Little did I know that the children’s game of Hide and Seek would provide valuable lessons for a life in business. But success requires trying new strategies, moving in different directions and venturing away from the illusion of comfort that home base appears to provide.
To win at Hide and Seek, you had to be flexible in your thinking to find great hiding spots, had to make a decision while the countdown was ticking and had to move fast if you wanted to win. Managing healthcare profits in a post-ACA world works the same way.
Hide and Seek is a business strategy used in healthcare like no other industry. The key players resist transformational change and use the power of political lobbying, fear, confusion and an almost unbelievable – you can’t make this stuff up – kind of limited transparency.
By lack of transparency, I mean like playing Hide and Seek with no moon in the sky and wearing all black. There’s no way you were going to find my hiding place!
Fully insured health insurance companies and HMOs are exceptional at playing Hide and Seek, with profit margins hidden in the premiums.
Besides the Affordable Care Act and its new extra charges and taxes, you have to look really hard to find out where the contingency margins are hiding in the premium calculations – especially when you consider that there is very limited transparency in the actual healthcare renewal calculations. Ask yourself – did your employees’ good health and low healthcare utilization inure to your corporate bottom line or to the insurance companies?
So, where are the good profit margin hiding places in the fully insured premiums? Let’s take a peek at the ones hiding inside the employer-paid healthcare premiums? For starters, try looking at the pooling charges, medical claims trend factors, demographic load factors, pharmacy claims trend factors or the capitation trend factors.
Of course, there are more profit margin hiding places in the retention factors, IBNR reserve, claim stabilization reserve, pending claim reserve and the earned interest rate assumptions built into reserves.
Don’t limit yourself playing Hide and Seek with your local fully insured health insurance company or HMO, because the game is rigged against you as long as there's no financial transparency, profits can be hidden, your company’s good claims subsidize bad risks and you have no way of being rewarded for good claims.
The situation reminds me of the poor kid who always lost at “Bubble gum bubble gum in a dish” or “Engine, engine #9 going down Chicago line” to pick who was going to be "it" first. He didn’t know he was playing a rigged numbers game.
The answer was hiding in plain sight... and no one told him.
And, now you know!