Moneybox

Health Insurers Need a Coup. Trumpcare Isn’t It.

So why are they so hesitant to criticize the GOP’s health reform effort?

Trump Ryan
President Donald Trump turns to Speaker Paul Ryan as he gathers with Republicans at the White House after the House passed the American Health Care Act on Thursday.

Carlos Barria/Reuters

The response from the health care industry to the House of Representatives’ passage of the American Health Care Act last week was swift, furious, and generally one-sided. The American Medical Association, the American Nurses Association, and the American Hospital Association condemned the legislation, which if signed into law would sap hundreds of billions of dollars in spending and support from the system and sharply reduce the number of Americans covered by insurance. Clearly, health care providers would be significant losers from the AHCA.

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The response from the health insurers’ trade group, America’s Health Insurance Plans, was strikingly anodyne in comparison. Rather than condemning the bill or expressing its opposition, AHIP offered a short serving of word salad on how, by “working together, we can create good private market solutions that improve the health and financial stability of all people.”

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The natural conclusion, of course, is that the health insurers—the only major component of the industry not to oppose the AHCA—would be the big winners from this legislation. After all, components of the legislation might free them in some states from having to cover pre-existing conditions, and allow them to charge much higher premiums to older and sicker people, and offer bare-bones plans that don’t provide much in the way of coverage.

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But the reality is that health insurers, just like the rest of their industry, are also losers in this legislation. Their actions over the last several years lay bare just how poorly they have performed and innovated despite a law, the Affordable Care Act, that despite all their complaints should have helped them. There is something fundamentally askew and unsustainable about the business models of America’s for-profit insurers. And freeing them to be deliver more expensive, more parsimonious products to customers who will no longer be forced to buy them won’t change that.

While the Affordable Care Act imposed new conditions on health insurers—no lifetime caps, covering pre-existing conditions—it also delivered immense benefits to the industry. The law forced companies and individuals to buy their products or else pay a penalty. The ACA further provided funds for the federal government and states to set up exchanges where individuals could buy those products. And it funded an expensive set of subsidies that enabled people to afford the high prices insurers were charging. No other consumer-facing industry in America benefits from such a set of supports.

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The insurance industry had seven years of the historic, unique government support the ACA provided to figure out how to adjust to the new marketplaces, and how to develop ACA-compliant products that would please shareholders and customers. It failed miserably.

Before the ACA, insurance companies routinely sold products that didn’t deliver value, left purchasers less well-off and in some instances, helped bankrupt them. Year after year, premiums rose above the pace of inflation, while the benefits became skimpier and out-of-pocket costs jumped.

The insurance industry could have taken the ACA, and the steady stream of customers it would ensure, as a spur to innovate quickly. Insurance certainly can be a profitable business. Auto, life, and home insurance companies—which are heavily regulated—have all figured out how to charge appropriate premiums, deliver benefits they promised, and still turn a profit. And while consumers have gripes, they generally like their car, life, and home insurers. Some of these insurers, like Geico, Progressive, and Aflac, are even popular and lovable.

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But the health insurance industry is still widely loathed by its customers. And that’s because it hasn’t yet figured out how to deliver a compelling, useful service at a price its customers can afford.

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The reality is that the insurance industry doesn’t know how to profitably insure older people—people in their 50s or 60s who are not eligible for Medicare—in a way that doesn’t bankrupt the customers. It doesn’t know how to profitably insure people who are sick, or who have chronic conditions, in a way that doesn’t bankrupt the customers. And it doesn’t seem to know how to profitably insure healthy families in ways that don’t bankrupt the customers. The median household income in the U.S. is $56,000. A good health plan for a family of four with a low deductible can cost $20,000. What other industry asks its customers to part with such a high percentage of their annual income for a service they hope not to use?

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Of course, insuring health—with the chronic conditions, the rapidly escalating cost of technology and pharmaceuticals, the constant judgment calls—is a much different proposition than insuring cars or people’s lives. And I don’t think anyone believes it is easy. But part of the thinking was that, after the passage of the ACA, insurers would use their immense balance sheets, resources, purchasing power, data, and countless customer relationships to help bend the cost curve.

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These companies certainly have several levers to pull. They could play hardball with pharmaceutical companies, hospitals, device-makers, and other providers to get better deals for their customers (and hence for themselves.) They could invest in preventative care or innovative delivery systems, like whole patient care, that have been proven to reduce costs over time. They could use the expanding array of technology and apps at their disposal to monitor patients more effectively and convince them to comply with treatment regimens, which also saves a lot of money. They could act more aggressively to get their customers to lose weight, to exercise more, to stop smoking—all of which would reduce costs.

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Many insurance companies tried to do some or all of these things. But they either didn’t try hard enough or weren’t sufficiently competent businesspeople to pull it off. They focused more on short-term profits than long-term efforts to bring down costs. Too frequently, they’ve resorted to the lazy tactic of entering mergers that increase their scale, provide opportunities for cost-cutting, and reduce competition. I’m not confident that the same group of CEOs who failed to delight customers when they were required to sell better products at subsidized prices will be able to do so once they’re freed from delivering high-quality products and the subsidies wane.

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The other explanation, of course, is that the profits just aren’t there to be had in premium-based fee-for-service insurance given the structure of our system, demographics, and public expectations. And the AHCA won’t reverse that. The types of insurance that people in America most like—Medicare, especially, but also Medicaid and veterans coverage—are single-payer, nonprofit enterprises. These government programs are much more like utilities than Fortune 500 companies built for speed and shareholder returns.

Insurance companies can’t get into those businesses directly. But they have become involved in administering and augmenting these programs. Many insurers are active in Medicare Advantage, which supplements (but doesn’t substitute for) Medicare. If they really want to “improve the health and financial stability of all people,” insurance companies would be better off urging the government to develop broader single-payer options that they can help administer and augment. That just might be a business these geniuses can finally crack.

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