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2020 is a Mixed Bag for Health Insurers – Surging Revenue but Low Grades

Imagine that you are the CEO of a large, midwest-based, health insurance company and have just learned the results of a national survey where employers gave your company a mid-level grade on the ability to direct employees to high-quality health care. Somewhat discouraging news, don’t you think?

But there’s also good news. Net income for your organization is up almost 100 percent during the recent quarter and you have personally received over $52 million in total pay for 2019.  In fact, your total realized compensation increased 143 percent from the $21.5 million you took home in 2018.

Such is the life of this non-fictional CEO, whose compensation is comprised of salary, stocks, contributions to pension and many other wonderful perks.

Steady Revenue for Insurers – Reduced Claims

Due to the widespread deferral of elective and routine care during the COVID-19 pandemic in the second quarter, health insurance companies have benefited from plummeting medical costs while still collecting predetermined health premiums from their customers. This fortuitous ‘perfect storm’ has resulted in insurers obtaining skyrocketing net income compared to the same period a year ago.

How this will continue to play out when the pandemic recedes, however, will not be known for some time.

Both small and large insurance organizations experienced miraculous financial returns from the second quarter of 2020. UnitedHealth Group reported a net income of $6.7 billion – a 97.8 percent increase. Anthem Blue Cross and Blue Shield reported an increase of 99.8 percent, while Cigna Corp. reported a net income increase of almost 25 percent during this same period.

Many executives promise to correct this financial imbalance by eventually returning excess funds to customers and health providers.

CEO Compensation Growth

Meanwhile, according to a BDO USA survey released earlier this year, health insurer CEOs are doing quite well financially.  I don’t begrudge their success, I really don’t. I do believe, however, in responsible capitalism. Making millions upon millions of dollars just to be an administrator is both excessive and unconscionable. The ‘value’ provided by health insurers within our dysfunctional health system raises some concern. The question of ‘how much is too much’ is a subjective gymnastic exercise, however.

The 2019 compensation for the aforementioned CEO was 348 times more than the median pay earned by an employee at his organization ($54,322). This example is merely illustrative of the health insurance industry.

Lack of Price Transparency

Both insurance companies and hospitals are resisting the tidal wave that is moving toward healthcare price transparency, which should call into question the commitment insurers have to their premium-paying clients. For example, are insurers in business to serve medical providers or their employer clients? Perhaps insurers serve both parties? If so, are employers at a disadvantage by not having specific knowledge of the prices negotiated between insurers and providers? I believe they are.

Without transparency in prices and patient outcomes, how do employers know they are receiving commensurate value for the premiums they pay – which also includes administrative costs charged by insurers? Frankly, it is very subjective.

According to 2019 data from the Kaiser Family Foundation, over 156 million non-elderly Americans – or almost half of the country’s total population – receive employer-sponsored health insurance. By sheer numbers, employers are entitled to know what negotiated arrangements are made between the insurers they use and the medical provider community.

But now comes a newly-released survey. This one addresses whether employers are satisfied with their insurers.

Employers’ View on Insurers is Lukewarm

In July, The Leapfrog Group released very interesting survey results regarding an online survey of employer executives that administer and fund benefits for employees and their dependents. Leapfrog, an independent national healthcare watchdog organization on healthcare issues for employers around the country, desired to “gain employer perspectives on health plan effectiveness in achieving health care quality, safety and value.”

Survey respondents, a total of 174 employers* – small, midsize and large – cited their experiences with health plans that included, Aetna, Cigna, UnitedHealthcare, and over a dozen Blue Cross and Blue Shield plans around the country. Four key issues were rated by employers:

  1. Responsiveness of the health plan to employer concerns;
  2. Transparency in helping employers and employees choose the best (health) providers;
  3. Payment reform initiatives that incentivize excellence in the market; and
  4. Value strategies driven by health plans.

The responses by employers on each issue is quite revealing on just how they perceive the value provided by insurers on high-cost healthcare. These perceptions, by the way, are not flattering to health insurers, especially the views coming from larger employers.

According to the summary of results, Leapfrog indicated that “Most employer respondents appeared to have reservations about whether their health plan puts their needs above the preferences of contracted providers. About a third of Cigna and Aetna clients believed their plan put them first, while only 14 percent of UnitedHealthcare employers were similarly satisfied.

Overall, when asked to grade their health plans, from A to F, employer respondents gave their plans a C-plus (2.57 GPA) on their ability to direct their employees to high-quality healthcare. UnitedHealthcare received the poorest grade, with a 2.29 GPA.

Having accountability in healthcare delivery, payment and outcomes is extremely important to payers. But – at least with the Leapfrog survey – insurers have a long way to go in making their value commensurate with how insurers earn their profits in a poorly-run health system.

Insurance company CEOs should take a hard look at themselves in their mirrors to really see what their reflection candidly reveals.

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*I would’ve like to have seen a bit larger number of respondents, but this is, nonetheless, a very good survey.

The Illusion of Getting ‘Bigger’

Sometimes Size MattersAmerican culture is all about the belief that “bigger is better.” Heck, just stop by the local convenience store and you will find patrons walking away from the cash register with a ‘Big Gulp’ beverage. (No wonder obese Americans now outnumber overweight Americans.)

We seem obsessed with having the biggest ‘something’ – whether it is a city, town square, tallest building, largest (and most expensive) house or maybe a huge bicycle fortress crossing the state during late July. No doubt, it can be enticing to claim something enormous.

In both the hospital and health insurance industries, the fixation on growth is being taken to a whole new level. Nowadays, growth does not necessarily occur organically, such as through offering newly-innovative products and services that provide added value to customers. As customarily assumed, growth is intended to drive down costs, increase negotiating leverage and ultimately boost profits.

Controlled, organic growth seems to be much too slow for investors and today’s conventional wisdom of doing business. Enter acquisitions and mergers of competitors.

Insurance companies are making headlines with eye-popping takeover bids. For example, UnitedHealth Group, the nation’s largest health carrier, with expected revenue this year of $143 billion, has made a move to acquire Aetna, the nation’s third largest health carrier. The second largest carrier, Anthem, Inc., is pursuing Cigna Corp. They just made a takeover offer of $47.5 billion – which was subsequently rejected as being too cheap. If this isn’t enough, Aetna is reportedly interested in buying Humana, the fourth-largest carrier in the country. Big is better, right? After all, lobbying does matter a great deal in healthcare.

The impact on various markets across the country will most certainly affect local competition, and because of this, such takeovers will face rigorous antitrust scrutiny by the U.S. Justice Department for anti-competitive reasons. The reality is that healthcare markets are local, so unless a larger carrier gains a larger percentage of insureds in a given market, certain markets will not be impacted.

Hospitals have also made a myriad of moves in the recent past through mergers and acquisitions. Physician practices are gobbled up in Pac-Man fashion. Hospitals are concerned that larger insurance oligopolies will gain more clout by keeping provider payments lower – yet increase prices of insurance products to purchasers – employers and individuals. It appears the new arms race is not so much about nuclear bombs, but rather, healthcare purchasing clout. The hunger to grow escalates when the other side expands – a never-ending treadmill of activity.

So what does this mean for healthcare customers like you and me? Through sleight-of-hand, carriers and providers provide the illusion that patients are the focus in this post-ACA environment. But unfortunately, due primarily to the complexities inherent in healthcare, the public continues to buy into this perpetual illusion that care will somehow get better and become less expensive because our best interests are the center of this activity. The illusion continues.

Let’s be honest, it’s about the bottom line – healthcare is in the money business.

Third parties develop websites on price information coming from aged-claims data that usually are at least two years removed from the unknown prices now being used. Patient engagement is critical within healthcare, yet, according to research conducted by Nielsen/Harris Interactive Strategic Health Perspectives, patients with chronic conditions who have significant out-of-pocket exposure are increasingly feeling disillusioned by our healthcare ‘system.’

As mentioned in previous blogs, gaining the ‘public trust’ is the fundamental business in which the health provider community should be operating. But customers who feel hopeless about their healthcare most likely will not have the trust to use transparency tools to make optimal healthcare decisions – even when more relevant tools eventually become available.

Growth by acquisition and mergers will not gain public trust. If consumerism has a chance to work in healthcare, we must allow it to work by agreeing that, when seeking non-emergency care, consumers are entitled to receive accurate cost information about their out-of-pocket exposure. This information can be provided through the collaboration of providers and carriers. If they are unwilling or unable, other third parties can fill this role. Without a doubt, the healthcare and health insurance worlds are in a full state of disruption – complacency is NOT an option for those who wish to survive.

Further, consumers must have access to quality metrics about the provider care they seek. Gaining a consensus on quality metrics will be no easy task, but it is the right course to take when rewarding those providers who perform the care we assumed we were receiving in the past.

Mergers and acquisitions may be great for owners, stockholders, corporate executives and the M&A consultants who promote such activities. But it only prolongs the REAL work that is needed for healthcare to become safe and affordable to all.

Bigger is not better. Smarter is better.

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