have one set of limits due to anti-stacking provisions.
  7. Multi-district litigation: While the market has largely resolved this risk with its Association Plan policyholders, its impact is still being felt in the form of higher prices for everyone.
  8. Opioid litigation involving: Patients or families of patients can sue health plans for being complicit in providers’ poor practices regarding opioid prescriptions. Meanwhile, providers can sue health plans for being kicked out of a network. These litigation trends are especially true for Pharmacy Benefit Managers (PBMs), but we are now seeing spillover effects to HMOs.
  9. Emerging Supplier Capacity Issues: The “Great Resignation” has had a devastating impact on health systems and providers of all shapes and sizes. Health spending is down for the first time in 60 years; at the same time, labor and supply costs increase by 20% to 30% or more. This will result in health plan and/or health plan providers ending up with inadequate provider coverage in their networks. This could trigger litigation from providers, policyholders and regulators.

Continued hedging developments in the 2022 market cycle

Here are the trends we’ve seen since the start of 2022.

  • Continued upward pressure on retentions, sub-limits and coinsurance, especially for antitrust. Split retentions/limits have become the norm.
  • An overall capacity limit reduction both in terms of each carrier’s capacity limit and reduced number of players. Any program with single layer limits over $10 million is reduced to a maximum of $10 million.
  • An exclusion of opioids is universal for PBMs. This is also a case-by-case decision for all other types of plans depending on the insurer and the insured. However, this is a sticking point with underwriters during every renewal discussion. No one “gives” it. The default position is an exclusion that you may or may not negotiate.

The essential

Carriers expect to see continued deterioration in MCO results. For example, according to Laura Williams, Vice President of Managed Care Segment at TDC Specialty, “We expect to see an increase in government attention with the emergence of an aggressive enforcement apparatus from the FTC and the DOJ”.

(Insured) patients are returning to their health care providers and in many cases patients are sicker than before the pandemic. We have given up two years of preventive care and screening, and patients are experiencing a deterioration in the quality of care while providers have reduced care capacity. When patients experience poor outcomes, providers pay, which inevitably leads to higher costs and increased litigation for payers as well.

The post office-Dobbs and the Texas Heartbeat Law landscape is fluid and highly volatile as plan employers/sponsors digest its impact and how to respond to it, balancing the law and employee demand for care.

So, although stabilized, this market should not weaken any time soon. There’s a real possibility this could take another turn for the worse as the wider carrier landscape feels the impact of Chubb’s heavily conservative appetite.

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

It remains a tough insurance market for health plans, but with proper preparation, experienced brokerage, and improved communication with the underwriting community, they can achieve positive results and avoid unpleasant surprises.


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