OPINION: a brave new world for health insurance

Introduction

If you pay attention and listen closely, you can hear it.

That’s the sound of the death rattle. Soon we’ll need to put the undertakers and gravediggers on notice.

It is just a matter of time, no more than a few years, before we will be bidding farewell to the U.S. health insurance industry as we have grown to know it.

The big New York Stock Exchange-listed insurance firms have known for several years that their core business models are not sustainable, but they have dared not talk about it publicly. The demise of those companies started way before Barack Obama was elected president but, with the passage of ObamaCare, it has accelerated.

It is ironic, but the companies have become victims of their own success, or more accurately, victims of the prevalent industry business practices that contributed to that success.

Even more ironic: these companies, which got their start by assessing and assuming risk, have gone to great lengths in recent years, because of pressure from Wall Street, to shun as much risk as possible. That’s why with one notable exception — WellPoint — the big for-profit “insurers” are not looking at the new health insurance marketplaces, which will go online October 1, as opportunities. Aetna, Cigna and UnitedHealthcare have all said they will be participating in only a few of those state-based marketplaces, at least in 2014.

The big companies turned away from risk after realizing they could better meet shareholder profit expectations by simply administering the health care benefits of large employers, most of which now assume the financial risk of providing coverage to their workers.

As the big “health services companies” — the firms previously known as insurers — have competed aggressively for those clients, they have jacked up the premiums for their individual and small business customers to the point that both “covered lives” and revenues from the real insurance they sell have dwindled.

Only about 15 million Americans — less than 5 percent of the U.S. population — have sufficient resources to buy coverage on their own in the so-called individual market these days because of the hefty premiums. Many Americans who have been sick in the past can’t buy coverage at any price because insurers won’t sell it to them. And far fewer small businesses offer coverage to their employees now than a decade ago for the same reason: the premiums have become unaffordable. That is why almost 50 million of us are uninsured.

But just because the big companies are taking a wait-and-see approach to the new insurance marketplaces doesn’t mean there won’t be plenty of smaller companies competing for millions of individuals — individuals who work for small employers that no longer can afford to provide health benefits. One of the good things about ObamaCare is that by banning the discriminatory practices that have defined the industry for years, and requiring much more transparency in pricing, insurers will no longer be able to cherry pick the customers they want or entice us into buying plans that are profitable for them but of limited value to us.

And other provisions of ObamaCare will lower the barriers to new entrants in the health insurance market. New York, for example, recently granted a license to a new insurer — called “Oscar” — which has the potential to revolutionize the marketplace. New Yorkers and residents of at least 20 other states will also have new non-profit co-op health plans available to them on the online marketplaces.

Because these companies will not have the huge and costly bureaucracies of the big firms — and won’t have to answer to Wall Street — they will be able to offer policies with more affordable premiums than we’ve seen in the past. And the federal government will provide subsidies to millions of Americans to help them pay their premiums.

These changes will be transformative, in ways we can’t even imagine today. And the most recognized brands in today’s health insurance market will be known for something else. Not health insurance.

Don’t believe me? Well just look at history.

The big five “insurers” — Aetna, Cigna, Humana, UnitedHealth and WellPoint — have all changed radically in the past 25 years ago. When I went to work for Humana in 1989, it was known primarily as a hospital company. When I joined Cigna in 1993, it was a big multi-line insurance corporation, as was Aetna. Both had big property and casualty and financial services divisions. Under pressure from shareholders and Wall Street financial analysts, they sold those divisions to focus on managed care.

The other big multi-line insurers at the time were Prudential, which sold its health care operations to Aetna in 1999, and Travelers and MetLife, whose health care businesses are now part of UnitedHealthcare. United, now the largest of the big five, has only been around as a publicly traded company since 1984. WellPoint, the second largest, just turned 21 this year.

The point is this: big stock companies change rapidly in response to changes in the marketplace and the changing expectations of shareholders.

Five years from now, those companies will be largely unrecognizable. And their health “insurance” divisions will have been dispatched to the dust bin of business history. If not the cemetery.