“The not-for-profits are spending considerably more for patient care and having a much easier time meeting the MLR [medical loss ratio] rules than the for-profits are.”

Could small not-for-profit health insurers overtake the nation’s largest publicly traded in terms of market share? Yes, it’s possible within five years, says Wendell Potter, a former insurance company public relations professional who is now an author and industry watchdog.

The Affordable Care Act has fostered competition among health insurers, and this competition is causing the nation’s largest for-profit health insurers to rethink their role in the marketplace, says Potter, the author of Deadly Spin, an Insurance Company Insider Speaks Out on How Corporate PR Is Killing Health Care and Deceiving Americans. Potter’s latest book, Obamacare, What’s in It for Me? was released last year.

The large companies will diversify so that they are not so heavily dependent on income from health insurance alone, he says. Instead, they will devote more resources to developing operations outside of the United States and they will expand into other lines of business, such as data collection and data warehousing, predicts Potter, a senior analyst for the Center for Public Integrity.

In the past, many health insurers have had little competition in many markets. But under the ACA, all insurers are competing for new members on the public and private health insurance exchanges. They also are competing against new insurance entities, such as the cooperative insurers allowed under the ACA and against accountable care organizations (ACOs) for Medicare and similar organizations for other enrollees.

Constant pressure for profit and problematic parts of the Affordable Care Act may promote new business models.

This more level playing field makes it easier for smaller not-for-profit insurers to compete.

“As a result of the exchanges and the transparency they bring to the marketplace, insurers’ profit margins will be squeezed under the law,” he says. “In particular, the rules governing the medical loss ratio (MLR) will squeeze profits down.

“All these factors mean the not-for-profits may benefit more than the for-profits do from health care reform. And as the large for-profit companies struggle to compete, they may cede markets to not-for-profits,” Potter adds. “In addition to competing on a more even playing field, the not-for-profits are benefiting from the increased information consumers have on the exchanges.”

In the coming years, for-profit companies will become known for other profit-making enterprises, such as collecting and warehousing health data on consumers and entering health insurance markets outside of the United States. Already, the large for-profit insurers are making more money overseas than they have in the past, a factor that pleases Wall Street investors, Potter says. Being public companies, these insurers need to show growth every quarter and every year. Therefore, what Wall Street analysts say about them is important.

“When I went to work for Cigna in 1993, many of today’s health insurers were multiline insurance companies,” he says. “Health insurance was just one of their product lines. But Wall Street didn’t favor big multiline insurance companies and suggested that they choose among health, life, or property and casualty insurance. Over two decades, all the big multiline insurers started changing. We will see similar changes in the next few years among for-profit health insurers because what Wall Street wants is generally what for-profit companies do.

“A lot of what health insurers will do in the coming years will be data driven. They will be in the health information business because they have enormous amounts of data. They will find new ways to make money by buying other data companies, allowing them to sell data on health care costs and quality, for instance.” They also may sell large data sets to smaller insurers pursuing population health.

Certainly not all health insurers will become data vendors, because it’s inappropriate to think of all insurers as one monolithic industry, Potter cautions. Some insurers appear to favor health reform, for example, while others may appear to oppose reform. “How insurers view reform varies from company to company and from executive to executive. But generally, insurers favor reform as long as it can be implemented on their terms.

“The problem is that reform clearly benefits consumers in many ways, and insurers are concerned that reforms will shrink their profit margins. They’re concerned about shrinking profits because, again, Wall Street wants them to continue to be profitable to meet shareholder expectations, quarter after quarter.

“Therefore, it may appear that they do not support reform when in fact they do. It’s just in their interest to influence the regulations that affect how reform is implemented to ensure that they don’t take a hit on the bottom line. They favor reform because it brings them billions of dollars in new revenue and profit, but some of the new regulations have the potential of having an adverse effect on profit,” he says. This spring, for example, WellPoint said it expected to have to raise rates considerably. The company may have been positioning itself with Wall Street financial analysts, Potter says.

“Those comments about double-digit rate increases were made to an investment forum, which is telling because insurance executives say some things to Wall Street financial analysts and investors that they don’t say to other audiences,” he says. “The whole purpose of having investor day conferences is to persuade analysts that you will enhance shareholder value. Insurance executives make these statements not to mislead shareholders but to persuade them that the company is doing a good job, is a leader in the industry and will continue to be profitable.”

Almost all actions by for-profit insurers should be interpreted as the companies aiming to do what’s best to increase profit, he says. That’s why more insurers are willing to compete in more markets this year than they did last year, an action that seems to favor health care reform, and why so many companies appear to be resisting new regulations, an action that could be interpreted as being opposed to reform.

“UnitedHealthcare, for example, will be in more markets next year, which will make those markets more competitive than they were in 2014,” he says. “But at the same time, health insurers want to influence the elections and public policy through their political action committees, advertising, public relations activities, lobbying, and political contributions. They want to get politicians elected who will be more friendly to them and change the provisions of the ACA to make it more industry-friendly.”

One of the provisions of the ACA that most affects insurers is the medical loss ratio rules, which require insurers to spend at least 80% of premiums on delivering care to members. While insurers complain about these rules, Potter says they are having little trouble meeting them.

Hitting MLR target

“Studies by for-profit insurers have shown that they are hitting the MLR target of 80% almost exactly. They are not spending more than 80% on medical care, but the not-for-profits are spending considerably more for patient care and having a much easier time meeting the MLR rules than the for-profits are.

“So that’s another reason the not-for-profits may succeed over the for-profit companies. If they’re devoting more resources to patient care, they may attract patients away from competitors.”

Wendell Potter was the public relations chief at Cigna who gained fame when he quit to become an industry watchdog. Insurers in many markets will find themselves dealing with stiff competition, he predicts.

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