Insurance Marketplace Realities 2024 – Managed care D&O and E&O
November 9, 2023
Conditions continue to stabilize, but systemic risks and concern over regulatory investigations and claims, mass tort, antitrust and class action claims are still driving coverage restrictions.
Financial, Executive and Professional Risks (FINEX)
EPL: Flat to +7.5%, Fiduciary: Flat to +15%, Crime: Flat to +10%
Cyber liability (MCOs with good cyber security controls and no adverse loss activity)
+5% to +15%, For less than optimal risks: +15%
E&O and D&O rate increases have leveled off, but restrictions related to significant risk continue.
Forced retention increases based solely on market conditions have ceased. But we are keeping an eye on regulatory retentions based on political and regulatory uncertainty at the federal and state level, which is adding further complexity to the marketplace in this area.
Some markets apply coinsurance and sub-limits related to antitrust and regulatory risk.
Related claim language is narrowing significantly as is manuscript exclusionary language applied to prior industry claims.
Association, cyber and opioid exclusions continue to be applied.
Rebate and other exclusions are being added to PBM policies.
MSOs and other hybrid entities find it hard to obtain bodily injury cover.
Many carriers require managed care E&O participation to write a D&O/management liability package, which creates anti-stacking coverage concerns, as well as issues related to rate and capacity in larger towers.
Carriers are hesitant to write hybrid accounts that provide non-managed care services to third parties especially for entities that engage in revenue cycle management and those exposed to bodily injury claims.
Risk transfer programs must be managed and strategically planned across all lines of coverage to avoid gaps in coverage and limit restrictions.
Reinsurance carriers have increasingly serious issues with antitrust exposures, concerns that are no longer limited to Blue plans. Reinsurance rate increases and capacity in this space are also impacting rate, coverage and capacity.
The use of captives and other alternative risk financing solutions continues. Fronted programs can be negotiated as an alternative to captive programs.
Coverage for pharmacy benefit managers, those engaged in value-based contracting from the provider side, revenue cycle management and medical services management remains difficult due to limited capacity and restrictive terms and conditions.
We have not seen any new domestic or offshore carriers enter this space, and no markets have exited.
Non-core business diversification is driving risk and coverage limitations.
No Surprises Act
The No Surprises Act was intended to reduce the number of “surprise” bills for health plan members, shift the costs of the dispute over costs to the providers and plans, and provide an arbitration form of dispute resolution to facilitate closure and reduce dispute-related costs. The regulatory scheme behind the NSA has been subjected to one court case after another, and the result has been a log jam of disputes, rising costs, lobbyist battles in Washington and incentives for providers to remain out of network. This process has once again been halted by HHS/CMS based on judicial orders. This raises premiums and results in risks, including defense costs and the possibility of additional risk/exposure. Market response is likely to involve restrictions in coverage related to these “claims.”
Merger and acquisition activity continues to rise.
One continuing industry trend that impacts market response is mergers and acquisitions. The involvement of private equity investments as well as health plan acquisitions and diversifications has driven this trend. The current administration in DC, the chair of the FTC and the antitrust division of the DOJ have made it clear that they intend to scrutinize both pre and post M&A activity in healthcare. Due diligence related to risk, exposure and solutions — innovation related to risk transfer — is required as the combinations create a significant set of risks that are not typically seen or evaluated when looking at the marketplace. However, this scrutiny by antitrust enforcement agencies may lead to further restrictions in coverage, outright exclusions or rate increases for E&O and D&O coverage.
The Dobbs Decision is a controversial subject creating a lot of debate.
The Supreme Court opinion in Dobbs (June 2022) overturning federal constitutional protection for abortion rights has resulted in significant upheaval at the federal and state (even local) levels. This has a significant impact on all healthcare entities, payors and providers alike, including self-funded health plans. The marketplace is paying close attention to the political and ideological fights raging throughout the country related to access to reproductive healthcare. MCOs are seen as being at the center of this risk because of state and federal regulatory, legislative and criminal risks, issues related to discrimination, multijurisdictional plans, reimbursement issues and many other concerns. ERISA, EMTALA, the ACA and many other acts at the federal level and many efforts in the legislatures and courts of the states will be ongoing for some time. This chaos, especially related to a healthcare issue of such importance with significant differences of opinion, creates risk that the underwriters are looking at — especially at the E&O, D&O and EPL lines.
Regulatory and policy uncertainty
With the continued difficulties and changes in health policy as administrations change driven by politics and ideology as well and enforcement priorities, the payor industry is seeing consistent — if not constant — threats to business strategies at the federal and state levels. Regulatory investigations, compliance and related claims (E&O, D&O and cyber) continue pressure underwriters to anticipate risk and exposure. When there is limited information, but consistent change and the possibility of risk/exposure, underwriters err on the side of caution, which limits coverage and drives up rates. This is not likely to change any time soon.
Buyers should be aware of claim scenarios that can create coverage problems.
Antitrust: Over the last 25+ years, the managed care industry has been involved in many antitrust claims. The ongoing In Re BCBS Antitrust Litigation is but one example. Antitrust claims can take many forms, follow various legal theories and may be prosecuted in state, federal and foreign jurisdictions. They can be filed by members, providers, competitors and governments. These claims are not limited to monopolies or certain enumerated actions by those with significant market share or groups of entities; they also include a wide variety of unfair and/or deceptive trade practices under federal and state law. They can be class actions, but many are not. They require specialized legal representation and are expensive to defend. The resulting losses are not always 100% covered. Coverage for these claims is tightening significantly. The recent passage of the federal CHIRA legislation, the Biden administration’s focus on antitrust in healthcare, and the increase in state laws and regulatory pressure continue to create disruption.
Network security and privacy: Cyber risk is a top risk for every MCO. MCOs maintain large amounts of protected data on millions of members, send and receive billions of dollars monthly and collect biometric data. Efforts to obtain this information by foreign governments, criminal enterprises and other hackers are an everyday occurrence. Claims related to lost business income, ransomware payments, breach response expenses and first- and third-party losses are all on the rise. While there is capacity in the marketplace, buyers must take note of coverage restrictions, the need to dovetail coverage terms with other lines and the difficulty of determining proper limits. Social engineering, ransomware and technology E&O coverage restrictions are growing. Changing state, federal and foreign exposures based on legislative and regulatory action are also adding to the pressure.
Government fines and penalties: Because MCOs are so tied to government reimbursement, plans are likely targets of government False Claims Act investigations, whistleblower lawsuits or administrative fines/penalties. Beyond restitution, damage awards, fines and penalties, defense costs alone can exhaust a risk transfer program. International regulatory compliance is another risk in countries (e.g., the U.K., EU, India) where many MCOs now have business operations.
Behavioral health claims: Behavioral health claims are on the rise, and COVID19 has compounded the issue. Mental health parity claims, at both the federal and state levels, can be costly to defend, especially class actions. Demands tend to be for benefit payments, penalties and restitution, which are not covered by managed care E&O policies, but there is usually defense coverage.
Disclaimer
Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
Contacts
Kenneth White, J.D.
NA Managed Care Practice and COE Leader
National Healthcare Practice
