by Raj Bal

January  2007

If you’re looking for trends and opportunities to follow in 2007, the fast-changing health insurance environment merits serious attention. Several factors are converging to drive meaningful change throughout the health care system. And the largest beneficiaries will be all the individuals, consumers and business owners who can seize opportunities in the new health care value chain.

Agents and brokers will have a vital role to play by helping consumers and businesses take advantage of innovative solutions that make health insurance more accessible and affordable. As the new Democratic Congress takes a fresh look at health insurance, you can help create a climate for success by supporting legislation that makes today’s most innovative health plans even more attractive to businesses and consumers. 

A Strong Tailwind

Several market factors signal a renaissance in health insurance—and create new opportunities for you and your customers. It’s no secret that for a number of years, health care costs have increased much faster than the rate of inflation. This trend has fueled deep skepticism about the managed care system and the traditional insurance providers that support it. Spiraling costs have also made health insurance coverage and prescription drugs much more difficult for businesses to provide… and for consumers to afford.

As a result, workers across the economic and demographic spectrum are finding themselves on the outside looking in. Many cannot afford to participate in employer-sponsored plans. Others have seen their employers discontinue coverage altogether. Self-employed workers find it challenging to secure health insurance coverage at a price they can afford. Further, workers are more likely to face periods of unemployment or job transition, and often go without coverage rather than pay the high price of COBRA benefits. And baby boomers find themselves caught between early retirement and Medicare eligibility. These and other factors have created a pool of more than 46 million uninsured Americans—over 9 million of whom are children. 

These factors have created significant demand for new solutions that make health care coverage more accessible and affordable. To date, the most popular innovation has been high-deductible health insurance policies with Health Savings Accounts. These policies protect policyholders from the devastating financial consequences of catastrophic illness while making policyholders responsible for “first-dollar” costs. The attractive HSA component allows them to fund these costs tax-free up to the deductible, and accrue savings on a tax-free basis to fund future qualified medical expenses.

Importantly, these policies can save employers and consumers 20% to 40% compared to traditional policies. Since the inception of HSAs in 2004, more than 3 million accounts have been established, and experts predict this number will grow to between 15 and 25 million by 2010. To put these numbers in perspective, deposits into these accounts have already exceeded the assets invested in IRAs in the first six years following their introduction in 1974.

This trend creates opportunities for brokers and agents with clients across the entire economic and demographic spectrum. The following statistics demonstrate the strong traction behind this solution:

• As of January 2006, 27% of HSAs in effect were owned by consumers aged 50 or older, according to America’s Health Insurance Plan.
• Seventy percent of all HSA purchasers have been families with children, according to data from Assurant Health.
• Thirty-one percent of all HDHPs written in 2005 were for individuals who had no prior health insurance coverage, according to AHIP.
• Almost 20% of U.S. employers now offer their employees some type of high-deductible option.
• A third of all new HDHPs written for small businesses in 2005 were for those that previously offered no health insurance, according to AHIP.

Flexible Options

As strong as this opportunity is today, the future looks even brighter. Recent product innovations and robust online capabilities position you to create value by helping clients weigh their options and choose the optimal solution.

In the small-business segment, you can help owners choose from an expanding variety of policy structures and price points. Some owners are helping employees cover out-of-pocket costs by making tax-free contributions to their HSAs up to the allowable limit. Others are offering individual health insurance for the first time through plans administered by the business owner but funded entirely by employees via automatic withdrawal. As with individual products, voluntary offerings for small businesses provide attractive and affordable protection.

The individual medical market is bringing this same degree of flexibility to consumers who purchase their own policies. For example, some carriers offer temporary coverage for students and workers who are between jobs. Others combine high-deductible coverage with voluntary products that deliver added first-dollar protection in the event of accidents, strokes or long-term hospitalization. In most cases, individual medical policies give consumers the flexibility to choose networks, deductibles, co-pay amounts and prescription plans that meet their specific needs. Higher-deductible choices will also be available in 2007.

Carriers are also investing in online platforms that make administration quick and easy. For agents and brokers, online applications streamline the entire process and support fast, efficient service. Clients benefit from online tools that help them manage their account transactions and invest their assets.

A Better Business Environment

Over time, these and other innovations will drive increased demand for consumer-driven policies—and eventually change the face of health care. As more consumers choose these policies, the increases in health care costs should lessen as patients control expenditures by choosing generic drugs, foregoing unnecessary services and shopping for the best value. Employers and employees stand to be the big winners.

For this model to reach its full potential for you and your clients, these plans must continue to evolve in ways that broaden their appeal—and offer even more powerful incentives for consumers to fully utilize them. You can help create a better business environment by supporting the following initiatives to fine-tune current regulations:

• Increase current HSA contribution limits to enable employees to accumulate more assets during their working careers, so they can adequately cover health care expenses during retirement.
• Allow consumers to pay for health insurance coverage out of their HSA funds.
• Allow integration of HSAs with Flexible Spending Accounts and/or Health Reimbursement Accounts to help employees meet their deductible expenses.
• Permit employers to make additional HSA contributions to reward employees for participation in disease-management and wellness programs.

The new Congress has a window of opportunity to make tangible progress on health care, a deeply personal issue that touches all citizens. AHIP recently submitted a consensus plan that would give all Americans access to health insurance. The Universal Health Accounts it proposes provide much-needed relief from escalating health care costs by establishing a tax-preferred vehicle for premium payments. It provides greater tax incentives for consumers to save for future health care expenses. And it gives all consumers—including early retirees—the same tax advantages as those who are self-employed or who participate in employer-sponsored plans. Importantly, consumers would experience all these benefits while maintaining the freedom to choose the health insurance plan that best meets their individual needs.

High-deductible health plans with HSAs are the only vehicle under the U.S. Tax Code that provide both tax-deductible deposits into an insured’s account and tax-free growth of these deposits. Over the next decade, their steady growth will be one of the most powerful trends affecting the U.S. economy. By leveraging your position in the value chain—and supporting the evolution of these practical and cost-effective solutions—you can build a solid revenue stream and help ensure accessible and affordable health care coverage for all.

Raj Bal oversees individual product operations and development, as well as sales, marketing, distribution and underwriting at Assurant Health. He joined the company in 1999 as a vice president in small-group product management and later became specialty products vice president and executive vice president of group markets. Bal is a board member of the Heartland Institute in Chicago and the Penfield Children's Center in Milwaukee. He can be reached at 414-299-6129. 

© 2005 National Association of Health Underwriters. All rights reserved.