Regular readers of this blog will note that I was an early sentinel in the cause to raise awareness of the rapidly developing regulatory risks facing all forms of healthcare payors and providers. Even with the new Federal administration’s stated pro-business mission, it remains clear that regulatory risks have not subsided and indeed appear as severe as ever. Within the broader healthcare landscape no segment is more exposed to these risks than health plans and managed care providers.
While there are aspects of these risks that remain uninsurable, much of them can be addressed through a state of the art, broadly negotiated insurance program encompassing the MCO E&O, D&O, and Cyber lines of coverage. The following represents the principal risks facing health plans today from both an insurable and uninsurable standpoint:
Anticompetitive / Unfair Business Practices (Antitrust) allegations from all sides
Government, Competitors, Providers / Unions, Consumers
Heightened by M&A activity
VSP history of such allegations from both Government and Providers
Concentration of Market Power
Cyber: HIPAA / HITECH
Access Provider Selection
Money Reimbursement Methodology
Quality/Outcomes as Payment Measure
Enrollment and Processing
The Wrong Coverage
Increased Individual Coverage Disputes
State Law Bad Faith and Punitive Damages
Workforce Costs (Union issues)
Supply Chain / Transit Risks
Poor Investment Returns
Cost of Capital
Market Relevance – Strategy of Independence / Specialization
Key Insurable Risks and Related Coverage Implications
In the current environment, the principal insurable risk issue for MCO plans is not a single issue, but rather the increasingly blended and inter-related nature of Cyber, Regulatory, and especially Antitrust claims. Antitrust coverage is a standard coverage grant in this industry space and is included in both the HC D&O and MC E&O lines. The carriers who are active with MCO E&O are the same that write the D&O and are thus exposed to potential limit aggregation issues stemming from a single circumstance triggering coverage on multiple policies. Most commonly the E&O and D&O are in play, but as we saw with Anthem, there is the potential for a catastrophic cyber claim to similarly hit all three coverage lines. We call these the “Holy Trinity” for MCOs; each exposure could impact the E&O, D&O, Cyber, or any blend thereof. They are:
Antitrust: MC E&O and D&O
Privacy/Tech: D&O, MC E&O, Privacy Liability/Cyber
Regulatory: D&O, MC E&O, Privacy/Liability
Beginning with AWAC then ACE (now Chubb) a few years back, carriers have a heightened awareness of the potentially catastrophic nature of these risks and have been actively introducing measures to limit their liabilities by dropping lines of coverage, introducing larger deductibles, sub-limits, coinsurance, or all of the above. Increasingly, coverage is often limited for claims hitting multiple policies and/or it’s not clear which contract is primary. This dramatically heightens the need for detailed contract analysis and customized manuscript contract language. It is managing this interplay of coverages that is critical for your broker to master. The following claim statistics from a leading MCO E&O/D&O carrier convey the scale of antitrust and class action liabilities:
Claims brought against E&O or D&O over past five years (all MCOs with enrollment > 750,000):
330 total claims
27 closed with no payment
61 closed under the retention
242 closed excess of average retentions ($3.3m-antitrust / $2.6m-class action).
For these reasons it is critical that your broker take a holistic view of your MCO E&O and D&O contracts and carefully construct them to not bias one coverage versus the other (different limits, retentions, coinsurance, etc. will do so) when a claim falls in a grey area between the two. Perhaps more critical is the need to ensure that the full limits of both policies are available in the event of separate, but related claims. As carriers have introduced various approaches to limit their exposure (and thus your potential recovery) on MCO E&O and D&O matters arising from anti-trust allegations, it is important for your broker to know where each carrier has attempted to do so and attempt to remove such wording.
Managed Care Market Update
Principal Healthcare Coverages – Overall Market Premium Rate Changes
|Coverage||Segment||Rate Change Q4 2016|
|Medical professional liability||Healthcare||10% decrease to flat|
|Directors and officers liability||Healthcare||Flat to|
|Managed care errors and omissions||Managed care||5% increase to|
|Health plan Reinsurance and Provider excess loss||Healthcare||Medical inflation increase or greater with claim history|
As stated above, the carriers that write MCO E&O also tend to be the same that write the D&O and Cyber. The good news is that after years of the same limited handful of carriers being willing to provide primary for MCO risks, there are today more carriers than ever.
Primary MCO Markets
|Berkshire Hathaway||A++, XV||$10M|
|Lexington (AIG)||A, XV||$25M|
|OneBeacon Professional||A, X||$25M|
In addition to the above, there are a wide range of excess capacity carriers in the Domestic, London, Bermuda, and European Reinsurance markets.
Following on the heels of Berkley and Berkshire entering the market a few years ago, today QBE and TDC have entered the market as well and have provided new capacity and competition. Especially if you have not done so in a while, a full marketing by an experienced brokerage team may deliver some pleasant surprises as coverage pricing and terms vary widely from one carrier to another.