Triple-S Management Corporation is one of the most significant players in
the managed care industry in Puerto Rico, serving approximately 1,100,000 members,
with a 25% market share in terms of premiums written in Puerto Rico for the
nine-month period ended September 30, 2015. We have the exclusive right to use
the Blue Cross and Blue Shield (“BCBS”) name and mark throughout
Puerto Rico, the U.S. Virgin Islands, Costa Rica, the British Virgin Islands
and Anguilla and over 50 years of experience in the managed care industry. We
offer a broad portfolio of managed care and related products in the Commercial,
Medicaid and Medicare markets. We market our managed care products through an
extensive network of independent agents and brokers located throughout Puerto
Rico as well as an internal salaried sales force. We provided administration
services only or self insured (“ASO”) managed care services to the
Plan de Salud del Gobierno (similar to Medicaid) (“PSG” or “Medicaid”)
island-wide until March 31, 2015. Effective April 1, 2015, the government changed
the Medicaid delivery model from an ASO to a risk-based model and we elected
to participate in this sector as a fully-insured provider in only two of the
eight regions of Puerto Rico. PSG is funded by the Government of Puerto Rico
and the U.S. Government.
We also offer complementary products and services, including life insurance,
accident and disability insurance and property and casualty insurance. We are
one of the leading providers of life insurance policies in Puerto Rico.
A substantial majority of our premiums are from customers within Puerto Rico.
In addition, mostly all of our long-lived assets, other than financial instruments,
including deferred policy acquisition costs and value of business acquired,
goodwill and other intangibles, and the deferred tax assets are related to Puerto
Rico.
Managed Care
In response to an increasing focus on health care costs by employers, the government
and consumers, there has been a growth in alternatives to traditional indemnity
health insurance, such as Health Maintenance Organizations (“HMOs”)
and Preferred Provider Organizations (“PPOs”). Through the introduction
of these alternatives the managed care industry has attempted to contain the
cost of health care by negotiating contracts with hospitals, physicians and
other providers to deliver health care to plan members at favorable rates. These
products usually feature medical management and other quality and cost optimization
measures such as pre-admission review and approval for certain non-emergency
services, pre-authorization of certain outpatient surgical procedures, network
credentialing to determine that network doctors and hospitals have the required
certifications and expertise, and various levels of care management programs
to help members better understand and navigate the medical system. In addition,
providers may have incentives to achieve certain quality measures or may share
medical cost risk. Members generally pay co-payments, coinsurance and deductibles
when they receive services. While the distinctions between the various types
of plans have lessened over recent years, PPO products generally provide reduced
benefits for out-of-network services, while traditional HMO products generally
provide little to no reimbursement for non-emergency out-of-network utilization.
An HMO plan may also require members to select one of the network primary care
physicians (“PCPs”) to coordinate their care and approve any specialist
or other services.
The government of the United States of America (the “U.S. government”
or “federal government”) provides hospital and medical insurance
benefits to eligible people aged 65 and over as well as certain other qualified
persons through the Medicare program, including the Medicare Advantage program.
The federal government also offers prescription drug benefits to Medicare eligibles,
both as part of the Medicare Advantage program and on a stand-alone basis, pursuant
to Medicare Part D (also referred to as “PDP stand-alone product”
or “PDP”). In addition, the Government of Puerto Rico provides managed
care coverage to the medically indigent population of Puerto Rico.
We have noticed that economic factors and greater consumer awareness have resulted
in (a) the increasing popularity of products that offer larger, more extensive
networks, more member choice related to coverage, physicians and hospitals,
greater access to preventive care and wellness programs, and a desire for greater
flexibility for customers to assume larger deductibles and co-payments in return
for lower premiums and (b) products with lower benefits and a narrower network
in exchange for lower premiums. We believe we are well positioned to respond
to these market preferences due to the breadth and flexibility of our product
offering and size of our provider networks.
Life Insurance
The main products in this market are ordinary life, cancer and other dreaded
diseases, term life, disability and annuities. The main distribution channels
are independent agents. Banks have established general agencies to cross sell
life insurance products, such as term life and credit life.
Property and Casualty Insurance
Property and casualty insurance companies compete for the same accounts through
aggressive pricing, more favorable policy terms and better quality of services.
The main lines of business in Puerto Rico are personal and commercial auto,
commercial multi-peril, fire and allied lines and other general liabilities.
Approximately 62% of the market is written by the top six companies in terms
of market share, and approximately 88% of the market is written by companies
incorporated under the laws of and which operate principally in Puerto Rico.
The Puerto Rican property and casualty insurance market is highly dependent
on reinsurance.
Managed Care
We strive to maintain our market leadership by trying to provide all of our
managed care members with the best health care coverage at a reasonable cost.
We believe that disciplined underwriting and appropriate pricing are core strengths
of our business and important competitive advantages. We continually review
our underwriting and pricing guidelines on a product-by-product and customer
group-by-group basis to maintain competitive rates in terms of both price and
scope of benefits. Pricing is based on the overall risk level and the estimated
administrative expenses attributable to each particular segment.
Our claims database enables us to establish rates based on each renewing group
claims experience, which provides us with important insights about the risks
in our service areas. We tightly manage the overall rating process and have
processes in place to ensure that underwriting decisions are made by properly
qualified personnel. In addition, we have developed and implemented a utilization
review and fraud and abuse prevention program.
We have been able to maintain relatively high retention rates, which is the
percentage of existing business retained in the renewal process, in the corporate
accounts sector of our managed care business.
Our managed care rates are set prospectively, meaning that a fixed premium rate
is determined at the beginning of each contract year and revised at renewal.
We renegotiate the premiums of different groups in the corporate accounts as
their existing annual contracts become due. We set rates for individual contracts
based on the most recent semi-annual claims data. We consider the actual claims
trend of each group when determining the premium rates for the following contract
year. Rates in the Medicare sector and for federal and local government employees
are generally set on an annual basis through negotiations with the U.S. federal
and Puerto Rico governments, as applicable.
Life Insurance
Our individual life insurance business has been priced using mortality, morbidity,
lapses and expense assumptions which approximate actual experience for each
line of business. We review pricing assumptions on a regular basis. Individual
insurance applications are reviewed by utilizing common underwriting standards
in use in the United States, and only those applications that meet these commonly-used
underwriting requirements are approved for policy issuance. Our group life insurance
business is written on a group-by-group basis. We develop the pricing for our
group life business based on mortality and morbidity experience and estimated
expenses attributable to each particular line of business.
Property and Casualty Insurance
The property and casualty insurance sector is experiencing a soft market in
Puerto Rico, principally as a result of economic conditions and reinsurance
capacity. Notwithstanding these conditions, our property and casualty segment
has maintained its leadership position in the property insurance sector by following
prudent underwriting and pricing practices.
Our core business is comprised of small and medium-sized accounts. The volume
of business is subject to attentive risk assessment and strict adherence to
underwriting guidelines, combined with maintenance of competitive rates on above-par
risks designed to maintain a relatively high retention ratio. Underwriting strategies
and practices are closely monitored by senior management and constantly updated
based on market trends, risk assessment results and loss experience. Commercial
risks in particular are fully reviewed by our underwriters.
%
