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Letter to Congress on Replacing ACA

Dear Majority Leader McCarthy,

I offer the following comments and recommendations in response to your letter dated Dec. 2, 2016, as the House of Representatives moves forward with the repeal of the Affordable Care Act and offers meaningful healthcare policy suggestions that place the best interests of the consumer and the market ahead of continued government marketplace meddling.

As the Oklahoma Insurance Department surveys the private individual health insurance market in Oklahoma, it is apparent that consumers, insurers and providers are in a combined state of distress. We see the expected marketplace failings, because of government intervention, of limited competition and consumer choice in both benefit plans and provider networks that have led to ever-increasing premium costs. Consumer confusion and dissatisfaction is prevalent and is shared by other marketplace stakeholders.

It is time we start thinking differently and move toward more innovative solutions that are working in other countries. We don’t know what health insurance is going to look like in 10, 15 or 30 years. We have to start putting the processes in place at the state level to allow for real innovation in this sector, one that has been totally hampered by government intervention for decades. To that end, one thing that has recently come to our attention that we think would be of interest to everyone is contained in the attached memo [at the bottom of this article] from Dr. David M. Dror, chairman of the Micro Insurance Academy and executive chairman at Social Re Consulting (pvt) Ltd. The memo focuses specifically on “health insurance to the uninsured and lessons from delivering microinsurance in low-income settings in India, Asia and Africa.” This memo is an example of innovative thinking that we need to consider for certain microsegments of the population in the U.S. We need to look for new solutions similar to microinsurance that have yet to be considered in the U.S. but that are working in other countries.

The current landscape presents us with a real opportunity to examine the principles on which we want to base our health insurance markets. For far too long, health insurance has drifted away from traditional insurance concepts (like fortuity) and has turned into a cost-sharing program instead. It is no wonder that health insurance premiums are spiraling out of control when every health insurance policy is required to pay for a very costly menu of benefits without regard to preexisting conditions. Health insurers should be allowed to underwrite for fortuitous risk and should not be forced to assume known chronic claims. Imagine how much we would pay for auto insurance if the policy was required to pay for all damage occurring over the life of the vehicle and even before the coverage was effective.

We have in front of us now a chance to reject this creeping sentiment that health insurance is an entitlement rather than an insurance product.

For the nearly 300,000 eligible Oklahomans who look to the individual market for coverage — including many of the citizens of tribal governments — Congress must take action that (a) stabilizes the marketplace for policy year 2018; (b) returns to the states the flexibility to self-determine the scope and depth of insurance coverages that best serve the citizens; and (c) restores the regulatory authority to state insurance departments that protects consumer interests and enables issuers to deliver value-based, affordable policies that best serve their constituents. 

See also: Obamacare: Where Do We Stand Today?  

A free market, grounded in fair and limited regulatory oversight — which is predicated on constitutional freedoms and rights — presents the best possibility of delivering sustainable access and affordability in this marketplace going forward. As we move forward, a properly designed policy must target improvement of health outcomes along with control of healthcare costs, reduction of administrative and regulatory burdens and advanced system sustainability.

Marketplace Stabilization

Vice President Mike Pence and Speaker of the House Paul Ryan recently discussed their intentions to have a “smooth transition” to stabilize the health market. Their approach will marry the White House’s planned executive orders with legislative approaches to stabilize the market as our country begins to repeal and/or replace the disastrous ACA. This approach, formulated and led by Congress and the White House, will be difficult. The states stand ready to do their part to ensure the transition is as smooth as possible. Promises by the federal government under the Democrats’ control have placed this country on a very dangerous path that will take time to unwind through a budget-neutral approach. Saddling this burden on the citizens without the funds to back it up is reckless and irresponsible.

There would be no more significant signal by Congress and the new administration of their intent to stabilize markets than to fulfill the payment obligations made by the federal government under the ACA Risk Corridor program utilizing any existing money to avoid deficit spending. These promised safety valve payments are not bail-outs of insolvent companies but rather the fulfillment of a promise previously made to insurers. Further stabilization initiatives for carrier participation in policy year 2018 and beyond would include an immediate fix of the Special Enrollment Period (SEP) eligibility problem using robust verification and documentation criteria and waiting periods for market re-entry; repealing ACA fees (PCORI, HIT and FFM issuer fees) that will reduce consumer premiums; and providing a clear decision on how Advanced Premium Tax Credits (APTC) and the Cost Sharing Reduction (CSR) programs will be administered under a replacement program. These initiatives will mitigate market instability and future issuer exits.

Moving Forward Initiatives:

My colleagues on the regulatory and state government side will be enumerating multiple initiatives that have been identified as important components of a replacement package. The following list represents concepts and changes I believe are essential to the repair/replace effort that Congress will undertake:

  • Permit sale of insurance across state lines under state regulatory enforcement.
  • Adopt policies that expand the use of health savings accounts coupled with more affordable high-deductible health plans.
  • Repeal the federal individual and small-employer coverage mandates. Consider a meaningful continuous coverage premium discount or a surcharge and waiting period for interrupted coverage.
  • Allow states to pursue innovative healthcare delivery mechanisms including, telemedicine and the expansion of the technologically based Project ECHO for rural America.
  • Support transparency in pricing for medical delivery like the Surgery Center of Oklahoma has done by posting prices for elective procedures on its website.
  • A federally supported but state-administered combination reinsurance and high-risk pool program that addresses the risk management challenges of high-risk enrollees.
  • Permit employers to extend transitional “grandmother” group plans beyond the planned 2017 expiration as changes to the individual market are implemented.
  • Cap monetary damages that can be awarded in medical malpractice lawsuits.
  • Repeal rules on short-term health plans that limit policy duration.
  • Replace the 90-day premium grace period with state-based grace periods.
  • Eliminate the dual regulatory scheme currently existing at the federal and state levels. Return all regulatory authority to the states.
  • Provide flexibility through state-based innovative pathways using 1115 and 1332 waivers to create affordable health insurance coverages for the uninsured.
  • Implement market-based deadlines for submission of insurance rates and forms
  • Establish a federal initiative to sunset fee-for-service reimbursement and make the transition to value-based reimbursement payments.
  • Allow states to enact new health reforms at the grade-school level that incorporate physical fitness and nutrition programs to deter preventable illnesses.
  • Let states determine the age at which a child can remain on his or her parent’s group health plan.
  • Enact legislation that protects consumers from unfair balance billing and surprise billing.
  • Provide federal support to accelerate the interoperability of electronic health records (EHR).
  • Reform FAA rules to give states authority to regulate air ambulances.
  • Acknowledge the existence of and promote the protections surrounding religious-based medical-sharing networks similar to companies like Medi-Share, where premiums are significantly more affordable in exchange for limited network access.

See also: Is the ACA Repeal Taking Shape?  

I appreciate the opportunity to provide my thoughts on moving forward and advancing meaningful healthcare public policy. As an experienced regulator and conservative leader, I understand the challenges of balancing budgets and managing deficits. I urge the House to deliver immediate changes that will stabilize the individual market for policy year 2018 and to design long-term solutions that address competition and affordability to participants in the individual market.

The following is a briefing note from Social Re Consultancy for Mr. John D. Doak, Oklahoma insurance commissioner, on health insurance to the uninsured and lessons from delivering microinsurance in low-income settings in India, Asia and Africa. 

Do You Really Have a Digital Strategy?

Almost all insurers have started digital projects, many have digital teams, but only a few have a true digital insurance strategy.

To develop a coherent strategy for digital insurance, first an insurer must decide what the term means. There is a distinction between insurance digitalization and true digital business. Digitalization consists of taking existing processes, procedures and services and using technology to improve efficiency and effectiveness. Fundamentally, digitalization takes what an insurer is doing already, and applies digital. In this circumstance, there is no real transformation of the business. Digitalization is critical in a price-sensitive, highly competitive industry, but it is not enough to distinguish an insurer from the competition. In the context of insurance, true digital business requires the application of technology to offer new business value or move the insurer to a new position in the market. In many markets, the form this new digital business will assume has yet to be determined.

See also: Maturing Use of Mobile in Insurance  

Many different methods exist to evaluate digital business maturity. I prefer a five-level model, based on methodologies used by industry analysts and other experts.

  1. The first level is digitalization, taking existing processes and applying technology. Many insurers began this process in the late 1990s or early 2000s, and, unfortunately, many have stayed there. Insurers initially saw large efficiency benefits in moving internal processes away from paper over to digital, but those returns rapidly drop off after an insurer migrates the highest-priority processes. An example of this stage is offering PDF copies of insurance documents on a customer portal.
  2. The second level is to create new digital experiences, using the capabilities of digital platforms. An example is creating mobile applications for agents to improve interactions with the company, using geolocation to offer nearby preferred vendors and other options.
  3. Level three is offering new insurance programs that would not be possible without digital technologies. One example is a company creating a travel insurance product in partnershipl with a travel mobile application and offering that product at the time a customer purchases a flight.
  4. Level four is an evolution of stage three, and consists of embedding digital throughout the enterprise. An insurer thinks of all aspects of the business in terms of digital, even in departments such as compliance and daily operations. An insurer knows that it has progressed to this stage when even traditional analog functions such as the mailroom evaluate all processes with digital transformation in mind.
  5. At level five, an insurer has repositioned to a new competitive space inside the insurance market. We are only now beginning to see a few stage five insurers, and these insurers are often born digital. An example is new peer-to-peer insurance models that have begun to gain acceptance in recent years, like crop insurance in Africa. This insurance is paid for by a surcharge on farming inputs such as fertilizer and seeds. Claims are automatically initiated when weather stations recognize severe weather events. This is a form of protection that could only exist in a digital world.

See also: 5 Accelerating Trends in Digital Marketing  

The first step toward transforming into a digital insurer requires evaluating where your company is on this continuum, and where you need to be in the next three to five years. What amount of disruption can your business model sustain? What steps can you take now to build the skills and culture you need to compete in the face of this disruption?

Crop insurance in Africa may be a small part of the overall insurance market, but consider what could happen if a major agricultural market such as the U.S. began this same transition. All insurers today have digital processes and procedures, but relatively few have progressed past levels two or three on this digital continuum. Eventually all insurers will be digital insurers, but this transformation will move in fits and starts, with the leaders gradually pulling out ahead of the laggards and gaining a lasting competitive advantage.

How to Think About the Zika Virus

Employers may be considering the risk posed by the recent spread of the Zika virus and potential claims filed by employees who contract the disease. The Zika virus is transmitted to people primarily through the bite of an infected Aedes aegypti species mosquito. These are the same mosquitos that spread dengue and chikungunya viruses. Mosquitos become infected when they feed on a person already infected with the virus. Infected mosquitos spread the virus to other people through bites. The virus can also be spread through blood transfusion or be sexually transmitted.

Where Is Zika Spreading?

Prior to 2015, Zika virus outbreaks occurred in areas of Africa, Southeast Asia and the Pacific Islands. In May 2015, the Pan American Health Organization issued an alert regarding the first confirmed Zika virus infections in Brazil. Locally transmitted cases were also reported in the Commonwealth of Puerto Rico. As of March 16, 2016, no mosquito-transmitted Zika cases had been reported in the continental U.S., but cases have been reported in returning travelers. Outbreaks are occurring in many countries, and the virus will continue to spread, but it is difficult to determine how and where. However, researchers who tracked dengue fever outbreaks in the past predict small local outbreaks of the Zika virus in Florida and Texas.

What Are the Symptoms?

About one in five people infected with the Zika virus become ill. Symptoms include fever, rash, joint pain, conjunctivitis (red eyes), muscle pain and headache. The exact incubation period (the time from exposure to symptoms) is not known, but is likely to be a few days to a week. The illness is usually mild, with symptoms lasting for several days to a week. The Zika virus usually remains in the blood of an infected person for a few days, but it can be found longer in some people. Severe disease requiring hospitalization is uncommon. Deaths are rare. Cases are identified by the symptoms, confirmation of recent travel to locales with confirmed infections and blood tests.

See also: Healthcare Case on Cutting Corners

How Is Zika Treated?

No vaccine or medications are available to prevent or treat Zika infections. An infected individual showing symptoms should get plenty of rest, drink fluids to prevent dehydration and take medicine such as acetaminophen to relieve fever and pain. Aspirin and other non-steroidal anti-inflammatory drugs (NSAIDS), like ibuprofen and naproxen, should not be taken until dengue can be ruled out to reduce the risk of hemorrhage (bleeding). An individual taking medicine for another medical condition should consult a healthcare provider before taking additional medication.

What Special Precautions Should Be Taken by Pregnant Women?

A mother already infected with the Zika virus near the time of delivery can pass the virus to her newborn around the time of birth, but it is rare. It is possible that the virus could be passed from mother to fetus during pregnancy. This mode of transmission is being investigated and is not yet understood. To date, there are no reports of infants getting the Zika virus through breastfeeding. The Centers for Disease Control and Prevention (CDC) recommends that women who are pregnant or trying to become pregnant use special precautions including avoiding travel to affected areas and using protective clothing and insect repellant. Women who are trying to become pregnant or thinking about becoming pregnant should consult with their healthcare providers before traveling to these areas and strictly follow steps to prevent mosquito bites during the trip. There have been reports in Brazil of microcephaly and other poor pregnancy outcomes in babies of mothers who were infected with the Zika virus while pregnant. Microcephaly is a medical condition in which the circumference of the head is smaller than normal because the brain has not developed properly. Additional studies are planned to learn more about the risks of Zika virus infection during pregnancy.

See also: Healthcare Quality: How to Define It

What Should Employers Do?

Businesses with employees traveling to areas of infection should follow the precautions outlined by the CDC, including preventative measures to avoid mosquito bites. If a workers’ compensation claim is filed for Zika virus exposure, it should be handled the same as any disease or exposure claim would be handled. A thorough investigation of the claim and circumstances involved should be conducted, and medical tests and evaluations should be done to confirm a diagnosis. Compensability determination would follow applicable regulatory standards for determining whether exposure occurred within the course and scope of employment.

How to Focus on Emerging Markets: Operational Excellence

Global economic trends will transform the customer base for most industries across the world. Rising per capita incomes, favorable demographics and continuing economic growth are leading to a massive expansion of the emerging middle class.

The World Bank defines the middle class in two brackets based on earnings per day: US$2–US$9 and US$9–US$13. According to the World Bank, 10 times as many people entered the lower versus the higher income bracket between 1990 and 2005— highlighting the success of countries such as India and China that have invested millions in the middle class over the past two decades. For this report, our focus is on 
those earning US$2–US$9 a day, or the “emerging consumer.” We define the “global middle class” as earning an average of US$10–US$100 a day. This level of consumer has more disposable income to buy consumable goods and to invest.

While the remarkable growth of emerging market economies has brought millions out of poverty, fewer people have moved into the global middle class. Over the next two decades, we estimate that the middle class will expand by three billion people, coming almost exclusively from the current low-income segment. Financial inclusion will be important to aid this expansion. The significance of insurance for this low-income customer segment cannot be overstated, particularly given the lack of social health care in these countries. Life insurance supports a family when the breadwinner dies; in-patient hospitalization costs are generally paid for through out-of-pocket expenses and can deplete existing savings. As climate change and natural disasters such as Cyclone Phailin in the Philippines become more prevalent, the importance of asset-backed insurance (e.g., for weather, cattle and livestock) continues to grow.

The importance of insurance

Insurance has clear social value for the emerging consumer. Low-income consumers need to be insulated from risk because they lack the accumulated capital to withstand adverse events. Apart from its advantages as a risk management tool, insurance enables low-income consumers to take calculated risks to emerge from poverty, make wise investments or ensure their families will be provided for in case of an unforeseen event.

As economists Abhijit Banerjee and Esther Duflo point out in their book, Poor Economics, the poor are not irrational in their spending behavior, but rather hyper-rational, because the value of each money unit is higher than for other consumer segments. Thus, insurers should understand some of the key challenges facing these consumers and align their operating models to service them better:

  • Inconsistent cash flows — These consumers often have irregular pay cycles, making premium payments difficult.
  • Significant dependency on a single source of income — Dependence on one main breadwinner may create a financial burden.
  • A mobile segment — Many jobs require long commutes from rural areas and constant mobility; lack of portability and accessibility may hinder the purchase of insurance.
  • Lack of awareness of the concept of insurance — Risk pooling or premium payment benefits that may not accrue to the customer may be difficult concepts to understand.
  • Lack of trust — For some industries, this may lead to reputational issues; these can be more extreme when purchasing an intangible product like insurance.

Despite these challenges, customers spend sleepless nights worrying about various risks. The vulnerability is much greater for this segment than for others with higher disposable income.

How big is this market?

In 2009, there were approximately 1.5 billion–3 billion people with minimal access to formal insurance services globally, as highlighted by Lloyd’s of London. Today’s audience has not changed significantly, but consumers face different risks — related to life, health and assets. ILO’s Microinsurance Innovation Facility believes that insurance for low-income consumers has evolved differently across geographies — from 200% growth between 2008 and 2012 in Africa to a steady evolution in India and other Asian economies.

India has the largest share of low-income consumers with insurance — the result of strong regulation and government schemes, especially in health insurance. South Africa, Kenya, Ghana and Tanzania have been rapidly increasing coverage and developing microinsurance-focused regulations. Asian economies such as Indonesia, the Philippines, Bangladesh and Pakistan continue to grow in this space, as well.

Emerging markets are unique in terms of demographic and economic segmentation. Countries such as India have a more standard income-based segmentation pyramid, whereas other developing countries such as Ghana and Nigeria have a flatter pyramid, with most potential customers in the low-income segment.

Globally, we observe many insurers and intermediaries expanding their sales focus down the pyramid to reach the emerging consumer. Depending on the specific market, some players are servicing the low-income customer segment through simple insurance offerings and third-party distribution. Nevertheless, the vast majority are conventional insurers targeting the current “top” of the pyramid.

Irrespective of the geography, insurers recognize that today’s low-income customers are tomorrow’s middle class. However, winning this customer segment is not just about creating lower-priced products or selling existing products using a third-party distributor such as a micro-finance institution. Insurers will have to learn from the dynamics of their respective markets and drive innovation by transforming their strategies and operating models to grow with emerging consumers and their developing needs.

But is it profitable?

The foremost challenge for insurers in this market
 is the lack of systems and dedicated performance management tools to track profitability. These are often missing because of a lack of investment or simply lack of focus by senior management. The industry segment is young and lacks tracking tools. Insurers usually do not separate performance reporting between traditional and emerging consumer insurance. Future performance management tools need to capture metrics for both revenue and cost to determine the profitability trends for this segment.

Typically, there is a lack of historical risk data for low-income consumers. Thus, pricing is not very scientific and uses proxies with a constant iterative feedback loop. As historical data quality improves, we expect risk-based pricing for this segment will lead to better-priced products.

Insurers are leveraging various technology-enabled channels, such as mobile phones in Africa, to sell these insurance services, thereby reducing distributor and operating expenses. Insurers are also selling life insurance through retailers reusing rechargeable vouchers, thus eliminating the distributor layer and trimming costs significantly. Various government-sponsored insurance schemes have standardized processes for enrollment of new beneficiaries, post-sale servicing and claims management. However, there are no universal measures to reduce market costs — an important objective because insurers need to demonstrate profitability. Those insurers that can redefine their operating models and generate high operational efficiency will reap the benefits of serving this large, untapped and developing customer segment.

Need for greater investment

Insurance companies in emerging markets have typically found it expensive to cater to the emerging consumer. The high cost of acquisition, lack of trust and inaccessibility make outreach difficult. Moreover, many insurers have failed to develop a sound business case, with a low-cost and differentiated operational strategy, to enter these markets.

Insurance for the emerging consumer is still in a nascent stage. While large insurers may be deploying significant capital to penetrate this market, other initiatives have been part of corporate social responsibility or philanthropic programs. Often these projects target specific concerns related to product development, distribution or customer awareness. Such forms of funding do not appear sustainable or scalable for the long term.

Transformational programs are required to achieve operational excellence. This is where investment from insurers or private equity investors (more specifically, impact investors) can bring true value — not just in 
the form of capital, but also technical knowledge and expertise to develop cost-efficient distribution channels and well-designed products, and to drive organizational change for profitability.

As insurers rapidly expand in emerging markets, we see opportunities to help them with specific geographic issues in impact investing, measurement and value generation. We are working together with LeapFrog Investments to reach this virtually untapped market. Their approach is a compelling complement to our broad service lines and global competence.

Effectively targeting emerging consumers

Many insurers have used existing operating models in innovative ways to reach the low-income consumer.
 A large private sector life insurer in India, for example, created a “top-up” life insurance product in 2008, offering low-income consumers pay-as-you-go options. This eliminated scheduled premiums for consumers who typically do not have a steady stream of income.

In addition to our earlier discussion of issues facing consumers, there are three dominant challenges for insurers to consider in developing the emerging consumer market.

  • Awareness — Building customer trust through educational and marketing initiatives; the most convincing way for insurers to build awareness is to deliver on their claims’ promises
  • Affordability — Providing insurance at an affordable price and benefits that the end customer values; this places high importance on product design
  • Accessibility — Ensuring ease in purchasing insurance, servicing and claims handling

These three challenges can be mapped to the following external and internal success factors that will play an important role in developing this market.

External success factors

Regulatory framework

A strong regulatory framework is required to support the industry, and emerging markets have benefited from the regulatory push. India’s insurance regulator was among the world’s first to have quota-based mandates for licensed insurers (requiring them to source a percentage of their business from rural and unorganized markets) and to develop specific regulations for products and distribution. A more principle-based approach is being taken by The National Insurance Commission in Ghana in drafting microinsurance regulations. These enable insurers to innovate with product definitions and distribution tie-ups as they develop affordable and accessible products for the lower-income segment.

Technical and logistical infrastructure

Insurers in emerging markets also face infrastructure-related challenges, requiring local and highly pragmatic business solutions. Typical issues include a lack of options to communicate or interact with customers, no “know your customer” processes and limited payment infrastructure. Leveraging the high mobile penetration, various technology-based solutions
 have emerged. Insurers need flexibility to ensure that insurance sales, post-sale servicing and claims management are quick and efficient.

Intermediaries and partnerships

Distribution is one of the most important concerns. Last-mile connection with customers is a challenge because of a large segment living in inaccessible areas, their constant mobility or simply a lack of access to the same touch points more affluent segments have (e.g., bank branches, financial advisors). Use of traditional distribution channels, such as agents or advisors, can be an expensive proposition because of high commissions and the need to adapt specific requirements for this segment. Furthermore, existing channels are typically not trained to deal with the lower-income consumer. Along with traditional channels that are managed in a lean and cost-efficient manner, there are other successful distribution alternatives in this market that include partner-agent models (e.g., using business correspondents), as well as those created by piggybacking on existing distribution channels (e.g., mobile network operators, retailers).

Internal success factors

Low-cost and efficient operating model

Insurance for low-income consumers is a low-margin business because of lower average premiums per customer and relatively high fixed costs. This makes it more important to run an efficient operating model with simplicity and innovation and to ensure that internal processes are standardized across the organization. Customer interfaces need to be simplified with each customer touch point for consistent communication. The need to leverage technology to achieve these objectives is a given.

Supporting governance structure and performance management framework

Institutional and infrastructural conditions in emerging markets lead to specific requirements in running 
the business, such as decentralized sales or strong interaction with intermediaries. This requires robust governance and risk management structures, which support management steering and enable operational control in critical areas such as quality issues or fraud. In these situations, a well-functioning performance management framework, with operational KPIs and controls, is important to identify issues and react to deviations. This should be embedded across the organizational structure.

Simple and innovative product design

Simple yet innovative product design is critical to increase penetration. Products need to be easily understood by customers, easy for agents or intermediaries to sell and provide real value for the client. Additionally, standardized products will improve operational quality and efficiency, which is critical to running a profitable business in a low-margin segment.

In the next few years, innovative solutions that provide insurance to emerging consumers will include:

  • Selling insurance through a utility company (e.g., Mapfre and Codensa in Colombia)
  • Reaching small businesses for agriculture insurance via mobile phone technology (e.g., Kilimo Salama in East Africa)
  • Integrating products with a telecom provider; outsourcing customer service and premium collection to intermediaries or facilitators (e.g., Bima in Asia and Africa)

Many of these solutions will be independent or integrated services. But insurance companies will drive these innovations, and only those players that are able to develop profitable operating models will succeed. While leveraging third-party providers for various services will be important, insurers still need to focus on their customer relationships and operations to generate maximum value from these third-party relationships.

Customer-centricity, operational efficiency, risk management and performance management will be crucial but will not ensure sustainable success. The most important aspects are corporate culture (change, individual involvement and leadership) and the mindset of people.

For the full report, see: Operational Excellence For Insurers.