The Bigger Questions about Health Insurance

The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week's article. 

Friday, my 39-year-old son sent this text to me: “my insurance was cancelled effective December 1. What do I do?” Like any dad, I spent time this weekend looking at his options, knowing this happens to millions routinely.

He’s healthy, self-employed, and paid his premiums. There was no explanation: the insurer simply cancelled his plan. It reminded me of that helpless, frustrated feeling when a flight delayed due to mechanical problems is then cancelled and the airline tells you they have booked you on their “next available flight” getting you to your meeting a day late.

Health insurance matters to my son and it’s important in our system of care. It’s been around since 1929 when teachers in Texas first sponsored a plan to help pay their hospital bills. The health insurance industry is increasingly in the news.  Last week, the CEOs of Aetna and Anthem were on the hill again defending their respective mega-deals to the Senate Subcommittee on Competition and Consumer Rights. Aetna’s proposing to buy Humana and Anthem’s proposing to acquire Cigna, which means the Big Three (adding United) will cover 132.5 million, or 44% of total enrollment, and each will have revenues exceeding $100 billion. (See Fact File)

The scrutiny given these deals is certainly warranted. The U.S. healthcare system is built around a simple principal: competition.  Hospitals compete against hospitals, physicians against physicians, plans against plans and so on. Where the data shows competition in markets is mitigated by deals, our system of oversight steps in: regulators in the Department of Justice must decide whether these deals cross that line in communities where they operate.

But there are bigger questions about health insurance that need to be discussed beyond these deals. Now’s the time because health insurance premiums are skyrocketing, health costs are increasing, fewer employers are offering employee coverage and those that do are passing premium increases through to their employees; states and the federal government are increasing contracting with private insurers in their Medicaid and Medicare programs; and the workforce includes increasing numbers of workers who, like my son, purchase individual policies. But the health insurance industry may have reached a tipping point.

Here are the facts:

1-Private health insurance is valued by employers, states, the federal government and individuals. Offering health insurance benefits is table stakes for recruiting and keeping talent in most industries, and it’s preferred by individuals who can afford it. Those without insurance want it; they don’t have it because they don’t qualify for coverage (i.e. citizenship) or they can’t afford it. As a result, there are more than 800 private insurers in the U.S., including 80 sponsored by hospitals or health systems, with combined membership approaching 260 million. In 39 states, Medicaid is managed through private plans. In Medicare, Part C Medicare Advantage Plans now cover almost a third of its total membership. And so on.

2-The traditional employer market for private insurers is shrinking. Employer sponsored coverage aka “group coverage” is decreasing, while plans sold through government (Medicaid Managed Care, Part C Medicare Advantage, and Part D Prescription Drugs) and to individuals are increasing. And among companies providing coverage, limitations have been added and the majority of premium increases have been passed through to employees in higher worker contribution requirements. So insurers are shifting their focus from employers to individuals and government contracts representing new challenges and risks.

3-Operating a health insurance plan is a risky business. Credentialing providers, monitoring quality, measuring outcomes and safety, adjudicating claims inside and outside networks, negotiating rates with providers, standardizing what’s covered based on evidence, coordinating care via call centers and care management programs and developing benefits designs across multiple lines of business are competencies unique to health plans. Insurers require sophisticated analytic tools and capital to pay claims and serve their customers. It’s a risky business requiring substantial capital and operating expertise.

4-The private insurance industry is consolidating.  The Big Three—United, Anthem and Aetna– will control 132.5 million members (government + commercial). The 36 Blue Cross Plans control another 105 million lives and through their collaborative ventures in analytics programs and advocacy efforts increasingly operate as a major plan. The four, then, cover 237.5 million—the rest serve fewer than 30 million combined.   And the four are profitable, have strong balance sheets and cash on hand in their war chests. The rest struggle to compete.

Note: 240 Million Americans are currently purchasing health coverage through private plans. (Using 2014 population total of 319 Million – the total market for private insurers is 240.8 Million – Subtracts the 29 Million without coverage, 11.8 Medicaid in non-MCO states, and 37.4 Medicare in Non- Medicare Advantage Plans).

5-The big Insurers are diversifying. All are investing in opportunities beyond coverage:

  • Data and Analytics: The U.S. health system is data-rich and information poor. United’s bet is Optum. Aetna’s in Healthagen. The Blues are pooling their data, and Anthem is in pursuit. Creating algorithms to assist individuals in their decisions about treatment options and costs, hospitals and physicians to assist in care coordination and cost controls, and employers in defining narrow networks, benefits design and employee accountability are priorities for major insurers who see profits in being “informediaries” in healthcare.
  • Shared risk arrangements with providers: Medicare’s determination that accountable care organizations and bundled payments are the backbone of its volume to value transformation is opportunistic: each of the major insurers is approaching hospitals and physicians with proposals to share risk, and each is willing to invest the infrastructure needed if providers are willing to give up control of their data and access to patients.
  • Retail health and primary care: All employ primary care providers. All are testing “retail stores” to help enroll folks and direct them to providers of choice. All now cover visits to retail clinics and pharmacies and all are investing in direct-to-consumer programs that offer health and wellbeing products and services.
  • Medical groups: The major insurers see medical groups as a platform for managing access for their members and upside in controlling how their care is delivered and what they pay hospitals for their tests and procedures. Acquisitions of medical groups is strategic investment being made by most major insurers.
  • Globalization: The Big Three and others are active in pursuit of private market niches in regions like western Europe and in countries like Mexico and Brazil where a portion of the their populations prefer and can afford private coverage.

6-Confidence in health insurance to handle household medical costs is slipping. The public’s confidence in health insurers is an issue. Health insurers’ “profits” (whether owned by investors or a not for profit) result from spending less on healthcare than they receive in premiums. A high medical loss ratio means less profit for the plan, so utilization management, retrospective reviews, tight formularies and provider networks and carve outs are standard operating procedure. The public believes that having health insurance is important but they also feel coverage is no guarantee a household’s finances can’t be decimated by a costly health event and household medical debt is a growing concern: consider:

  • The financial-advice company NerdWallet found that medical bankruptcy was the number one cause of personal bankruptcy in the U.S. in 2014.
  • Americans pay three times more for medical debt than they do for bank and credit-card debt combined.
  • Nearly a fifth of us will hear from medical-debt collectors this year, and they’ll gather $21 billion from us, collectively.
  • 11% of Americans have taken money out of retirement savings to pay medical bills.
  • An estimated 11 million American adults (ages 19-64) took on credit card debt to pay off their hospital bills in 2013; and over 15 million American adults will deplete all their savings to pay medical bills. In 2013 over 20% of American adults struggled to pay their medical bills, and 3 in 5 bankruptcies were due to medical bills.

So as regulators assess the big deals, the bigger questions about the insurance industry will likely come into focus…

What is the purpose for health insurance? Is it to protect citizens who have coverage against medical debt that can wipe them out? Should it cover everything or only the most costly episodes? And should employers play a role at all?

Should health insurers be required to make their data accessible and transparent to the providers, pharmacists, and hospitals they contract, and to the members, employers, and government agencies they serve? Should their deliberations about coverage denials and physician performance be accessible to those impacted?

Should their decisions to suspend a plan, raise premiums, eliminate providers from networks for causes other than safety or quality, be subject to tighter scrutiny by state departments of insurance to which they’re accountable?

Should earnings from non-insurance businesses be factored into their premium increases as they invest their capital and diversify?

When plans drop members who paid their premiums, or cease their operations, do members have recourse?

And if health care public policy going forward intends that hospitals and health systems should bear the risks for costs and quality, should regulators facilitate sponsorship of health plans by providers so as to equip them to operate effectively and compete equitably against non-provider sponsored plans in their communities?

Tough questions that go beyond the mega deals, but timely.

For most Americans, these policy issues and questions surrounding health insurance escape notice. They’re more worried about their insurance, and whether they’re covered.  And lots of dads are trying to help their sons figure out how to find a plan that’s affordable and protects them…at least until the plan decides otherwise.


Sources: See Fact File plus…;

The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.

©2015 Navigant Consulting, Inc.