Managed Care Organization (MCO) Insurance Trends: Expect Another Year of Double-Digit Rate Increases

The market for "signature risks" in the managed care organization (MCO) sector—errors and omissions (E&O), directors and officers (D&O), and cyber—remains hard, with double-digit rate increases being the norm for the fifth year in a row. Although the market has stabilized a bit for E&O and D&O (albeit at an already-distressed level relative to historical norms), the cyber market for health plans remains even more challenged than the overall cyber market. This is notable because almost without exception, the cyber market continues to post large, double-digit rate increases across the entire industry landscape.

Although some new capacity is entering the market, the traditional carriers that have remained in this industry for decades remain very conservative, with an overall lack of appetite for entertaining new business. This is particularly true on a primary basis, where just a handful of markets are even willing to entertain new primary placements. As has been the case throughout this hardening cycle, the gap in carrier appetite for large plans (particularly Blue plans) versus small plans remains, with the latter still being preferred.

MCOs Present Unique Challenges to the Insurance Community

A new development stressing an already-challenging environment for large private and public company placements is that Chubb is taking a sharply conservative position. Chubb is a market leader with these types of placements, so its conservative appetite is impacting the entire landscape.

While there had been ample capacity in the market up to 2018, the past four years have seen constricting capacity across the MCO/health plan universe. This stems from a pure lack of interest among the insurance community for MCO, particularly the E&O and D&O lines. Simply put, the MCO industry is relatively concentrated, which presents underwriting “spread of risk” challenges. Further, the “signature risks” for MCOs tend to hit multiple insureds at the same time, so a single event can destroy an insurance company’s loss ratio in the sector. This is what we are seeing with the multi-district litigation (MDL) that has hit the Blues and Delta plans.

This lack of interest is evidenced by the following developments over the past few years:

• 2018: BCS Insurance Company exited the MCO market. BCS stopped writing E&O and D&O insurance, and around 20% of the market's capacity disappeared overnight.
• 2019: OneBeacon Insurance Group exited the MCO market and sold renewal rights to TDC Specialty Underwriters. TDC re-underwrote the OneBeacon book and only renewed 60% to 70% of clients.
• 2020 
  • Allied World (AWAC) began taking a far more limited approach and did not entertain any new business at all in certain tough venues and classes.
  • AIG pulled out of the MC E&O line, cutting D&O limits and coverage while increasing retentions/premiums.
  • There is limited interest for new business across the market, as COVID-19 creates an unknown liability impact.
• 2021: Bowhead and Cap Specialty entered the market on a selective, excess-only basis.
• 2022: Chubb sought a 50% rate across its book and sub-limited anti-trust (Class Action) to $250,000.

With few case-by-case exceptions, this leaves the following list of alternative options for new business:

• Chatham MGA for Travelers/Berkley/Coverys: This really only acts as a single market and it's selective, effectively turning three markets into one.
• Ironshore
• TDC Specialty
• Berkshire: Usually excess only, and there is very little activity
• QBE: Excess only, and usually only D&O
• Bowhead: Excess only
• Cap Specialty: Excess only
• Client-developed single-parent captives: These are particular among Blue and Delta association plans with scant alternative commercial options.

A key driver of carrier hesitancy is the mounting defense expenses—and the catastrophic nature of multidistrict antitrust class action litigation against Blue Cross/Blue Shield and Delta Dental association members. Carriers responded with a market-wide exclusion for association-related claims.

YOY Rate Changes for E&O and D&O

Rate fluctuations have become the norm since 2017, but stabilization in 2021 has mostly reduced the changes to 15% or less.

9 Principal Risks for MCOs Today

Here are some key risks facing MCOs in 2022:

1. Increasingly aggressive regulatory environment: The Department of Justice (DOJ) and the Federal Trade Commission (FTC), the latter led by Lina Khan, have signaled their desire to increase fines, penalties, and enforcement efforts.
2. Post-Roe (Dobbs) decision increased litigation risks: This is especially true for HIPAA-related risks and compliance with law enforcement records requests.
3. Challenges and opportunities related to the “No Surprises Act” of 2021: While health carriers face financial risks due to the inability to pass along “surprise” out-of-network rates to consumers, it creates a framework for more transparent negotiations between plans and providers.
4. Financial risks/COVID-19 impact: The past two and a half years have been very lucrative in financial terms, as utilization has fallen significantly while premiums remain high. This has introduced “headline risks” from consumers, which remain as health plans struggle to properly forecast the increasing costs that accompany the pent-up demand of insureds seeking care. Additional risks come from sicker patients and higher treatment costs from lack of preventive care.
5. The Competitive Health Insurance Reform Act (CHIRA): The industry has yet to feel the full impact of CHIRA, but this act removes many of the safe harbors that plans have for sharing rate information among themselves, which is widely expected to result in costly litigation and fines/penalties from enforcement.
6. Antitrust claims affect both E&O and D&O insurance policies: This is when it is nice to have the same carrier for both. You won't get into a situation where two carriers are arguing about which is responsible for coverage. However, one carrier will only defend under one policy. Having the coverage with a single carrier may get your claim paid quickly, but you'll usually only have one set of limits due to anti-stacking provisions.
7. Multi-district litigation: While the market has largely solved for this risk with its association plan insureds, its impact is still being felt in the form of higher prices for everyone.
8. Opioid litigation carrying over: Patients or patients' families can sue health plans for being an accomplice to bad provider practices regarding opioid prescriptions. Meanwhile, providers can sue health plans for being kicked out of a network. These litigation trends are especially true for pharmacy benefit managers (PBMs), but we're now seeing spillover to HMOs.
9. Emerging provider capacity issues: The “great resignation” has had a devastating impact on health systems and providers of all sizes and shapes. Health spending is down for the first time in 60 years; at the same time, labor and supply costs are increasing by 20% to 30% or more. This will result in providers from health plans and/or health plans being left with inadequate provider coverage in their networks. This could spark litigation from providers, insureds, and regulators.

Ongoing Coverage Developments in the 2022 Market Cycle

The following are trends we have seen since the beginning of 2022.

• Ongoing upward pressure on retentions, sublimits, and co-insurance, particularly for antitrust. Split retentions/limits have become the norm.
• An overall reduction in limits capacity both in terms of limit capacity from each carrier and reduced number of players. Any program with single-layer limits of more than $10 million is being reduced to a maximum of $10 million.
• An opioid exclusion is universal for PBMs. This is also a case-by-case decision for all other types of plans depending on the insurer and the insured. However, it’s a sticking point with underwriters during each renewal discussion. Nobody is "giving it away." The default position is an exclusion that you may or may not be able to negotiate off.

The Bottom Line

Carriers expect to see continued deterioration in results from the MCO sector. For example, according to Laura Williams, VP of the Managed Care Segment at TDC Specialty, “We are expecting to see a rise in government attention with an aggressive FTC and DOJ enforcement apparatus emerging.”

Patients (insureds) are returning to their health care providers and in many cases, the patients are sicker than before the pandemic. We have foregone two years of preventive care and screening, and patients are experiencing a deteriorating quality of care while providers have reduced capacity for care. When patients incur bad outcomes, providers pay, which inevitably leads to higher costs and increased litigation for payers as well.

The post-Dobbs and Texas Heartbeat Law landscape is fluid and highly volatile as corporate employers/plan sponsors digest its impact and how to respond, balancing the law and employee demand for care.

Thus, while stabilized, this market will likely not soften any time soon. There is a real possibility that it could take another turn for the worse as the broader carrier landscape feels the impact of Chubb’s sharply conservative appetite.

In response to these conditions, the MCO brokers at Woodruff are helping our clients explore captives, self-insurance, and other alternative risk vehicles, and they are collaborating with new carriers to create additional capacity and new markets.

This remains a challenging insurance market for health plans, but with proper preparation, an experienced brokerage, and enhanced communication with the underwriter community, they can achieve positive outcomes and avoid unwanted surprises.