If there is an industry in the United States that cries out for stakeholder capitalism, it is healthcare.
The evolution of the healthcare delivery system in the United States has led to a drastic misalignment of the risks and benefits amongst the key players, namely providers and insurers. Unfortunately, this has increasingly left patients caught in the middle. Specifically, the singular focus of generating profits on the part of medical insurance carriers while patients bear increasing costs has resulted in a decline in both the value of and access to healthcare services. Policymakers now have both an opportunity and obligation to correct this issue and bring the system back into balance.
As a practicing physician, I can personally attest to how the status quo has made it more difficult for patients to receive treatment. For about 2 years, I practiced as a Cardiologist in the town of West Grove, Pennsylvania. A charming, semi-rural community to the southwest of Philadelphia, it was home to a small but well-regarded community hospital that was part of a large integrated health system.
With a burgeoning retiree population and several large corporate stakeholders who were very engaged with the hospital, it was a fine institution that met a critical need. That all ended on December 31, 2021, when that health system, under the financial pressure of reduced volume but greater severity of illness during the pandemic and challenging insurance reimbursements, closed the hospital and it’s employed physician practices.
Unfortunately, this is not an isolated incident but indicative of the broader issues facing the medical industry. From 2013-2017, 51 hospitals closed across the United States and 11 closed in 2020 alone. During that same time period however, insurance companies made record-breaking profits.
United Healthcare recorded an annual profit of $17.3 billion for 2021 and in their Q1 results for 2022, they celebrated double digit year over year revenue growth and raised their full year earnings outlook. This result, which was representative of the performance of the other major health insurance carriers, is illustrative of the disconnect that currently exists between insurers that are flush with cash and providers that are struggling to stay afloat.
A key driver of the current situation is the Affordable Care Act (ACA), the passage of which marked a dramatic transition in the relationship between health care consumers and insurance companies. Billed as a guarantee to lower health care costs, it expanded coverage through subsidies to insurance companies and required a minimum of 80% of premiums to be paid to health care providers.
Unfortunately, the law has done nothing to curb the long-term trajectory of cost of health care; at least for patients. In the last decade, the insurance premiums families pay has increased by 47%, outpacing both wage growth and inflation. Deductibles, the amount most families must pay out of pocket before insurance kicks in, have also increased 68.4% over that same time.
This speaks nothing of the amount of care that insurance companies routinely deny, obstruct, or raise the cost of delivering. Consider that on average 10-20% of medical claims are immediately denied, and the overwhelming majority of these denials are due to administrative details, such as errors in registration, lack of preauthorization or referrals, or coding errors. But while the reimbursement for this care is lost, the expenses are not, and they are borne by the care providers, hospitals, and health systems.
So too are the administrative costs of simply billing and collecting appropriate revenue from insurance companies. A report on the administrative costs of healthcare projected that nearly $500 billion would be spent in 2019 on billing and insurance related costs. This represents nearly 12.5% of all healthcare expenditures annually in the U.S, a hefty sum that adds to the financial pressures of already strained providers.
Insurers, meanwhile, have very little downside risk; if costs increase, they can simply raise premiums, or further convolute the administrative process of getting care reimbursed. If costs decrease, well, they can increase premiums too, as long as they keep their cut at 20% or less.
This is not to say that private insurers can’t bring flexibility, efficiency, and innovation to health care delivery, but the current system is no longer working. Capping health insurance carrier’s profits is a shell game that clearly has not led to better value for patients and in chasing the holy grail of “universal coverage,” policymakers have taken their eye off the ball – what that coverage provides.
Increasingly, we have patients with health coverage they can’t afford to use at the doctor’s office, and hospitals that struggle to get reimbursed and can’t survive on what they do receive. Policymakers must demand greater accountability, transparency, and most importantly risk sharing from commercial carriers.
As of this writing, that small community hospital remains closed, with no current plans for reopening. No doubt, medical care in that community will be delayed. Without thoughtful but urgent action on the proper allocation of healthcare dollars within our system, it is a story that will unfortunately be repeated in towns across the country.
