Health insurance companies are on trial, and the charges are theft, deception, and even murder. Many Americans find the healthcare system’s cost, complexity, and quality to be criminal, but have we apprehended the right suspect?
The Affordable Care Act (ACA) was referred to as healthcare reform. In reality, it was health insurance reform. The rates, coverages, and even profitability of health insurance companies are completely regulated as a result of the ACA. The key question voters must answer is whether health insurance companies are to blame for our health system problems. If they are, are they acting alone, or are they simply accomplices?
The prosecutors, I mean politicians, identify health insurance companies as the sole assailant, and during the fourth presidential debate, the trial continued.
Senator Elizabeth Warren assumed the role as lead prosecutor at the fourth Democratic debate near Columbus, Ohio when she stated, “… I will not embrace a plan that says people have great insurance right up until you get the diagnosis and the insurance company says, ‘Sorry, we’re not covering your expensive cancer treatments, we’re not covering your expensive treatments for MS.’”
The ACA regulated and capped insurance company profitability on health insurance. In spite of this cap, insurance company stock prices have soared since the ACA was passed. It is not because they are making excess profits off insurance rates or claim denials. Health insurance companies must refund customers if loss ratios are under ACA thresholds. Because insurance company margins are a fixed percentage of health insurance premiums, rates must go up, rather than down, to increase their net profit; so saying “no” to care hurts insurance company profits over time.
More working Americans receive their health benefits through self-funded plans than through true insurance. Self-funded means the employer, rather than the insurance company, assumes the financial risk of the health plan. Insurance company revenue and profitability are not connected to whether claims are higher or lower than expected. Insurance companies are paid a fixed administrative fee for their network, claims, and care management services. In a self-funded plan, an insurance company has zero profit motive for denying care.
So, if denying care is not how insurance companies maximize their profits, how are they doing it? Vertical integration is my answer. For example, some health insurance companies have merged with pharmacy benefit managers (PBM). A health insurance company makes money as the PBM and as an insurer every time a prescription is filled. If you are CVS Aetna, you might even make money as the retail pharmacy by filling the prescription. In addition, UnitedHealthcare (UHC) is the largest employer of physicians in the U.S. If UHC owns the physician practice, they make money when a person visits the doctor’s office as both the provider and payer in the healthcare transaction. If the doctor prescribes a medication, then UHC’s PBM, Optum Rx, also makes money on the prescription transaction. Saying “yes” rather than saying “no” is actually what fuels health insurance profits in today’s world.
The profit in health insurance is no longer about denying care, it is the multiple layers of potential profit that exist in every healthcare transaction. This potential issue is infinitely harder to understand, and infinitely harder to solve, than insurance company underwriting profit, which was already addressed through the ACA.
Our healthcare cost, complexity, and quality problems cannot be blamed on a single stakeholder. The distraction of trying to place the blame on one entity means we will ignore the root causes of our problems and miss the opportunity to make real change that lowers costs for everyone, decreases the complexity of navigating the healthcare system, and improves health outcomes for all Americans. The source of many of our problems is the poor coordination between public and private health insurance. Rather than blaming stakeholders, we should invest our time and energy in figuring out how to align and regulate all stakeholders and move toward measurable improved results.
Den Bishop is President of Holmes Murphy, one of the nation’s largest employee-owned and controlled insurance brokers, and the author of The Voter’s Guide to Healthcare, coming this fall.