Trumpcare: yet another complication for US healthcare

11 July 2017

Most businesses in the US expect big changes as a result of the election of Donald Trump as President, but few face as much uncertainty as US healthcare providers and their insurers. By Garry Booth

Both sectors have barely got to grips with the many challenges posed by President Obama’s Patient Protection and Affordable Care Act (ACA) and are now forced to turn their attention to the potential effects that revisions to the Obamacare structure will bring.

President Trump has said he wants to repeal parts of the ACA and replace them with a mix of tax credits, health savings accounts, high risk pools, state Medicaid block grants and the transfer of regulatory control from the federal government to individual states.

Several parts of the law that deal with insurance market reform, such as guaranteed issues, cannot be repealed in what is currently the budgetary process in Congress and would have to be addressed by lawmakers much later during Trump’s administration.

Hospitals, especially those in states that expanded Medicaid, could experience a dramatic increase in uncompensated care. Health insurers likely would lose most of the $1.9 trillion in federal ACA-related subsidies slated to be doled out over the next ten years, according to Price Waterhouse Cooper.

Recent commentary has stated that new amendments to the Health Care Act will get through congress but clearly no one really knows how long ‘repeal and replace’ will actually take.

Impact of uncertainty on health insurance

Meanwhile, despite the uncertainty created by ACA, US health insurance companies were profitable in 2016. 

The sector’s net income improved to $9.4 billion in the third quarter of 2016, compared with $8.7 billion in the same prior-year period, according to A.M. Best’s 2017 review of the market.

But A.M. Best expects the exchange business to remain a drag on earnings for 2017. Along with uncertainty surrounding the potential repeal and replacement of the ACA, the rating agency warned that mounting pressures could result in negative rating actions on health insurers.

The nation’s healthcare providers have been busy adapting to ACA, and hopefully the strategies they have been adopting will help them through the transition to Trumpcare rather than this being a complete change in direction.

Paul Voller, Head of the Healthcare Risk Partners practice at JLT Re, says the evolution of ACA has stimulated merger and acquisition activity among providers, both hospitals and physician practices.

“There’s less reimbursement under ACA so smaller hospitals have been hit by falling revenues and are looking for buyers,” he explains. “They’re attractive to larger entities who want to use them as outreach satellites to the ‘mothership’.

A parallel trend resulting from the implementation of ACA is the reduction in the number of independent physicians, Voller says. 

“Like the smaller and medium-sized providers they are challenged when it comes to costs and so they are selling up their clinics and taking up employment,” he explains.

JLT Re has an expert view of the US healthcare market, especially from the medical malpractice insurance perspective. Of the circa 900,000 physicians operating in the US, JLT Re handles Programs covering approximately 248,000 Physicians.

As well as offering facultative direct broking services to healthcare providers and to industry captives, JLT Re’s Healthcare practice also advises med mal specialty insurers on their treaty reinsurance arrangements.

Rate reduction in the healthcare insurance market

In line with other sectors across the property- casualty spectrum, the healthcare industry insurance market remains soft. For many med mal writers, rates have been falling for years as evidenced by the industry’s reducing premium volume.

According to US consulting actuary Milliman, there has been a cumulative decline in rate levels for several markets of more than 25 per cent over the past several years.

In its 2017 Insurance Market Outlook, Wells Fargo analysts forecast a 5 per cent to 10 per cent decrease in med mal insurance rates.

JLT Re’s Healthcare practice observes that the abundance of capital and the entrance of new players have heightened competition in the med mal insurance market. 

This is happening at a time when the focus on patient safety and the risk management performance of clients has advanced, greatly reducing their med mal claims frequency.

So the profound improvement of clinical care in the market has contributed to prolonging the soft market. Global reinsurers have entered the market as net writers, contributing to the soft market environment.

Reinsurers can absorb considerable loss and, like other new entrants, they don’t have the legacy issues that weigh on some of the incumbent players. It is noticeable, however, that the frequency of severe losses is increasing even in those States that have a cap on non-economic damages.

Managing risk with reinsurance

On the reinsurance treaty side JLT Re is set to further strengthen its position as a market leader in medical professional liability following the acquisition of Minneapolis-based reinsurance intermediary StoneHill Reinsurance Partners LLC last year.

Richard Jameson, Partner at JLT Re, says the reduced frequency and overall results of the industry have led to the significant accumulation of capital for many med mal treaty reinsurance clients. 

“They are consistently looking for value-added ways to deploy this capital, whether by offering expanded coverage, entering new territories (sometimes by acquisition) or by entertaining complementary lines of business.

Reinsurance becomes a significant tool for managing the risk in these business strategies.”

Further, the line between med mal insurance risk and health insurance risk has become more blurred with the increase in value-based reimbursement mechanisms under the ACA. 

Dan Koshiol, Executive Vice President at JLT Re and prior CEO of recently acquired StoneHill, noted he has seen an increase in the partnerships formed between insurers and reinsurers from both lines of business as they come together to form products aimed at capping risk to providers.

“Our reinsurance clients advise health providers daily on mitigating their risk, and this risk has changed dramatically in recent years. So, the solutions that help them offset risk must also evolve.”

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For further information, please contact Paul Voller on +44 (0)20 7466 6470 or email paul.voller@healthcareriskpartners.london