Lewis & Ellis, LLC

How has the commercial health insurance landscape changed?

Health Care and Health Insurance
by Jacqueline Lee
Commercial health insurance is an importance subcategory of insurance products.
Commercial health insurance is an importance subcategory of insurance products.

As anyone in the insurance industry knows, there are many different subcategories of products that are available for different circumstances. Here, we will dive into the changing world of commercial health insurance and what the industry has in store for the future. We'll cover some important signifiers to look for in the market and the appropriate reaction to secure your place as a successful private health insurance company. For insurers and their policyholders, knowing what the marketplace will look like is a necessity.

Modern commercial health insurance

To the everyday policyholder, there is more information in the news every day about government-provided insurance, leaving commercial insurance to the side. This is especially true as health insurance takes more of the public's interest with the introduction of Medicaid expansion related to COVID-19 relief. The events of the past few years have altered the industry and the way that modern commercial health insurance operates. The entire market is always shifting in response to external factors, specifically when it comes to the health of American policyholders and those with a health plan.

It's obvious that the COVID-19 pandemic had a serious impact on the health of the American population, which directly affected the health insurance industry in major ways. Health insurers had to respond to protect themselves and those who already held private insurance policies under them. The unprecedented challenges brought on by the virus are still being felt and will impact the future financial success of health insurers.

Risk associated with commercial health insurance

Let's take a look at some of the newfound financial risks that modern commercial health insurers have to deal with in response to the landscape that they are operating in. when looking to improve in the future, leadership needs to carefully consider the following factors in order to project potential rates:

1. Claim reserves: Every insurance carrier must have a maintained reserve of money used for the inevitable claims that will be brought against them. The money is saved by the business to settle payments of insured claims which have not come to fruition yet. In 2020, there was a serious misalignment of the amount of premiums and the number of claims incurred. Companies had extra money that should have been allocated and paid out as claims, but with the halting of medical services, the question became when are these services going to be rendered. This created uncertainty among insurers trying to understand when and if these medical services would resurge.  

2. Premium deficiency: A premium deficiency reserve is an amount that an insurance company needs to meet future claims and expenses. Many commercial health insurance companies faced a premium deficiency because there was not enough money collected from the premiums to meet the potential future claims or expenses. The pandemic caused many people to lose their jobs or income, resulting in unearned premiums which contribute to premium deficiency. As we move into 2023, insurance companies are proceeding with continued recovery in mind.

3. Premium rate calculation: Insurance companies rely on projected premium rate calculations. Actuaries use available data to calculate what the premium rate should be in the future. Here are some of the data that professionals use to this end:

  • Projected medical costs.
  • Level of medical usage.
  • Type of services.
  • Calculation from specific population risk pools.

This was extremely difficult after the onset of the pandemic because these factors were so unpredictable. Nothing like this had occurred in the modern market before, so it was more difficult to calculate the premium rate. Even two years later, with more data and information to make projections with, the commercial health insurance industry has shifted majorly.

These are just a few examples of potential risks that have changed in the past few years, impacting the commercial health insurance industry. Health care has changed in response to the pandemic, and the health insurance marketplace has followed suit. The Affordable Care Act has given many Americans the chance to obtain health insurance coverage and mitigate risks for commercial insurance companies. The market has changed and is still recovering in the face of new economic conditions, such as high rates of inflation.

The future of the commercial health insurance industry

While the commercial health insurance industry has already changed considerably in the past few years, it's inevitable that the shift will continue in response to external factors. The individual health insurance market was further impacted by the American Rescue Plan Act of 2021 and the Inflation Reduction Act. Changes implemented by these acts will inform the future of the industry.

According to the Center for US Health System Reform's analysis of the 2022 open-enrollment period (OEP), insurance companies can prepare for the future by looking at these conclusions:

  1. Participation: More insurance companies are introducing new products to cover a multitude of policyholder needs.
  2. Care plans: The analysis found that "particularly health maintenance organization (HMO) plans and exclusive provider organization (EPO) plans—have grown steadily since 2014 and now account for 82 percent of plan type offerings."
  3. Stability: When premiums for all plan tiers from 2021 are compared to those of 2022, the cost is only slightly higher, alluding to a stabilizing market.
  4. Premium growth rates: McKinsey's report concludes that the "annual premium growth of plans in the 15 states with section 1332 innovation waivers was observably lower than similar plans in the 35 states plus Washington, DC, without waivers"

As the health insurance marketplace begins to stabilize, the future becomes easier for actuaries to predict based on reliable data. Much of this is also due to the introduction of new technologies that insurers are using to stay competitive in the industry. Keep in mind that some of this reliability is due in part to premium subsidies offered by the American Rescue Plan Act.

Important considerations

Despite the fact that Medicare, Medicaid and commercial health insurance serve different policyholders, they are intrinsically connected. They both can inform the future of the marketplace, and signal projected changes.

The current state of the economy informs the commercial health insurance industry in a multitude of ways. For consumers, the uncertain future can add some hesitancy to their participation in health insurance. It's more important than ever for commercial insurance to maintain a fluid and dynamic strategy.

As we previously mentioned, technology is playing an even greater role in the way that commercial insurance coverage operates. With this, the pressure increases for insurers to stay competitive by using the most up-to-date tools available. These technological advancements could include automation and artificial intelligence to analyze important data.

Another important consideration for commercial insurance companies to think about is the changing regulatory landscape. The laws, rules, and regulations inform the way that insurers are able to move through the marketplace successfully. These frequently changing regulatory environments can cause disruption in the market, but insurers need to aim to be flexible enough to keep up with the changes and still provide high quality plans to their members.

The industry is constantly changing, and has so many moving parts that impact the current or future success of commercial insurance companies. Because of this, your business needs experts on your side to ensure that risks are mitigated and to help keep the company competitive. For example, Lewis & Ellis consultants are able to provide the following services:

  • Actuarial valuation of insurance plan liabilities.
  • Evaluation of current benefit insurance plans and funding policies.
  • Recommendations and guidance on alternative plan design and funding options.
  • Forecasted plans require randomized modeling techniques and software.
  • Clients' up-to-date changes in the legislative and industry environments.
  • Clients with the information needed for financial accounting.
  • Clear communication with both decision-makers and employees.

For insurance companies, reliable data and predictions are one of the most important components of remaining competitive in the world of benefits. Are you ready to connect with an expert who can guide your team through the marketplace? Reach out to the professionals at Lewis & Ellis today to get started.



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