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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.

‘Medicare For All’ Can Be a Common Enemy to Unite ‘Foes’

It is both comical and infuriating to watch how key healthcare stakeholders react to two different, but highly inter-related subjects: 1) Medicare For All, and 2) Who is at fault for outrageous medical prices. Stakeholders in healthcare include hospital systems, provider groups, health insurance companies and pharmaceutical and device manufacturers. Employers are another major stakeholder, but much too often, they are largely excluded when it comes to contractual relationships between many of the aforementioned players.

When many of these stakeholders are asked who is at fault for charging high prices for medical services, each will conveniently step into a circle and point fingers at one another, as if they are participating in a circular firing squad. It seems that someone else is always at fault, but never the accused.

However, when asked about the growing ‘Medicare For All‘ proposals, commonly believed to eliminate private insurance and ‘socialize medicine,’ many of these same stakeholders will quickly hold hands in support of something centrally sacred to their collective well-being, as if they are military comrades in the HBO mini-series, “Band of Brothers.” These stakeholders’ words and actions are quite transparent about protecting their own self-seeking interests.

Below are just a few examples of this love-hate relationship between various healthcare stakeholders.

Medicare For All

Former Secretary of State, Condoleezza Rice, was quoted as saying, “We need a common enemy to unite us.”  For stakeholders who are frequently at odds with each other, such as medical providers are with insurance companies when it comes to contractual reimbursement arrangements, the relationships can be confrontational, if not outright brutal. However, for various reasons, both typically view Medicare For All as a major threat to their profitable well-being, if not survival. Given what is at stake with a ‘Single-Payer’ system that presumably would be controlled by federal bureaucrats, providers and insurers have found this ‘common enemy’ to mask their mutual differences with each other.

On April 16, UnitedHealth Group CEO David Wichmann warned Democrats that Medicare For All would destabilize the nation’s healthcare system. As mentioned in The Hill, Medicare For All would be a “wholesale disruption of American healthcare [that] would surely jeopardize the relationship people have with their doctors, destabilize the nation’s health system, and limit the ability of clinicians to practice medicine at their best.”

Insurance companies are greatly threatened by the many proposals initiated by progressive Democrats to expand Medicare to the entire U.S. population, most likely greatly reducing the role of private insurers. It must be noted, however, even with any given Medicare For All program implemented, private insurers would most likely be chosen as subcontractors to administer the program, but the profit motive would be greatly reduced from today’s standards.

Not to be outdone, a major counterpart to private insurers, the American Hospital Association (AHA), have similar views to Wichmann’s. AHA President Rick Pollack wrote in February that Medicare For All proposals “could do more harm than good to patient care.” Additionally, this one-size-fits-all approach could disrupt coverage of 180 million Americans who are currently covered by employer plans, and that physicians and other providers “may limit the number of Medicare or Medicaid patients they see because of chronic government underpayment.”

When lobbyists from both stakeholders were recently on stage together in Nashville addressing the Medicare For All topic, such as Matt Eyles (CEO of America’s Health Insurance Plans (AHIP)) and Chip Kahn (CEO of the Federation for American Hospitals), one could almost detect John Lennon’s epic song, “Give Peace A Chance” in the background. Kahn discussed a new organization that he formed, Partnership for America’s Health Care Future, and its purpose of ‘counter-messaging’ against the Medicare For All movement. Eyles acknowledged that AHIP was one of the first groups to become part of this new organization.

Healthcare Prices – Who is at Fault?

The camaraderie found in Medicare For All quickly vanishes when stakeholders are simply asked why healthcare prices are so high. This healthcare ‘hot potato’ can quickly determine just how deep-seated relationships are (or not) between major industry players. The April 15 cover of Modern Healthcare appropriately illustrates fingers pointing at each other, deflecting the price question and placing the blame elsewhere. Additionally, when leaders from Pharmacy Benefit Managers and the Pharmaceutical Research and Manufacturers of America (PhRMA) have appeared in front of the Senate Finance Committee during the past few months to justify their pricing methods, both pointed fingers at one another (insurers also), making sure that their respective organizations and industry were not to blame.

Deflecting responsibility and other self-preservation behaviors will only add to the desire to seek alternative solutions that can reform a grossly underperforming and bloated healthcare system. Stakeholder organizations and industries must decide whether they want to be part of the solution – or, at their own peril – continue to pursue their ‘business-as-usual’ behavior that benefits no one – but themselves.

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