Why most health plans strive to make healthcare cost more: Employee Benefit News

“Health plan representatives are always saying that their plans are doing everything they can to control costs and deliver greater value,” Brian Klepper writes over at Employee Benefit News. “But then nothing ever seems to change. The truth is that group health plans typically earn a percentage of total claims, and it is in their interest for healthcare to cost as much as possible.

“Employer or union group health plans are frequently associated with a variety of services — e.g., health IT, pharmacy benefit management, case management, reinsurance — each with its own revenue stream. By choosing and incentivizing vendors, plan administrators directly influence their systems’ capabilities to manage risk. Intentionally meek approaches to healthcare risk management result in excessive care and cost, in turn fueling higher expenditures, greater net revenues and elevated stock prices. This structure has been spectacularly successful for the health insurance industry. Using data pulled from Google Finance, the chart and table below show the 10-year stock price performance of five commercial health plans: Aetna, Anthem, Cigna, Humana and United, as well as the Dow and Standard & Poor’s Index. Stock prices began to creep upward in November 2008 … Between May 2009 and May 2017, the stock prices of these insurers soared between 387 and 748 percent. They vastly outperformed the rest of the market, growing 1.5 to 3.0 times faster than the S&P and 1.2 to 2.4 times faster than the Dow.”

“Growth, driven by an endless rise in expenditures, has profoundly grim implications. Let’s say a clinical risk management firm emerges that … consistently delivers measurably better health outcomes at half the cost. … But the resulting drop in health plans’ net revenue would also translate into lower stock prices and market capitalization, and lead to strained relations with network providers, whose utilization and revenues would also suffer. …Virtually every healthcare organization —including physician practices, health systems, imaging centers, labs, drug manufacturers, pharmacy benefit management firms — earns a percentage of the spend within its niche. Not surprisingly, each also has developed mechanisms to promote the highest possible unit volumes and pricing.” Brian Klepper, “Why most health plans strive to make healthcare cost more,” Employee Benefit News.