First in a series
As the alternative funding landscape evolves with group health plans, trends appear — helping benefit advisers predict what will shape the near and distant future
Since there are so many new and exciting opportunities to address, we will examine five of 10 such predictions spread over two commentaries this week (and be sure not to miss out on either of them!). For now, let's take a closer look at several interesting developments that come to mind. They include ditching fully insured plans for
Read more:
1. Health plans that pay you back?! Expect an explosive rise in MSL captives
Our first prediction is built upon another prediction – per experts, U.S. employers will experience a median healthcare cost increase of 7% to 8% this year and at least 5% projected for 2026. As the cost of providing healthcare coverage continues to rise, and social and political forces continue to build, we foresee an uptick in the number of SMBs opting to self-fund their employee benefits plan through MSL captives. MSL provides financial protection to self-insured employers by covering healthcare claims that exceed predetermined thresholds and combining it with a captive allows for the potential of receiving unused premium surplus. In addition to protection, MSL captives provide SMBs cost stability and opportunities to manage and diffuse risk that would be more difficult for them without the collective power that comes with being a part of a captive community.
2. Continued migration from big-brand fully insured and over-priced products
SMBs' shift toward captives and other alternative funding solutions is part of a larger exodus from fully insured plans. While the traditional insurance model might be ideal for big-brand insurance companies, skyrocketing healthcare costs are opening employers' eyes to the inequity of the system. In a fully insured plan, the insurance company assumes all financial risk and retains unused premiums. It also has multiple service lines that the plan can charge for, coming away from the arrangement with much more than the actual cost of medical and Rx claims. Meanwhile, the SMB remains locked into a fixed premium amount, regardless of the amount of healthcare services they consume. SMBs are increasingly realizing that fully insured plans tend to cost them 10% to 15% more than self-funded plans. Additionally, MSL makes it possible for the employer to customize how much risk it wants to retain (deductible) and how much they want to insure, allowing the company to budget and account for all potential expenses even though it's self-funded. We envision many more SMBs leaving the fully insured world for greater transparency, control and cost savings.
Read more:
3. Solving for adverse risk retention: Can big captives afford the losses to preserve their broader risk?
SMBs considering joining a captive should do their research since not all captives are created equal. In fact, the majority exacerbate the widespread issue of adverse risk retention by issuing all captive members a rate cap and no new laser provision (some in perpetuity), regardless of whether the employer contributed to the captive's sustainability. This anything-goes approach often drives accountable captive members (also known as "good risk") out of the captive, contributing to a cycle of continuous decline. We predict large captives will struggle with adverse risk retention, especially with accountable and transparent captive options on the market. Progressive captives are rewarding accountable employer behavior with renewal rates, the distribution of underwriting surpluses, and favorable contractual terms to incentivize good risk to remain in the captive and push unmitigated addressable and avoidable risk out, solving for adverse risk retention.
4. No-IHQ level-funded products find traction with progressive carriers as confidence in AI underwriting incrementally grows.
Artificial intelligence (AI) is disrupting most industries, health insurance included. A growing number of progressive carriers are placing more trust in AI underwriting tools focused on SMBs, and even dropping individual health questionnaires (IHQs), also known as "app-less" level-funded products. This is a hot topic in the SMB market, where benefit advisers are looking for simple, easy and fully integrated solutions. The number of carriers willing to aggressively enter the SMB market is small but growing, with many of them requiring the use of request-for-proposal (RFP) portals that can average 25 minutes per submission.
Today's "app-less" and integrated products can be extremely valuable, justifying why benefit advisers are spending a lot of time and energy crafting and submitting individual RFPs to each carrier, only to receive another decline-to-quote (DTQ) response. These carriers are specific on what risk their AI should underwrite and most benefit advisers don't know the difference. This problem is exacerbated given that the DTQ rates for app-less level funded products are two to three times higher than traditional markets. This means benefit advisers are averaging more than 10 hours of work for potentially zero competitive quotes, which is an issue that will resolve through carrier capacity increasing, and as service companies master and automate this process.
The advent of services that allow benefit advisers to access multiple competitive alternative funding quotes through a single RFP submission stand to save countless hours of work. This will pave the way for easier adoption and higher acceptance of alternative level-funded plans.
Read more:
5. Rise of TPA 2.0: Ditching legacy administrators for tech-enabled claims management
In 2024, employers including Johnson & Johnson and Mayo Clinic (and Mayo Clinic's plan administrator) found themselves in the headlines and at the center of class-action lawsuits. They stood accused of overpaying for prescription drugs and mismanaging health benefits (the former), as well as underpaying claims and lacking transparency (the latter). The spate of lawsuits underscores legal and ethical risks employers take by entrusting insurers or TPAs owned by insurers with plan management. Fortunately for SMBs, a new class of TPAs is empowering them to contract directly with providers in a cash-price based network. SMBs that align with a TPA 2.0 soon realize the arrangement is a winning formula: In addition to having more insight into plan management, they benefit from tech-enabled claims management that allows them to pay less per employee per month. Their employees access healthcare at an oftentimes significantly lower cost than care at insurer-negotiated prices. The rise of TPA 2.0 shows no signs of slowing down.
We're halfway through our list of predictions. Stay tuned for the other half on Wednesday!
