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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 Medical Error Problem – Do Employers Have Solutions?

Medical errors do not discriminate. In fact, preventable medical errors occur on an ‘equal-opportunity’ basis to patients, regardless of age, gender, race, political ideology and the type of medical plan you may (or may not) have. This means that employer-sponsored health plans are not exempt from medical mishaps and the associated costs that come with this problem.

Although the cost to employers can be massive – it is opaque and mostly hidden. Leah Binder, president of The Leapfrog Group, a national nonprofit organization whose mission is to address the quality, safety and affordability of American healthcare, has stated the cost associated with this unintended harm that silently creeps into the premiums that employers and employees pay – is a “hidden surcharge.”

This ‘surcharge’ not only includes additional costs to fix the medical problem resulting from the error, but the lost productivity of absenteeism and presenteeism – when employees lose time away from work and the emotional toll it takes when they do show up for work.

Simply put, employers own this problem, whether they know it or not. Relying on your insurance company or vendor to apply leverage on healthcare providers is most likely a delusional strategy in trying to improve this problem.

A 2013 Leapfrog Group white paper calculates that hospitals with a grade of “A” on their Hospital Safety Grade (hospitals who participate in Leapfrog surveys that rate patient safety efforts), will have a hidden surcharge for medical errors of $6,962, while a hospital with a grade of “C” or lower will command a hidden surcharge of $958 higher ($7,920 total). It is quite evident, especially when it comes to safety of medical care, not all hospitals are created equal. This is a fact that both patients and payers alike must acknowledge – and address.

Recently, Leapfrog announced that five states showed the most improvement over the five-year period since the Hospital Safety Grade’s inception. The states are Oregon, Rhode Island, Hawaii, Wisconsin and Idaho. Just as politics is considered to be local, so too is the healthcare that is delivered to patients. Though patient safety is a national problem, the solutions must begin locally, within each of our communities and within state borders. See how Iowa ranks in the most recent Leapfrog rankings.

With this in mind, what can Iowa employers do about patient safety issues? Actually, quite a bit.

What can Iowa Employers do about Patient Safety Issues?

Heartland Health Research Institute recently wrote a fact sheet, “What Employers Can Do About Medical Errors,” that addresses at least six approaches Iowa employers can consider taking to reduce the incidence of medical errors. The approaches include:

  1. Make insurance contracting decision-making process part of the medical error strategy.
  2. Develop a coalition with other like-minded employers and purchasers in your community.
  3. Meet with local hospital(s) and clinic(s) to convey the importance of safety and quality – require they demonstrate ‘cultures of safety’ within their respective organizations.
  4. Actively communicate the importance of safety issues to employees.
  5. Encourage employees to report medical errors when they occur.
  6. Visit with both state and federally-elected officials, trade association groups in which your organization participates, and other local commerce organizations.

It is tough sledding to make policy recommendations that would have a chance of becoming law. Instead, to disrupt healthcare into being delivered more safely, it really must begin with those who actually pay the healthcare bills – the employers and their employees, and yes, the taxpayers who ultimately fund Medicare and Medicaid and other state healthcare programs. In the past, this applied-pressure usually started (and ended) with only the largest of employers. But for this new movement to gain local traction, employers of all sizes and industries must embrace the approach that there is zero-tolerance for preventable medical errors.

Just remember, when we don’t demand safety in our healthcare, they don’t supply it. There’s no better time than now to begin taking action.

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