Insurance Marketplace Realities 2024 Spring Update – Managed care D&O and E&O
May 8, 2024
E&O and D&O pricing conditions for managed care organizations (MCOs) have softened, and anticipated additional primary capacity could cause additional rate reductions.
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 +5% (For less-than-optimal risks, up to +15%)
Cyber liability pricing trends stabilized in the managed care sector
However, cyber underwriters remain technically focused on ransomware controls, and cyber security resilience and the Change Healthcare cyber event may impact future renewals. Public companies continue to see rate reductions in their D&O programs, but these reductions are slowing and are for organizations that perform well and have good loss experience.
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.
Some 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 in this space continues to impact coverage and capacity.
The use of captives and other alternative risk financing solutions has slowed as market conditions improve. 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, but we anticipate new primary E&O and D&O capacity. 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 to 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 an ever-changing set of regulatory rules. It is also being driven in some measure by the price and reimbursement rules related to hospitals and health plans. An ongoing stream of regulatory and court disputes and lobbyists are also altering the landscape. This process has had an impact on the out-of-network billing practices of some providers, but that is not always positive. Most of these claims and disputes fall within even lower retentions, and the actual amounts owed are not typically covered losses. No class claims or other “mega” claims have impacted carriers.
Merger and acquisition activity continues to rise
One continuing industry trend that impacts market response is mergers and acquisitions, driven by the involvement of private equity investments, health plan acquisitions and diversifications. 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. There has been significant activity in Congress and in the enforcement agencies aimed at M&A activity in healthcare, but much of that spotlight has been on PE ownership and activity in the space. A number of state legislatures have also gotten involved, and several states have passed limitations and regulatory oversight at the state level of healthcare transactions. 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. Since the opinion came out, many states have either “revived” old laws still on the books or enacted new, and sometimes drastic, limitations on abortion and other reproductive health therapies. For the most part, managed care entities have escaped, while agency review and law enforcement efforts have been aimed at providers and patients. The obvious difference between the current administration in DC and many state capitals puts self-funded health plans and some MCOs at risk, but compliance issues have been limited. The number of claims related to benefits in the space have been limited as well. The current case related to medicinal abortion availability will further illuminate or complicate the picture. The marketplace is paying close attention to the political and ideological fights raging throughout the country related to access to reproductive healthcare. However, to date, there has been no drastic change.
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 — threat to business strategies at the federal and state levels. Regulatory investigations, compliance and related claims (E&O, D&O and cyber) continue to keep pressure on 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. With an election later this year, this trend will continue no matter who wins in DC and state capitals.
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 and 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 exposure based on legislative and regulatory action is also adding to the pressure.
Government fines and penalties: Because MCOs are so tied to government reimbursement, plans are likely targets of government investigations False Claims Act action, 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 COVID-19 has compounded the issue. Mental health parity claims, at both the federal and state levels, can be costly to defend, especially the 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
