As the U.S. continues to wrestle with healthcare and how to provide insurance, the country seems to be in a state of flux; many individuals and employers alike question how they will ultimately be affected. Warren Buffett and Charlie Munger have identified healthcare as the biggest issue facing American businesses, and the National Federation of Independent Business ( NFIB) reports that the cost of health insurance is “the most severe” problem facing American small businesses today. The growth in healthcare costs has long been an issue in a monopolized industry controlled by the major health carriers (i.e. Blue Crosses, United, Cigna and Aetna).
The problem started spiraling out of control when insurance industry leaders, e.g. MetLife, converted from mutual company structures to stock company structures. When the best interests of the consumer become misaligned with the best interests of the service provider, we create a conflict of interest. After all, their fiduciary duty is to their shareholders, not their consumers.
The benefits system in the U.S. has been flawed for many years. It is plagued by a lack of transparency and leaves the employer powerless to fight increased premiums with each renewal, for what is most often their second largest expense next to payroll.
It’s time to collectively question the status quo and demand innovative solutions that leverage enhanced benefit plan design with emerging technology and contextual data. Business owners’ cost for healthcare should be directly correlated with the health risk and outcome of their employees. All aspects of plan design need to be transparent, and business owners and employees must own their healthcare data, so they can understand exactly what is driving costs and actually control their spending.
Viable solutions will come through companies like iXledger, a London-based blockchain insurtech start-up and collaborator with Gen Re that has partnered with online information hub Self Insurance Market to develop a marketplace for the growing self-insurance risk management sector. The marketplace leverages iXledger’s blockchain platform to navigate the complex, data-intensive processes of self-insurance, providing the visibility, workflow and resource management to receive cost-effective bids for appropriate services.
See also: What Blockchain Means (Part 2)
The current group benefits market is primarily controlled and monopolized by the Blue Crosses, United, Cigna and Aetna (BUCAs), leading to diminishing provider networks, unclear benefits coverage and consistent premium increases over the last decade. American employees are unable to afford to participate in their own employer’s group medical plan. Aetna recently announced that it will not pay commissions to brokers on groups with fewer than 100 insured lives.
Technology alone is not the key to driving down the cost of healthcare and enhancing benefits. The famed health insurance unicorn Oscar has the technology, but only leveraging new tools with legacy processes is not going to yield significant returns. Disruption in healthcare requires a totally new approach, not just new technology to try to enhance the current, monopolized benefit plan offering.
Unfortunately, I believe Oscar will continue to lose to the BUCAs, unless it can quickly pivot. Oscar is currently losing roughly $1,750 per member, yet its last capital round provided for a $2.7 billion valuation with 120,000 insured lives, or $22,500 per member. Although Jeff Bezos and other technology leaders have defied all conventional means of valuation across the capital markets, an analysis into Oscar’s business has me a bit stifled. If you look at the member population, 48% of the New York enrollments in 2015 came from the ACA state exchange, who are often high-risk members. Perhaps that is why Oscar’s ratio of hospital costs to premiums earned was 75%, compared with 62% at UnitedHealthcare. The lack of capital relative to the BUCAs and Oscar’s existing member risk population will make it quite difficult to compete.
See also: Blockchain Technology and Insurance
As Oscar shows, the solution to the health benefits crisis in the U.S. will not be driven with just new technology and enhanced analytics, but by integrating enhanced data and new technology, such as telemedicine, with innovative and enhanced benefit plan designs similar to what iXLedger is endeavoring to facilitate. The solution is a paradigm shift requiring new tools that compel new processes to put both employers and employees in control of their cost of healthcare while offering enhanced health benefits coverage.