The Death of Health Insurance?

What do you do when your business costs continue to rise far faster than inflation, but raising prices will just lose you more customers? If you’re a health-insurance executive, you suffer. And unless you’re willing to consider some pretty radical changes in how you do business, you have to contemplate the possibility that your company — and even your entire industry — may face extinction.

Of course, relatively few health insurers, whose problems in this respect are virtually unique, are willing to acknowledge such a dire prospect. Over at the Health Care Blog, however, Maggie Mahar and Niko Karvounis make one of the best cases I’ve yet seen that health plans aren’t just in a slump — they’re in a full-blown existential crisis. The whole piece is worth reading, but here are some highlights:

• Raising premiums to account for increasing medical costs is likely to drive more businesses and individuals to drop healthcare coverage altogether, because “[p]remiums are just too high already.”
• Insurers aren’t just seeing revenue growth slump and share prices fall — roughly 50 percent for the latter since last year in many cases — they’re also starting to cut back on their offerings. UnitedHealth Group, the largest health insurer in the U.S., is slashing 4,000 jobs and eliminating one of its major brands, Uniprise.
• Congress now seems likely to eliminate the 13-17 percent subsidies Medicare now pays insurers for participation in the Medicare Advantage program over the next year or so. (Legislators recently overrode a presidential veto to trim those subsidies for part of the Advantage program, and the remainder is still on the chopping block.)
• Too few insurers “manage” healthcare in ways that actually improve quality and cut costs by eliminating needless procedures and hospitalizations. “[M]ost of today’s for-profit insurance companies don’t manage care, they just manage reimbursement. They don’t think like doctors — but like accountants.”
• Adoption of the term “medical-loss ratio” in the 1990s reflected an insurer mindset that regarded all patient care as undesirable expenses — “regardless of whether the care was necessary or unnecessary, life-saving or totally ineffective.”
• Administrative costs soared as giant insurers like WellPoint and UnitedHealth grew via acquisition. The Kaiser Family Foundation found that costs per insured individual rose to $421 in 2003 from $85 in 1986 — a fourfold increase over that period.
• Consolidation has also eliminated any incentive to compete on quality in many markets. In 2006, one insurer held a majority market share in 56 percent of major U.S. regions.

As a result, the authors write:

[T]oday insurance companies seem stuck in an enormous hamster wheel: unable to make the profits investors expect, without incentives to truly innovate, and unwilling to think beyond Wall Street’s very short-term view of success.

Of course, the companies have largely brought these problems on themselves, with the consequence that a majority of Americans wouldn’t mind seeing health insurers simply legislated out of existence. There’s still a chance that some companies might be able to reinvent themselves as evidence-based partners to patients, instead of opponents, in ways that would give them a competitive advantage and restrain healthcare costs. (Aetna is probably farthest down this road, although its progress is still pretty halting.) But time is pretty clearly running out on the industry’s existing business model.