| US Insurance cost challenges creates increased opportunity for outsourcing vendors |
| Wednesday, 09 March 2011 | |
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The healthcare industry is gearing for significant momentum due to ongoing regulatory changes in the US. These changes are being brought about by the Patient Protection and Affordable Care Act (PPACA), the Health Care and Education Reconciliation Act of 2010 (HCERA) and allied reforms such as the American Recovery and Reinvestment Act of 2009 (ARRA) that indirectly affect social benefits such as healthcare.
The PPACA aims to provide full coverage by for its elderly, poor and low income groups. Healthcare in the US is predominantly provided by private physician practices and hospitals. Around 60% of Americans receive health insurance through their employers but there is no fixed percentage or proportion of employee contribution as these healthcare plans are varied and the cost of healthcare is escalating. Some states in the US have worked on a universal healthcare plan, e.g. Minnesota, Massachusetts and Connecticut, but the majority of residents lacked complete access to public funding, insurance cover and affordable healthcare. These issues were the reasons for which healthcare reforms are under way in the US. This healthcare reform, also dubbed ‘Obama care’ has been one of the priorities of President Barrack Obama’s administration for the last couple of years. Some current regulatory changes that are boosting demand of healthcare include
The inclusion of around 30 million more people into the healthcare system leads the outsourcing industry to anticipate increased capacity demand. One challenging provision of the healthcare reforms is the MLR (medical loss ratio) benchmark established in the PPACA. For a healthcare insurer, MLR is the percentage of premium dollar spent on actual healthcare expenses. General and administrative overhead costs and profits typically make up the rest. According to PPACA, healthcare insurance companies have mandated medical loss ratios (MLRs) of 85% for large groups of over 100 and 80% for small groups and individuals, effective since January 2011. This Medical Loss Ratio (“MLR”) requirement is expected to have far reaching effects on healthcare coverage, carrier costs and broker compensation. As a result of MLR maintenance, if health insurers spend less than the required percentage on claims and health care quality expenses, the underpayment must be returned in the form of rebates to its enrolees (back to those who invest in the plans, i.e. quite simply the insured). MLR is one way of monitoring private health insurers, in terms of the money they are making and the benefit they are adding to the community. By making sure they invest more in actual health coverage, insurance companies will need to adjust their expenses on non core areas, including administration. The most logical way that health insurers can cut back on their costs, is by increasing efficiencies and outsourcing even more, if not already, which means good news for vendors. - Runa Mookerjee, Analyst, Sourcing Practice |
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