Tag: health insurance

Health Insurance Open Enrollment Period (OEP) 2021: Key Changes, Challenges, and Opportunities | Blog

“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” – Charles Darwin

Charles Darwin’s famous words aptly describe what healthcare payers need to do in the times of COVID-19. The pandemic’s disruptive nature has forced the industry to accelerate adoption of many concepts –  such as telehealth – that had earlier been considered at least half a decade away from becoming mainstream. The changes that the US Centers for Medicare and Medicaid Services (CMS) has proposed for the health insurance Open Enrollment Period (OEP) 2021 are a clear indicator of these transformative times. The objective of these changes – such as the expansion of telehealth coverage, more transparency through regulations such as the Interoperability and Patient Access rule, and changes in risk adjustment / star ratings calculations – is accelerating the CMS toward its goals of universal coverage, transparency, member satisfaction, interoperability, and resilience.

As the OEP is a time when healthcare payers strategize about how to increase their enrollment numbers (in the short term) and achieve operational and business transformation (in the long term), it is imperative that payers not only understand the upcoming changes but embrace them through the right investments. OEP 2021 becomes effective November 2020, so healthcare payers are in the midst of the planning season.

In this blog, we take a look at the key changes CMS has proposed for OEP 2021 and analyze their impact on healthcare payers.

Exhibit 1: OEP 2021 proposed changes

Key changes suggested by CMS for OEP 2021

The impact of CMS-proposed changes on healthcare payers

CMS’ recommended changes for OEP 2021 are likely to impact healthcare payers in multiple ways:

  • Shift in membership and profit pools: The change in healthcare payers’ membership bases due to factors such as rising unemployment (which has reduced the employer-sponsored plan base) and the enrollment of End-stage Renal Disease (ESRD) patients in Medicare Advantage (MA) plans is likely to increase healthcare payer costs.
  • Member transparency and control measures: OEP 2021 has a slew of changes aimed at ensuring transparency through data sharing with members/patients via APIs and third-party apps. These changes include mandating the use of Real Time Benefit Tools (RTBT) for Part D plans and rules requiring plans to disclose the measures used to evaluate network pharmacy performance. It is clear that the CMS wants health plans (particularly MA Part D in this case) to invest in technology, data sharing, and reporting to enable the next phase of member-centricity in healthcare.
  • Medical Loss Ratio rebates support: Administrative Loss Ratio (ALR) / MLR has always been a pain point for healthcare payers, as an unfavorable ratio implies refunds and complex readjustments. With the CMS offering some rebates to payers in terms of how they calculate MLR, payers are likely to invest in improving care delivery initiatives.
  • CMS reporting dilemmas: With the CMS pushing healthcare payers to share actual member/patient experience data for Star Ratings and Risk Adjustment score calculations, healthcare payers will need to invest more in member satisfaction.
  • Shifts in health plan benefit inclusions: Telehealth services are only one set of inclusions that payers need to think about incorporating in plan benefits. Many other areas merit attention, such as member support, personalized communications, reorganization of provider network, and plan tiering.

How can payers navigate the changes and what are the likely sourcing implications?

While OEP 2021 is just another milestone for the CMS to drive healthcare efficiency, it is also notable that the changes are happening in the backdrop of the COVID-19 pandemic. The timing presents healthcare payers with both challenges and opportunities. In fact, industry experts believe that if ever there was a time for payers to change, it is now. This means that payers need to prepare strategies quickly to navigate the CMS-proposed changes, as well as changes arising from the COVID-19 disruption. The strategies will, in turn, lead to changes in their sourcing practices, thereby creating opportunities for outsourcing them to service providers.

Exhibit 2 lists the strategies that, we believe, healthcare payers will adopt in the coming months and the sourcing implications for each of them.

Exhibit 2: Payer mitigation efforts and sourcing implications

Payer mitigation efforts and sourcing implications

For the outsourcing and third-party vendor community, this is the right time to help mitigate the impact of OEP 2021 and the pandemic on healthcare payers. Service providers should align their offerings with payer needs.

If you’d like to know more about OEP 2021 and its wide-ranging impact, please read our recently published viewpoint Open Enrollment 2021 Primer: What to Expect and How to Navigate in the Wake of COVID-19. You can also reach out to me directly at [email protected] if you have any questions or observations.

Break-ups are Painful, Difficult, and Costly; The Current Insurance Payer Merger Saga | Sherpas in Blue Shirts

In July 2015, two mammoth players in the U.S. health insurance market decided it was time to form even bigger entities, similar in size to UnitedHealth Group (which held 17 percent of the market.) First it was Aetna deciding to merge with Humana, primarily consolidating the Medicare Advantage market. A few days later, Anthem and Cigna, with a relatively more complementary membership base, decided to merge.

By the end of 2015, shareholders of all four insurers had approved the deals. However, the Department of Justice and several states (mostly Democratic ones) opposed and appealed against the mergers. In early February 2017, the federal court ruled both anti-competitive and blocked them, citing increased concentration.

Had the mergers been approved, Anthem-Cigna would have led the market with highest share of the entire insured population, followed by UnitedHealth and Aetna-Humana. In Medicare Advantage (MA), Aetna-Humana would have surpassed UnitedHealth to become the market leader.

Insurance payer mergers

Let’s take a look at what transpired in both cases.

Aetna and Humana
On February 14, 2017, the two companies mutually decided to end the merger agreement, rather than appeal the antitrust decision. Due to a contractual clause intended to ensure both parties remained encouraged by the merger prospect, Aetna will have to pay Humana a break-up fee to the tune of US$1 billion. This massive financial hit does not include various other expenses Aetna had to incur in order to prepare for the deal, including legal and accounting fees, bonds issuance fees, interest to be paid while repurchasing the bonds, and the premium it has decided to pay for bond repurchases. All told, the total cost of the merger that didn’t happen will be around US$2 billion for Aetna. This is a relatively straightforward scenario, albeit very costly for Aetna.

Cigna and Anthem
This is a much more complicated situation. Since the merger was first announced, a lot of animosity has grown between these two insurers. Cigna has gradually changed its stance from being pro-merger to anti-merger. In fact, Cigna has gone to the length of filing a lawsuit against Anthem, and asking for $13 billion in damages. This does not include $1.85 billion that Anthem owes to Cigna as a termination fee. Anthem, however, appealed this, claiming that the merger deal timeline is valid until April 30 – and it is still hopeful for merger activity.

Unless Anthem and Cigna accept the ruling without appeal and carry on with business as usual, I see two possible scenarios here:

  • Convince the new administration that the deal will have a positive impact on consumers, and get it approved with the help of the new head of the Justice Department
  • Accept the ruling, and use the money (planned or already raised) to fund acquisitions of smaller payers without triggering the antitrust regulations

The first option seems less likely. However, since the new U.S. president’s swearing in ceremony, we have seen that extreme events cannot be explicitly ruled out with the new administration. Additionally, Trump’s and Republicans’ plans to repeal and replace Obamacare will require support from the industry…and who better to support this than two of the top three publically-listed payers? Another key element in favor of these mergers being approved is that the new administration is more lenient when it comes to antitrust matters than the previous administration, as evidenced by the possible approval of the Bayer and Monsanto deal.

The second option would result in Anthem paying a hefty amount for failure to be able to complete the deal.

The high termination fees for these deals gone bad will likely negatively impact Aetna and Anthem (if indeed the Anthem/Cigna merger doesn’t happen.) For example, per the latest filings, Aetna’s net margin has declined from ~5.9 percent in 2011 to 3.6 percent in 2016, while Anthem’s was 2.9 percent in 2016, down from ~4.4 percent in 2011. As a result of the lawsuit filed by Cigna, Anthem will end up shelling out even more than Aetna, as even if we the decision is in favor of Anthem, it will still have to pay litigation expenses.

Insurance payer mergersThe road ahead for these payers is filled with uncertainty, especially for Anthem and Cigna, since they are embroiled in a legal battle. Yet one thing we can be certain of is that Aetna and Humana are watching from sidelines, potentially resuming merger talks if the Anthem-Cigna deal is approved. While it remains to be seen how the new administration reacts, things should get clearer in the coming months.

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