Change on Top of Change: The American Health Care Act and Captive Insurance Companies

“This is the way the world ends.

Not with a bang, but a whimper.”

The Hollow Men, T.S. Eliot

Well, they wanted to end ObamaCare. They wanted to “repeal and replace.” But so far they have ended not with a bang, but a whimper.

Just a few days ago, the House passed the American Health Care Act by a very narrow margin, 217 to 213…just one vote more than the 216-vote threshold needed for the measure to pass. This proposed overhaul of ObamaCare is supposed to be a radical departure from what we have grown used to since the Affordable Care Act was passed in 2010.

It is, but it isn’t…at least not quite yet.

Those of us in the health care liability captive insurance business have gotten used to the “new normal.” We’ve tried to understand what has happened to the delivery of health care and for the insuring of that delivery process. We’ve pretty much gotten our arms around this new normal, which I think can best be defined as:

  • a frenzy of health care system merger and acquisition activity, some of it needed, some of it senseless;
  • the perception that, when it comes to population management, size matters;
  • the idea that an individual physician in private practice (and not otherwise trying desperately to get employed by a health care system) is as much of an antique as a Model A Ford;
  • the idea that the clear lines of demarcation between tax-exempt and taxable health care need to be abolished…the only mission remaining being the “mission of margin.”

So what will happen now with the new Republican health care act? First, it will meet a thick stone wall of resistance in the U.S. Senate. The Republicans’ narrow 52-member majority doesn’t leave much margin for mistakes, and several prominent Republican senators have not been shy about their concern about the House bill as now structured.

Second, there is the Act itself, which clearly penalizes older Americans with increased costs; removes the needed uniformity of a universal set of basic benefits that all plans now have; and while not explicitly eliminating guaranteed coverage, permits state-by-state rules to apply relative to lifetime maximum benefits and the ability to charge sick people more, thus potentially forcing many Americans back into the ranks of the uninsured.

Then there is the issue of the current individual mandate and a tax penalty for not purchasing coverage. Under AHCA…it’s gone. It’s been replaced by a 30% premium surcharge if you go without coverage for two months and you try to enroll in a new plan. I’m just a simple country boy from New Hampshire…but this sounds like the same thing to me.

When we get beyond the rhetoric. When we get beyond the actual elements of the American Health Care Act, some of which are frightening and deeply concerning. Even when we take into account what is very apt to happen when it gets into the hands of the Senate, the real question before us is: will the AHCA drive change in the captive industry?

The straight answer, I think, is a loud “no” followed by a whispered “yes.”

The merger mania will not cease. The rulebook has permanently changed in that regard. Your community hospital and mine will still be fighting to survive and, largely, failing to do so. While there is every indication that the trend toward hospital employment by physicians has begun to slow down, the fact remains that, regardless of whether it is ObamaCare or AHCA, we have to control costs; and the only way to control costs is for all of us to fit neatly into a zip-coded cohort, where our continuum of care, from cradle to grave, is subject to an Orwellian algorithmic outcome. None of this is going to change.

But what about the whispered “yes”?

Since 2007, employment by health care systems has grown at a rate of three times any other economic sector. An increase in health care jobs means an increase in health care exposures. More outpatient visits; more visits to the Emergency Room (that are actually paid for by insurance); more elective surgical procedures. Job growth in the health care industry is the fuel that fires the first line of every captive income statement…namely, the rate on line for premium paid to a captive.

So from this standpoint, and from this narrow perspective, if you buy my argument that nothing, literally nothing, will stand in the way of the drive towards improvement in quality and reduction in expense put in place by ObamaCare, and if you buy the statistics that point to the fact that health care jobs are flourishing, then the only thing that can make this world end with a bang and not a whimper is a return to the days when we had as many as 36 million people uninsured. The whispered “yes” becomes a resounding scream.

Whatever happens here, the connection between how our care gets paid for and who pays for it is inextricably tied to the growth of jobs in the health care sector. The growth of jobs in the health care sector is inextricably tied to exposures…and it is the bed equivalent exposure that is the universal proxy for the calculation of the premium on line 1 of every health care liability captive income statement.

Let’s watch and see what happens. Whether as a bang or a whimper, and in the certain knowledge that the world is not ending anytime soon, let’s wait for the outcome, but let’s not be surprised by the consequences.