Private Health Insurers: In the Driver’s Seat

In the current environment of the U.S. health system, the major private health insurers are poised to be the catalysts for systemic reform.

Every stakeholder and pundit in the system acknowledges its issues: affordability, accessibility, complexity, suboptimal outcomes and avoidable errors. All recognize the need to shift resources from episodic to chronic and preventive care and engage consumers more effectively in decisions about their care and its costs. All see transparency, data, connectivity and cost containment as imperatives. The question is not where the system is going, but who will drive it.

Collectively, major health insurers—the large national and regional players including many of the Blue Cross plans-- seem best positioned. Collectively, they benefit from the confluence of two forces:

1. Public preference for private health insurance coverage: Per capita, annual spending for healthcare in the U.S. is $11,674—the highest in the world. Polls show voters favor keeping their private coverage over expansion of government programs. Private Medicare Advantage plans enjoy higher satisfaction among seniors than Medicare fee-for-service and employers want to maintain their role as sponsors of employee health insurance benefits that cover 156 million (58% of the non-elderly population). So, the public’s inclined toward private insurance despite complaints about premium affordability and red tape in dealings with them.

2. Government policies that promote private coverage: Notwithstanding efforts by the current administration to disable the Affordable Care Act which increased private coverage and the June 24 Executive order requiring negotiated prices between insurers and hospitals be disclosed, the preponderance of current federal policies support the role of private insurers. Growth in funding for Part C Medicare Advantage plans, continuation of Medicare Part D Prescription Drug Discount plans, provisions in the Affordable Care Act around Medicaid expansion, administrative simplification and value-based purchasing are predicated on the ongoing role of private insurers.

The prospect that Medicare for All will pass in Campaign 2020 seems remote as its presumed cost ($33 trillion/10 years) and loss of private coverage concern the majority of voters. And there is little likelihood Congress will eliminate the employer tax exclusion benefit that allows them to expense their portion of health coverage benefits for their employees ($280 billion/year tax savings to employers). So, private health insurers are on solid footing in the $3.6 trillion U.S. health system.

The private insurance industry in the U.S. is big ($870 billion in 2018 premiums, 907 companies) and growing but margins are shrinking and competition from upstarts are gaining traction. It is dominated by national investor-owned companies led by United, Blue Cross plans in NC, TN, NE and other states where they dominate commercial coverage and a handful of successful provider-sponsored plans like Kaiser, Intermountain, Geisinger and others. Collectively, the public trusts insurers for information about health costs, but harbors distrust about business practices that result in surprise billings and denial of coverage. Regulators have thwarted efforts to consolidate citing anti-competitive concerns and hospitals, physicians and other providers accuse insurers of bullying in negotiating reimbursement rates.

Nonetheless, private insurers are advancing innovations that could re-shape the how care is delivered and financed for generations to come. They are…

Re-defining healthcare: For seniors, veterans, Medicaid enrollees, commercial populations and other groups, social determinants of health (nutrition, exercise, loneliness, financial security, transportation) and personal wellbeing has been paired with traditional diagnostics and treatments to effect better outcomes and lower costs. They see diverse markets as an opportunity to enhance health, not treat sickness.

Re-engineering how consumers interact with doctors and hospitals: Private health insurers are making big bets on digital platforms and plan designs that equip consumers to make better decisions about their own health. All are aligning with high-performing networks of hospitals, physicians and allied health providers willing to share financial risks for cost savings that do not compromise outcomes. They see narrow networks as a fundamental business strategy to lower premiums and customer satisfaction (even if it means relationships with providers are frayed).

Re-designing how health insurance is delivered: Health insurance has an unfortunate design flaw: enrollees with private insurance expect their plan to pay for care whether needed or not, evidence-based or not, cost-effective or not. They want a plan that allows them access to every hospital, doctor and service provider in their community, low premiums and nominal out of pocket costs. That’s delusional. Private insurers are doubling-down their advocacy efforts to pass legislation giving them more freedom to innovate. They are customizing plans to accommodate disparate needs and preferences of enrollees. They understand the public’s antipathy about their role but believe it can change if they demonstrate value in the communities where they operate.

MY TAKE

Last week, two New England plans, Tufts and Harvard Pilgrim Health Care, announced plans to merge (again). The deal, if approved by state and federal regulators, would allow the combined company to serve 2.4 million members in Massachusetts, Maine, Connecticut, New Hampshire, and Rhode Island. Consolidation among private insurers is a widely used strategy by regionals like these to fend off encroachment by the big, investor owned players.

In recent years, the national players have flexed their muscles. For example, their second quarter 2019 revenue growth showed impressive gains: United (+6% for insurance, +13.4% for Optum), Humana (+13.9%), CVS Health which now includes Aetna (+35.2%), Cigna which now includes Express Scripts (+238.1%) and so on. The strategy for each is different but pursuit of growth, diversification of services and willingness to challenge the status quo are common.

The point is this: the private health insurance industry in the U.S. is adapting to forces in the healthcare system that seem to paralyze others. Granted, regulators do not hold private insurers to standards imposed on not-for-profit health systems to provide a community benefit or serve those unable to pay their premiums. So, the case can be made that the playing field is not level. But that argument seems to fall on deaf ears in most communities and legislative chambers.

In many communities, health systems have entered into joint-ventures with private insurers to play offense on health costs or defense against aggressive competition from a plan they consider a predator. Many employers are contracting with private insurers to deliver care to their employees directly including medical supplies, over-the-counter remedies, wellbeing management, direct primary care and more. Many medical groups are aligning directly with insurers assuming full risk for the care provided and associated costs. Roles are changing: provider organizations are becoming insurers and insurers are becoming providers. And they are competing aggressively to control a larger share of healthcare spending against traditional and upstart competitors. That’s the reality.

What’s the key takeaway? Private health insurance is a staple of the U.S. system. Its role is expanding beyond insurance to a wider range of care management products and services.

In many circles, negative feelings about insurers are raw as a result of their bravado. Hospitals, physicians and patients want information from insurers they can’t get i.e. transparency about how credentialing, utilization and denial decisions are made, how narrow networks are determined, how premiums are set and administrative costs defined and so on. The level of frustration with insurers in many communities and regions is palpable.

Every board of directors in every healthcare organization should study the pace, scope and influence of private health insurance in their communities and across the nation. They are in the driver’s seat on the super-highway to a transformed system of health.

Paul









FACT FILE: U.S. HEALTH INSURANCE

Coverage: In 2018, 30.4 million persons of all ages (9.4%) were uninsured—not significantly different from 2017, but 18.2 million fewer persons than in 2010.  In 2018, among adults aged 18–64, 13.3% were uninsured, 19.4% had public coverage, and 68.9% had private health insurance coverage. Among children aged 0–17 years, 5.2% were uninsured, 41.8% had public coverage, and 54.7% had private health insurance coverage. Among adults aged 45–64, the percentage who were uninsured increased from 9.3% in 2017 to 10.3% in 2018. Among adults aged 18–64, 68.9% (136.6 million) were covered by private health insurance plans which includes 4.2% (8.4 million) covered by private health insurance plans obtained through the Health Insurance Marketplace or state based exchanges (in February 2018, approximately 10.6 million enrollees gained coverage through the exchanges, with 87% relying on advance premium tax credits, compared to 10.3 million enrolled at the same time in 2017, with 84% using tax credits). The percentage of persons under age 65 with private health insurance enrolled in a high-deductible health plan increased from 43.7% in 2017 to 45.8% in 2018. Among those 65-plus, the number opting to enroll in private healthcare plans that contract into Medicare (Medicare Advantage) has increased from 12.8% to 34% between 2004 and 2017. Center for Medicare and Medicaid Services, National Center for Health Statistics, Medicare Trustees Report 2018

Industry size: There are 907 private health insurance companies in the U.S. that employ 860,000. Most private health insurance is written by companies that specialize in that line of business, life/annuity and property/casualty insurers also write this coverage, referred to as accident and health insurance on their annual statements. Total private health insurance direct written premiums were $867.5 billion in 2017, including: $670.1 billion from the health insurance segment; $190.8 billion from the life/annuity segment; and $6.5 billion from property/casualty annual statements US Department of Labor, S&P Global Market Intelligence

Major U.S. private insurers 2018 Premiums and Market Share: United $100.59B/12.9%, Anthem $66.12B/9.8%, Humana $55.9B/7.9%, Healthcare Service Corp $37.66B, 5.1%, Centene $33.33B/4.2%, CVS Aetna $21.65B/3.1%