The days of trusting your legislators to have your best interests at heart are in the rearview mirror. Apparently, their main interest is parroting the buzzwords of the moment to get elected and then being too busy banking lobbying money to listen to the voters. Our legislators have become spectators who wait for the perfect moment to pounce on their political enemy and then go on cable news shows to boast about it.
The “us against them” attitude, punctuated by hyperbolic, apocalyptic rhetoric, closes the door to finding solutions. Our interests would be better served by having town hall meetings where voters could state their concerns, air their differences and learn what legislators are doing about their issues. Caution: Meetings at 9 a.m. on Wednesday ,when paid activists are guaranteed to outflank the working general public, are prohibited.
There are strong differences of opinion on how to attain a healthy citizenry. Educating potential patients about what drives up medical care expenditures can start the conversation. Well-informed patients would demand solutions based not on corporate interests or government or political agendas but on a fair, competitive market that maximizes choices and achieves lower costs.
Eight years of the Affordable Care Act have borne out Congressional Budget Office predictions that abandoning basic principles of insurance—which compensates only for events beyond the insured’s control and is priced according to the degree of risk—would lead to higher and higher premiums, fewer participating insurers and unsustainable government expenditures to subsidize insurance premiums. The data in three recent Centers for Medicare and Medicaid reports on ACA exchanges show “individual market erosion and increasing taxpayer liability.” The average monthly premium for coverage purchased through the exchanges rose 27% in 2018, and federal premium subsidies increased 39% from 2017 to 2018.
A less frequently discussed cost driver is the disturbing trend of private doctors’ offices being scooped up by hospitals, health insurance companies and venture capital groups. Prices tend to rise when health systems merge, because of decreased competition. And not only do hospitals and health systems generally charge more than private physicians’ offices, the government compounds this problem by paying more to hospitals than independent offices for the same service. A review of 2015 Medicare payments showed that Medicare paid $1.6 billion more for basic visits at hospital outpatient clinics than for visits to private offices. Patients are the biggest losers: They paid $400 million more out of pocket and had their tax dollars wasted. The study also found hospital-employed physicians’ practice patterns in cardiology, orthopedic and gastroenterology services led to a 27% increase in Medicare costs. This translated to a 21% increase in out-of-pocket costs for patients.
Similarly, a U.C. Berkeley School of Public Health study of consolidation of California’s hospital, physician and insurance markets from 2010 to 2016 concluded: “Highly concentrated markets are associated with higher prices for a number of hospital and physician services and Affordable Care Act (ACA) premiums.” In consolidated markets (defined by the Federal Trade Commission’s Horizontal Merger Guidelines), prices for inpatient procedures were 79% higher, and outpatient physician prices ranged from 35% to 63% higher (depending on the physician specialty) than less concentrated markets.
Big medicine and third-party financing are taking the cost curve in the wrong direction. This speaks to the urgency of encouraging cash-friendly practices that bypass insurance and supporting direct primary care (DPC) practices. With DPC, all primary care services and access to low-priced commonly used medications are included in an affordable upfront price. Importantly, DPC’s time-intensive and individualized management of chronic diseases decrease hospital admissions, paring Medicare’s $17 billion spent on avoidable readmissions.
Why corporations want to marginalize private practice seems clear; the government’s motive is open to debate. Surveys consistently find that patients overwhelmingly want “personalized provider interactions.” Thus, herding patients into government-directed programs is not the solution. One core problem with government systems is their reliance on the goodwill of politicians. As President Ford said, “A government big enough to give you everything you want is a government big enough to take everything you have.”
It’s time for Congress to scrutinize anti-competitive health system mergers. It’s time to bring to the floor more than a dozen bills to expand and improve Health Savings Accounts (HSAs) to give patients more control over all facets of their medical care.
Congress, the clock is ticking on this legislative session. Stand up for patients. Or did the dog eat your courage?
Employers and health plans! Don’t let the prospects of reform dupe you into failing to manage past and current Obamacare liability exposures.
Contrary to popular perception, President Trump’s health plan executive orders do not insulate employers or their health plans from all Obamacare compliance or enforcement exposures. Among other things, the Internal Revenue Service continues to enforce Internal Revenue Code rules that require employers to self-identify and report any violations of the 40 listed federal health plan mandates on Form 8928 and pay resulting excise taxes unless and until reform passes.
Furthermore, even if reform eventually passes, reform is unlikely to insulate health plans, their fiduciaries or sponsors from costs and liabilities arising under plan terms and the laws in effect before a post-reform amendment.
Employers and other health plan sponsors, their fiduciaries, insurers and reinsurers, administrative service providers and other vendors should review plans to continue in compliance, while promoting and shaping common sense reforms for the statutes and regulations affecting health plans.
Employer and other health plan sponsors, fiduciaries, insurers and other vendors also should discuss processes for responding to changes and amending plans and associated contracts, to be able to respond as quickly as possible if reform happens.
As debate continues to swirl about the future of U.S. healthcare regulation, here are the four high-level trends we may expect, and how stakeholders could be affected:
1. Healthy people may start leaving the individual market
Recent changes eliminate the penalty for not having health insurance. Under the ACA, consumers were charged a penalty for the year they lacked coverage. But now, when consumers file their taxes, they won’t be charged a penalty. Without the penalty, younger and healthier consumers may choose to not have individual coverage. However, this doesn’t mean they don’t need or want health insurance coverage. Expect employers to play an increasingly important role in filling the gap. That being said, not all employers offer health insurance. It’s still ambiguous what the self-employed (think contract, freelance or gig workers) will do. Under the likely scenario in which many of the self-employed forgo insurance under the new regulation, the uninsured rate may increase.
The premiums received from healthy people are generally a great hedge for the unhealthier, or higher-risk, populations for carriers. With the changes occurring in the individual market, carriers can expect a worsening loss ratio: The ratios paid by the premiums to the insurance company to cover settled claims begin to decrease. With the risk pool looking worse, carriers may concentrate on boosting their sales in relatively more stable segments.
3. Employer-sponsored coverage will be critical for employee retention
If the ACA’s employer mandate is repealed, small businesses may no longer be required to provide affordable, minimum-value coverage to their full-time employees to avoid penalties. That being said, with many people losing their individual health coverage, employees may increasingly expect health coverage from their employers. Employer-sponsored benefits have always played a critical role in attracting and retaining talent, but, with the current instability in the market, many employees will appreciate the security of an employer-sponsored coverage plan more than ever.
4. States may have increasing regulatory power
States may gain further flexibility to develop new healthcare models, including changes to affordability and choices offered. A number of states are pushing for their own legislation that could potentially give additional protection to residents beyond the federal level. Keep an eye on states like New York and California, which seek to create programs to increase benefits and requirements set by the ACA.
I hadn’t worried much about U.S. health insurance in years, eight to be exact. I was interested, but not worried, because while I was living abroad I didn’t need it. Furthermore, I had a health insurance plan that covered me wherever I lived in the world. When I returned to the U.S. this past July, I was faced with buying an individual health insurance plan, which was something I’d never done (all my previous work experience in the U.S. gave me insurance as part of a group plan).
In August, I bought a policy with a carrier and used an agent.
As this is Open Enrollment season and I just purchased my first policy in the post-ACA world, I thought it would be a apt to talk a bit about the U.S. healthcare system and how I think insurtech can help. I will focus on three areas.
First is my experience with Open Enrollment this year (to, I hope, help some who are going through the same experience right now!). Second is areas that need to be considered when looking at U.S. health insurance. Third is a summary and ideas for insurtech startups.
Healthcare, especially U.S. healthcare, is very, very complex. Hence, I will only dive into a few areas, and as usual, my recommendations at the end will be fundamental and principle-based.
While there are a lot of politics surrounding U.S. healthcare, I will endeavor to not touch on the political aspects (though through the reading you should understand my opinions on the current state of affairs).
Open Enrollment – How Open Is It?
As of the writing of this article, I am in the final steps of selecting my plan for 2018. If you are currently going through the Open Enrollment process yourself, I have included some links at the end of the article that are some great guides on the overall process (including one from Oscar for “solopreneurs”).
What follows, is my experience of preparing for Open Enrollment.
A few weeks ago, I received this in the mail:
And about a day later, an email from my agent that said this:
Well, neither one of these were very encouraging.
I started with the Covered CA website and PolicyGenius to do my search to see what carriers/plans were available.
As I went through both sites, I realized that I was going through a modified needs analysis (these questions were a combination of what I went through on both sites):
How much am I willing to spend a month?
How much of a deductible am I willing to have? (These two questions were followed by a lot of math playing between the variables of 1 and 2 on different scenarios.)
Do I want to be able to book my own specialist, or do I care if I have a referral. Plus, do I want to have the ability to go out of network or not? (HMO or PPO?)
Do I have any doctors whom I need to keep in my network? By the same token, which hospitals/doctors do I want in my network?
Regardless of the answers to 1, 2, and 4, number 3 was the key: Do I want an HMO or PPO? Because I wanted a PPO, I had a whopping TWO carriers available to me.
In addition to this, I think it’s worth it to mention that (I think) the US is the only developed country in the world that has a 2 month period of time in which one can purchase a health Insurance plan.
So much for ‘Open’ Enrollment…
As I was going through this process, I realized some of the biggest challenges with this whole thing
Some of the points that I mention below may seem like old news to many that have been dealing with US health Insurance since ACA came into effect. Though, since this is my first time going through it, that is the case.
Hence, I will share what I think is wrong with US health Insurance and subsequently, how Insurtech may be able to help. As mentioned earlier, this is not meant to be a political stance and I will focus on the fundamentals of Insurance as I go through this.
These are the a few key things wrong with the the current US health Insurance:
It’s mandatory (if you’re not covered by a group plan)
If one buys an individual plan – they may not choose the specific coverage that’s right for them (other than premium and deductible)
There is no underwriting for it (it’s all guaranteed issuance)
While these things aren’t likely to change, it’s important to understand why these three pillars are here, because there are some guiding principles here which are meant to help individuals; namely 1) making it more affordable and 2) making it more accessible. There still may be some opportunities to shape US health Insurance within the current confines of the regulation, which will have to be adhered to as long as the current regulation is in form.
Aside from cost and access, what else needs to be looked at?
Some of the key areas to look at when it comes to health care are:
Participants/Users – how to interact with them?
Provider coverage – which doctors/hospitals will be ‘in network’/accessible to participants?
Claims process – how can this be made easier?
Treatment and monitoring – in addition to 2&3, how will ongoing monitoring be done?
This relates back to the triangle I had a few weeks ago and how all 3 parties needs need to be looked at when looking at the overall Insurance value chain (regardless of line of business):
Before I go into the summary, a quick note on Oscar.
I took a serious look at Oscar a consideration for my health Insurance.
Not only did I read through their policy and network coverages (as they were cheaper than every other network out there), but I did all the research on Oscar that I would do for any other start-up I would consider working with for my work outside of Daily Fintech.
I started with the Coverager Companies tab (especially the News tab, where I like to see to see their past reporting of the company which usually outlines the good, bad and ugly of the company itself). I also read the Oscar Health Strategy teardown from CB Insights. I read consumer reviews and even asked my doctors and their receptionists about dealing with Oscar. I did not do this much research for any other company I was considering (even though there were only 2 PPO providers from my initial search, I still took a quick look at all 6 providers in California…).
Ultimately, I think they are really on to something and I salute them for going after such a big and complex area (both in terms of product line and geographic area of that line!). I would encourage everyone to read the teardown above to see what some of their strategies are. Tackling US health Insurance is no easy feat, and they did take a long term view as described below:
While I do like them and some of the things they are doing, the reviews are not up to scratch yet. My guess is that the long term view somewhat backfired on them, as customer expectation for a product that is so highly despised by many would have to have a real good experience very early on.
I have had real good experience with my current carrier and they are the most well known/biggest in my state. As such, I’ll likely need to stick with them. Health Insurance is too important to try something new on in my opinion.
I do think Oscar is very well positioned for the future, and they have outlined their strategy clearly above. Building of an Insurance company takes time. Health is a whole other animal. Health in the US…well, that’s just going right for the gullet. But, if done right, it can be a big prize (not only monetarily, but also for the sanity and health of US citizens!). I’ll definitely be keeping en encouraging watchful eye on them.
Summary: It’s Complicated…
As I was preparing for this article, I read a few posts on Daily Fintech last year from Amy Radin, which I encourage you to read in conjunction with this post. I have included them at the end for easy reference.
In her first post, she mentions four lenses to look at when it comes to US health Insurance: ‘the health of the American people, marketplace trends, the role of regulation, and the players’.
In her second post, she mentions that ‘Incumbent health insurers are pursuing legacy tactics to compete in the ACA world: M&A…; increasing premiums …; and reevaluating participation in the public exchanges…
As well as ‘the root of user pain points can influence how plans are selected and health care is consumed’:
# 1 People don’t see value because they don’t understand what they are buying.
# 2 People are being held accountable for health decisions that they are not equipped to handle.
# 3 People don’t always make rational decisions.
Fast forwarding 15 months since her last posts, other than some slight changes announced earlier this year and the recent subsidy cuts, not much has changed in terms of health of Americans, incumbent tactics and pain points for users.
Currently, CVS and Aetna are working on a merger. It is rumored that Amazon is trying to expand into pharmaceutical sales as well (not to mention it’s other Insurance aspirations). It’s also no secret that Apple has been preparing itself for a run at health care too. Are all of these in the name of helping out the customer or just trying to get a slice of a pie that is so huge that everyone in the tech industry can taste it?
Recommendations for Insurtechs
Given that current regulation is both stringent and has an unknown future, it can be challenging for Insurtech start-ups to know where to start. However, here are a few areas where I think can help the US health Insurance value chain, irrespective of regulation:
Education – I know this seems like something basic, but shopping for health Insurance was a nightmare. Policy Genius was good, but it didn’t have it all. Also, since health Insurance is so complex, there needs to be something that makes it really easy for people to understand. Aside from how the subsidies work, which can be a challenge in it of itself, the specific clauses, terms and coverages for health Insurance is really complex and the majority of the population would likely not understand it.
Blockchain – With such a wide variety of illnesses, coverages and benefits, blockchain make a ton of sense for health care.
P2P – I wrote a couple weeks ago that I didn’t think P2P could be useful for health Insurance. As I wrote this article, I do see some benefits, especially with a model like Inspeer, may be able to help.
Ecosystems – I’ve been reading more about ecosystems lately as it relates to Insurance/Insurtech, specifically with some of the things being some in China. When it comes to health, look at Ping An and Good Doctor (see below for infographic too). Talk about user experience. The value proposition (image) below says it all..the more this can be integrated for the user, the better. Though it doesn’t come without it’s challenges:
Wearables – how much will people trust Insurance companies with all of their ongoing health information? This is a big debate when it comes to information asymmetry. Those that are healthy and live healthy lifestyles will be happy to, and others, may not be.
Integration with hospitals/doctors – This will enhance the customer experience greatly, both for ongoing monitoring of the health from their doctors as well as with the claims process. I recently had a few check ups at various doctors, having to fill out loads of paperwork that asked the same questions, bringing my images with me wherever I went, and having to re-explain my history over and again was a bit cumbersome. It would be nice if the paperwork process was easier, if all doctors in my network had all the information on me (not just the ones in the same hospital) and the claim processed could be seamless after treatment received. Integrating all of this is not easy when the infrastructure is not there and legacy systems exist for all parties.
I know the motto of many entrepreneurs/founders out there revolves around solving challenging problems, so, despite my feelings at the moment about US health Insurance, I am confident about the future of it!!
Here’s a strange paradox: Healthcare costs have increased by an unsustainable rate of about 8.5% each year over the past decade, according to PwC’s Health Research Institute. Already, the average employer-based family health insurance plans costs more than $18,000 annually.
But Medicare spending has been relatively stable. Over the past three years, the program’s payouts to hospitals have increased by only 1% to 3% a year, roughly even with inflation. The prices paid for some core services, such as ambulance transportation, have actually gone down.
To see what’s happening, we can start by pulling back the curtain on how preferred provider organizations do business. A PPO is a network of preferred health-care providers such as doctors and hospitals, typically assembled by an insurance carrier. In theory, the insurer can save money for its customers by persuading providers in the network to discount their services in exchange for driving volume to their facilities.
UnitedHealthcare Choice Plus, for instance, boasts that its PPO—a network of more than 780,000 professionals—cuts the cost of typical doctor visits by 52%, while saving 69% on MRIs. Pull back the curtain, and you’ll see these discounts are an accounting trick. To allow PPOs to advertise big discounts, providers simply inflate their billed charges on a whole range of services and treatments.
Don’t insurers have a natural incentive to keep provider prices down, even if they don’t end up paying the list price?
In fact, no—at least not since the Affordable Care Act took effect. That law established a “medical loss ratio,” which requires insurers covering individuals and small businesses to spend at least 80 cents of every premium dollar on medical expenses. Only 20 cents can go toward administrative costs and profit. (For insurers offering large group plans, the MLR rises to 85%.)
If a provider raises the cost of a blood test or medical procedure, insurers can charge higher premiums, while also boosting the value of their 20% share. Insurers can make more money only if they lower their administrative expenses or charge higher premiums.
In this way, the MLR rule encourages insurers to ignore providers’ artificial price hikes. Insurers can continue to attract customers with the promise of steep discounts through their PPO plans—and providers can continue to ratchet up their prices. By hoodwinking their customers, both insurers and providers make more money. Since insurance costs are merely a derivative of health-care costs, the result has been a steady rise in insurance costs for millions of working families.
For employers caught in this price spiral, there is a way out: partial or full self- insurance. When businesses self-insure, they pay employee health claims directly. That creates an incentive for businesses to question—and push back on—providers’ price increases. Self-insuring businesses can strengthen their leverage by using “reference- based pricing,” which caps payments for “shoppable”—nonemergency—services at the average price in a local market. Members who use providers with prices below the limit receive full coverage. If they use a provider that charges more than the limit, they pay the difference out-of-pocket.
This setup creates a strong incentive to control costs: Patients have a reason to shop around for the best value, while providers are pressured to keep their prices below the cap. The most expensive doctor is not always the doctor with the best outcomes.
That’s what happened when the California Public Employees’ Retirement System adopted a reference-pricing approach a few years ago. The agency had noticed that provider charges for hip and knee replacements varied from $15,000 to $110,000. In 2010, Calpers established a reference price of $30,000 for the procedures. Predictably, patients flocked to providers charging that price or less and shunned higher-cost facilities. Over the next couple of years, the number of California hospitals charging below $30,000 for a hip replacement jumped by more than 50%. In the first year Calpers saved an estimated $2.8 million on joint replacements.
What worked for Calpers can work just as effectively for small and midsize businesses. Today’s medical inflation is exactly what one would expect from health policies that reward insurers and providers for raising prices. Employers shouldn’t accept this status quo. By self-insuring and setting their own reference-based reimbursement, businesses can sidestep the traditional insurance model that continues to bleed them dry.