Don’t hate the player. Hate the Game.

Recently there has been a great deal of anger aimed at insurance companies, primarily driven by their incredible increase in profits during this pandemic.  People who paint the insurance executives as greedy and heartless are missing a big part of the problem.  The insurance CEOs are just doing their job.  They are doing what they are paid to do, and to do anything else would violate the trust the shareholders/owners have a place in them.  At this point, I feel as though I should take a pause and make something clear; I am not defending insurance companies or their CEOs, far from it.  What I’m doing is pointing out the inherent flaw in the system.  Until we change the structure of what insurance companies do and how they make money, we will never fix the root problem.  It’s like getting angry at the fever and ignoring the virus causing it.


Let me explain.  The purpose of any for-profit company is to maximize the investment of the shareholders.  Hard Stop.  In a capitalistic economy, that is their job.  In most industries, the best way to maximize shareholders’ investment is to build a better product or produce better service.  In those industries, the incentive of the CEO is aligned with the benefits to the consumer.  Consider this.  In 2019 Apple made gross profits of $98 Billion.  Amazon had gross earnings of $149 Billion.  United Healthcare had an excellent year and produced revenues of $14 Billion.  So why are people angry with UHC when Amazon made ten times the profits?  Well, it’s because of what UHC has to do to make that money.  We don’t care as much about Apple and Amazon’s earnings because my iPhone is really cool and works so well, and it’s really great to get toilet paper delivered to my door the same day I order it!


United, and every other insurance company, catch heat because of the perverse incentives involved with health insurance that create the environment where what’s good for UHC’s profits are often bad for their consumers, at least some of their consumers.  What makes it worse is the consumers in question are sick.  The problem is the system, and it’s one that can and should be fixed.


The world of health insurance is unlike any other market.  First of all, the consumer of your service, in most cases, is not the purchaser of the service.  The employer is the actual purchaser of the service, but the patient/member is the consumer.  This creates a problem because the purchaser isn’t benefiting from the purchase, and because of that, is more interested in reducing the cost of the purchase than anything else.  Think about it this way.  I’m a car guy.  I love cars.  I am likely to pay more for a car than many other people.  That doesn’t bother me because I get the enjoyment of driving that car.  This would change dramatically if I had to buy a car for someone else.  A car that I don’t get to drive.  In that case, I want the cheapest car I can find.  I don’t care if the vehicle isn’t very nice or isn’t very safe because it’s not my car.  All I am doing is stroking a check, and that brings me no joy or value.  That’s how health care works.


Health care is also different in that the insurance is provided to everyone, but very few people use more in services than the insurance cost.  The market is very skewed.  We know that 5% of the people account for over 50% of all health care costs.  We also know that 50% of people consume less than 5% of the costs.  So, we pay for everyone’s insurance, but very few people use insurance to a great degree.  For those people, however, the costs are very high.  This creates bizarre financial incentives and disincentives for insurance companies called adverse selection.  Think of it this way.  If an insurance company could figure out a way to get the most expensive 5% of their members to leave and go to a different insurance company, they would reduce their expenses by 50% but only reduce their revenue by 5%.  Now it doesn’t take a Harvard MBA to know that any company that can cut expenses by 50% for only a 5% reduction in revenues becomes incredibly profitable.  The other incentive they have is not to attract these sick patients in the first place.  The challenge for a company in this situation is how to accomplish this goal.


Unfortunately, there is a way to keep some of these very sick patients from joining your insurance company while also getting some of your members to leave and go to a competitor plan.  This can be done because most of those expensive patients are chronically ill with diseases like MS that are lifelong.  Another similarity for most of these members is they typically use one or more expensive medications and require regular and frequent care.  So, if you want to avoid these patients in the first place and get the ones you already have to leave, the best strategy is to make their lives very difficult.  Payers do this with a whole tool chest of strategies.  Prior-authorizations, utilization management, pharmacy formularies, fail first medications policies, pre-certification requirements, the list goes on and on.  Each of these tools is designed to either deny, delay or change the care the patient’s doctor has prescribed and the patient’s needs.  Doing this helps control medical expenses, and more importantly, it can build a reputation for that payer as being difficult to deal with.  In this day and age of social media, virtual support groups, and real-time communication, it’s easy to see how quickly something like the “MS Community” could spread the word that one payer is very difficult to deal with, but another has a much easier process for getting the latest and greatest drug.


Unfortunately, this kind of communication and payer switching creates an environment that forces every payer to play the game in a never-ending process of not wanting to be patient-friendly, thereby attracting too many chronically ill patients.


At this point, you may be thinking, “well, that wouldn’t happen. Wouldn’t the employer get angry?”  Some may, but most won’t.  Remember, the employer is paying the bills; they aren’t the one with MS and receiving the service.  Besides, the payers have become very good at showing corporate CFO’s just how much money these activities save.  They have convinced the employers that management costs would skyrocket as doctors would start spending money like a drunk kid on spring break without this kind of heavy-handed utilization.  The problem is it’s just not true.  A Peterson-KFF study shows that private insurance spending on a per-enrollee basis has grown much faster than Medicare and Medicaid spending over the last ten years.  Wait, that’s not what they are telling the employers.  They are telling the employers that all of these UM activities are helping hold down costs.  Why would Medicare and Medicaid, which are mostly devoid of these tactics, grow at a slower pace?  Well, the answer is that these payer strategies are designed to aggravate the chronically ill to either not choose a specific payer and/or leave that payer for one more reason.

Further, many of these actions which delay care also cause unnecessary care and, as such, actually increase costs.  Take some of the fail first pharmacy protocols.  These make the doctor try a drug that they know isn’t going to work, and then once that fails, they get the medicine they needed all along.  Another example is the situation where a patient is stable on one medication and then switches carriers.  The new carrier often won’t approve the medication that is working for the patient and makes them start all over with the fail first, cheaper medication.  It’s easy to see how this kind of process for something like migraines could lead to unnecessary doctor visits or even trips to the ER as the patient goes from a situation where their condition has been well managed to one where they are back to square one with something they know won’t work.



Again, given the payer’s mission to maximize their shareholder’s investment, none of this should come as a surprise.  It also won’t be fixed until we fix the underlying systemic issues driving this behavior.  While moving to a single-payer, Medicare for all, kind of approach would solve this problem; it is likely to be a bridge too far.  Medicare for all will be tough to achieve and way too easy for detractors to shoot down.  Also, it creates other issues around provider compensation levels and tax realities that would need to be solved in order to make sure the cure isn’t worse than the disease.


So, if Medicare for all isn’t possible, how do we fix this?  The answer lies in understanding incentives and removing those incentives that produce lousy behavior while keeping those that produce the behaviors we are looking for.  In health insurance, that means getting rid of the payers’ abilities to do all the things we don’t like.  Get rid of prior-auth, pharmacy formularies, fail first drug policies, etc.  Get rid of the whole tool chest of UM actions that not only drive physicians crazy but increase administrative costs and delay needed care for patients.  You get rid of all of these by creating a set of national coverage policies and guidelines.  If a drug or a service is medically necessary, it should be medically necessary for everyone with the same condition.  It shouldn’t be available for some patients with some insurance companies and not others.  Once you create these national coverage policies, you make it illegal for any insurance company to delay or deny care covered by one of these policies.  We would also need to create a national exception process where doctors could request exceptions to the policy based on valid clinical evidence.  These exceptions would be reviewed by peer physicians without the financial incentive to deny care inappropriately.  Since all carriers would be playing by the same rules, none of them would be disadvantaged.  Also, since they were no longer spending their time and energy trying to compete on who could be the most challenging plan to deal with for MS patients, they could devote their energy to competing on the things we want them to compete on.  Things like claims payment timeliness and accuracy.  Efficiency in administrative costs, additional benefits, and wellness programs.  You know the things that actually benefit the consumer.


At this point, I can almost hear the cries of the detractors.  “This will increase costs!  We can’t afford this kind of open checkbook approach!”  In addition to the previous data about private insurance spending increasing faster than Medicare spending, I would ask you to consider the following.  It has been estimated that the administrative burden of prior authorization activities cost the US health care system between $23 and $31 billion annually.  That’s $23 to 31 billion dollars that could be used on, oh, I don’t know, some actual health care rather than a never-ending cycle of “mother may I” between your doctor and your insurance company.


So, before you get angry about the latest earnings report for some for-profit health insurance company, try to understand that they are just playing the game we created.  We can get mad at them all we want, but it won’t change until we change the rules of the game.  Now is the time to do that, and doing so will not only help us reduce costs, but it will also go a long way to helping patients get the care and treatment they need without having to jump through too many hoops.  I mean, it’s bad enough to have one of these diseases.  You shouldn’t have to run an insurance company UM gauntlet in addition to dealing with your illness.


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