If you haven’t been to one of m4 innovation’s private meetings, then this report out might serve as an indicator as to what the experience is like. We had 18 senior executives from different sides of the healthcare industry join us for dinner, drinks and debate over the impact that the Individual Coverage HRA (or “ICHRA”) will have on the health insurance & ancillary markets in the coming years.

“To the death of the group market…cheers!” – dinner participant

That statement was made within the first five minutes of sitting down. The rest of the conversation only got livelier from there. We had established health plan P&L leaders that quickly added that they would need to take a bigger role in establishing a more viable individual market to make such a statement come true, and not all of them seemed eager to do so. As is typical in any conversation about potential market disruption, there were a number of folks hanging the “Wait and See” banner during the discussion. But… that banner didn’t ring true for all participants. Folks have their own ideas on where this market is going, including several opportunistic insurers and technologists that were around the table.

Whether you were there as a broker, insurer, CDH company, regulatory attorney or digital health player—the table was notable for the kind of breadth that m4 innovation is known for assembling. We never want any issue to be debated within an echo chamber. There is too much of that going on in this industry already. Any change in healthcare produces multi-faceted effects, so we want all sides of a major issue to be well represented within our discussions.

Regardless of which side of the table you sat on, the conversation was entertaining and engaging. Oh, and if you have never spent much personal time with Brian Melanson, you might even call his opening statements more than a bit provocative and tongue in cheek. The rest we can leave to the imagination until you ask someone in the room to recount that funny moment. In the end, it was a good meal and great conversation. We all left a bit wiser and more motivated to create positive change.

Wiser and motivated certainly doesn’t mean we all left perfectly aligned. Our meetings are designed to help each executive navigate his or her own course. We dispelled with the “Minnesota Nice” (for those that are unfamiliar… think passive aggressive + a tendency toward understatement) in exchange for a frank and direct conversation. It’s the kind of tone that we need more of to get people off their asses and thinking about something deeper than perpetuating the status quo.

One focus area that brought strong differing opinions was the rate of adoption of the ICHRA model. To help P&L leaders and entrepreneurs alike with their planning, we wanted to know just how popular this new approach will be over the next 3-5 years. The Department of Labor and HHS ran a microsimulation that showed once employers fully adjust to the new rules that we would see roughly 800,000 employers (and 11 million employees and their dependents) leverage the ICHRA reimbursement option[1]. At m4 innovation, Brian’s Blog has a post written on his desire as a small group employer to be able to become just a financing mechanism for the m4 employees (& we’re cool with that). If HHS is right, then the sentiment outlined within that blog is not shared in isolation.

Over dinner, the opinions around the table were highly varied. On one end of the spectrum were those that point to the transition from defined benefit to defined contribution retirement savings as a proxy for what the demand curve might look like for ICHRA. In that illustration, most are predicting that private pension offerings will eventually go to zero (0). Will we see the same for group insurance? Some think yes, and it will happen on a much shorter timetable.

On the other end of the spectrum are those that argue this is a blip and that it could have the unintended consequence of driving even poorer risk into the individual market. If that sparks market volatility or regulatory intervention, then this new option could be short lived. Some argued that the individual “market” isn’t really a functional segment at this time. Instead, it is a place where the vagabonds that cannot get insurance coverage elsewhere end up. At m4, given the growth of gig economy jobs (& part-time & contract work), we pushed back on this perspective. But it does show resistance (by some) to take steps to help the individual market become more attractive.

It was also not clear where we will see the near-term lift and adoption. Will this be just a small group play, or are we already seeing signs that this is an attractive option for the mid-market (51-500 life) group space? Just this past week, m4 innovation had the opportunity to sit with a digital health company who shared that they alone have 1.3m lives coming through this year via the ICHRA approach. The majority of those adopting the model are in the 100-300 life range. We will be digging into this data in more detail, so expect additional analyses and insights to come your way in the next several weeks. If this turns out to be a true early signal from the market, then it tells us we are underestimating the size and rate of adoption. This also would suggest that the adoption will largely be coming from small group and mid-market in the early cycles of ICHRA adoption.

The major holdback of significant individual market adoption at a larger scale by business leaders, despite all of the gloom and doom that was predicted for the employer market several years ago when the Affordable Care Act (ACA) was passed, was the tax preference enjoyed on the group side along with established insurers keeping the individual market less viable. The ICHRA approach has neutralized the tax advantage, which is what makes the long-term effects of this model intriguing. The success of IHCRAs now rests on the contingency of if and when insurers (big, small or upstart) decide to make a run at this opportunity.

One thing we were able to agree on, like a family, we were going to need the commitment from all those around the table to make this a success. Brokers will need to get smart about approaching clients armed with the right insights to protect and win new business. This may mean getting creative with current revenue models while driving a change away from traditional commission structures to a deeper reliance on variable consulting fees. In some states, this also means more discussion is needed at the regulatory level to allow brokers to act as this type of consultant. This type of change, we believe, will play well for larger brokers, but it will put smaller ones who are more commission driven at a potential disadvantage.

Another option is to revisit compensation strategies in the individual market. Insurers may see a new road stacked with competition for consumers ahead, which means they will have to get out in front of this trend by re-hashing how they compensate producers in the individual market. Those distribution partners that focus on small group might need to find capabilities that help them get deeper into the consumer market. Insurers may begin to think through their product & producer segmentation strategies more, too. This type of model change will certainly drive calls for all parties to think through how they modify their lead generation, consulting, onboarding, servicing and distribution/compensation strategies in the coming year or two. Given this is a wheelhouse capability at m4 innovation, we stand ready to assist our private membership with these big questions. 

What’s interesting to us is that distribution model disruption driven by a change like ICHRA may not come from the obvious places. m4 innovation already knows that Ameriprise is in the market selling individual major medical—along with a slate of options for small businesses. You could very well see them, and other financial planning advisor companies, use ICHRA to make a hard push to play a bigger role with employers. They are already talking to the CFOs of these companies, and the ICHRA approach could fit well into their current financial planning conversations.

Insurers, in addition, will need to commit to the individual market to make this happen. Even as early as late 2017 (and into early 2018), many large national insurers announced they would be leaving the individual market. Now that the market has stabilized, and there is a new tool at their disposal, we are seeing some of the major carriers talking about or actually re-entering the market. Back in October of 2019, Dave Wichmann—CEO of UnitedHealth Group—hinted at the possibility of offering individual products. His cited reason was the market growth potential of the ICHRA model.[2] UHGs growth over the past several years was driven in large part through the expansion of state-based managed Medicaid programs. Now they may be turning their sites to the commercial individual space. How does their recent acquisition of HealthMarkets play into all of this?

There was a question asked over dinner that focused on whether traditional payers have the right chassis to be able to pull this all together? If we are being honest, they aren’t as good at the payment settlement and transaction processes that companies like WEX Health or Further perform as a core capability. Could we see the emergence of HRA service companies that partner with benefits administration and/or consumer market-focused platforms to offer brokers a true end-to-end solution? This could remove a lot of the guesswork and reduce the switching efforts for groups to abandon traditional plans in favor of ICHRAs. If that happens, this model might go from curiosity to mainstream faster than we think. It would push insurers to become much better individual product manufacturers (with an even deeper emphasis on prevention and risk management) & better scientists to extract the most value out of their distribution channels & marketing approaches.

Minneapolis grō was the start of a conversation that will continue throughout the rest of this year and beyond. We look forward to more conversations with you and bringing you new insights as this market develops. For those that participated in person, thank-you for sharing your time, thoughts, and a meal with the m4 innovation team and with me. We look forward to working within m4’s private community to take this type of debate from the dinner table to action in the coming years—all under the promise of finding that next wave of growth within our industry together.

[1] https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/faqs/health-reimbursement-arrangements.pdf

[2] https://www.benefitspro.com/2019/10/18/unitedhealth-could-add-individual-policies-aimed-at-hra-market-ceo-412-88809/