Taking insurance companies out of health care

Introduction

There are many Americans who are beginning to question the contributions big insurance companies make to our health care system. And I’m not just talking about lefty advocates of a single-payer system. Corporate executives are also wondering why we need the big insurers and whether higher-quality and more cost-effective care could be provided to employees if they didn’t have to deal with health insurers at all.

I wrote a few months back that my former CEO at Cigna once said that what kept him up at night was the possibility that Americans — business leaders in particular — would ultimately conclude that insurers were an unnecessary expense. He used the term “disintermediation,” a fancy word that means “cutting out the middle man.”

News out of Seattle this summer undoubtedly has caused the big insurance CEOs to lose more than a bit of sleep. Boeing, the world’s largest aerospace company and one of the Seattle area’s largest employers, announced that it has decided to forego the services of an insurance company and to contract directly with two of the Northwest’s largest hospital systems to provide care to its 27,000 employees and 3,000 retirees in the region.

Boeing is actually teaming up with a couple of recently formed accountable care organizations, which represent a new way of financing and paying for medical care. Encouraged by the Affordable Care Act, ACOs typically comprise a set of physicians — specialists and primary care doctors — and hospitals that work collaboratively and accept some of the financial risk of providing care to a particular population of patients. Some ACOs also include insurance companies. But many do not.

The idea behind the more than 600 ACOs that have been created nationwide is that when doctors and hospitals work together in such arrangements, they get rewarded financially for keeping and making patients healthy — rather than getting paid based solely on the number of tests and procedures they do.

What distinguishes the Boeing ACOs, aside from the fact that no insurers are involved, is that they are among the first ACOs that are employer-driven. You can be certain that big employers all over America will be paying close attention. If the Boeing ACO experiment demonstrates savings, expect to see many more in the near future.

“The advantage for Boeing will be that they can take the middle man out of the equation between the patients and the health system,” Dr. Elliott Fisher, director of the Dartmouth Institute for Health Policy and Clinical Practice, was quoted as telling The Seattle Times. “It may be able to reduce cost, in part because of the simplification of not having the insurance mechanism in the middle.”

While Boeing will continue to offer traditional insurance, the company believes many employees will be attracted to the ACOs because of what is expected to be an improved “patient experience.” The Times quoted officials as saying that the ACOs can coordinate appointments and treatment across their network of doctors, clinics and hospitals, relieving patients of that responsibility or the need to get prior approvals from an insurance company.

In anticipation that this will become a national trend, and as a result of Affordable Care Act provisions that are squeezing profit margins, the big for-profit health insurers are quickly diversifying.

Just two weeks ago, Modern Healthcare noted that because health insurers are now required to spend at least 80 percent of premium revenue on actual patient care, they are looking for higher investment returns elsewhere. The magazine reported that insurers are increasingly putting money into technology ventures from which they expect to realize higher returns.

The magazine cited as an example UnitedHealth Group’s Optum division, which works in technology and population health management, among other specialties. In 2013, Optum reported 26 percent growth in revenue and 61 percent growth in operating earnings. Meanwhile, in its core insurance business, UnitedHealth saw its 2013 operating margin decline to 6.4 percent, down from 7.6 percent in 2012.

Mark Bertolini, the CEO of one of the other big insurers, Aetna, was quoted in the article as saying that his company has gotten “very active in the M&A (mergers and acquisitions) market,” particularly in the international and technology areas. Bertolini has been candid in saying that Aetna no longer sees itself as a traditional insurer.

I predict that the big for-profits will eventually cede the health insurance marketplace to nonprofit insurers and provider-led organizations like ACOs—and even to hospitals that are looking to operate their own health plans.

Health insurance in this country was initially provider-based and community-rated. The first plan, which was the forerunner of Blue Cross, was one developed by an executive of Baylor Hospital in Texas in the late 1920s. In the not too distant future, I believe we will be going back to the future, with today’s big health insurers being largely out of the picture. If the Boeing experiment flies.

Wendell Potter is the author of Deadly Spin: An Insurance Company Insider Speaks Out on How Corporate PR is Killing Health Care and Deceiving Americans and Obamacare: What’s in It for Me? What Everyone Needs to Know About the Affordable Care Act.