Essay On Trends In The Health Insurance Industry

Trends in the Health Insurance Carrier Industry

The United States Direct Health and Medical Insurance Carrier Industry (NAICS Code 524114) is comprised of companies that provide a wide range of health and medical insurance benefits to their members. The industry is highly concentrated, due to high entry barriers such as stringent regulatory requirements and high costs of capital. The top three trends in the health insurance industry are: consolidation through mergers and acquisitions (M&A), political and legislative uncertainty, and rising healthcare costs. While competitor M&A activity and the future political climate are difficult to control or predict, health insurance carriers can take strides to combat rising healthcare costs. Notably, many insurance carriers are starting to shift from a fee-for-service (volume) based care model to a value-based care model to curb costs (Lockner & Walcker, 2018; Feeley & Mohta, 2018). However, can a national level transition from fee-for-service based healthcare to value-based healthcare really drive down costs for insurance carriers and decrease total healthcare expenditure?

Findings

Top Trends in the Health Insurance Carrier Industry

One of the most easily observable trends in the healthcare insurance industry over the past five years is increased consolidation due to mergers and acquisitions. Insurance carriers seek to build economies of scale through vertical integration opportunities. Prime examples are the CVS-Aetna and Cigna-Express Scripts mergers in 2018 (Health Catalyst Editors, 2018, para. 10). Healthcare mammoth UnitedHealth Group (UHG) has been pursuing vertical and horizontal acquisitions of its own in an attempt to increase market share. In the past two years alone UHG has acquired Epic Hearing, Peoples Health, DaVita Medical Group, and Reliant Medical Group (Haefner, 2018, para. 4). According to Lindsay Resnick, the executive vice president of Wunderman Health, “healthcare consolidation is rampant – and it’s placing huge demands on organizations to prepare for a future of fierce competition for informed consumers” (2018, para. 1). With health insurers vying for market share through vertical and horizontal integrations, competition will continue to grow.

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Political and legislative uncertainty in the healthcare industry is not a new concept. However, recently healthcare has become an incredibly partisan issue at the forefront of major elections. In 2018, “41% of eligible voters said healthcare was their key issue in the mid-term elections in 2018” (Health Catalyst Editors, 2019, para. 3). Increasingly, voters are showing support for single payer healthcare, which would have enormous and potentially catastrophic impacts on the health insurance carrier industry. Legislators have the ability to expand or shrink Medicaid and Medicare spending every fiscal year. Additionally, legislators often threaten to strike down the Affordable Care Act of 2008 (Health Catalyst Editors, para. 6). With frequent legislator turnover and the upcoming presidential election in 2020, healthcare will be a very pivotal topic to voters. Depending on which political party gains power, there is potential for little change or complete upheaval of the health insurance carrier industry.

A study conducted by Sean P. Keehan et. al. in 2017 determined that “under current law, national health expenditures are projected to grow at an average rate of 5.6% for 2016 – 2025 and represent 19.9% of gross domestic product by 2025 (p. 1). The two primary drivers of growth during this period are medical prices and intensity of services (2017, p 2). Healthcare spending increased from 5.4% in 2017 to 5.9% in 2018-2019 (2017, p. 3). This statistic shows that not only is total healthcare expenditure increasing, but the rate of growth is also increasing each year. High healthcare costs are frustrating for consumers seeking medical care and detrimental to health insurance carriers looking to decrease expenses. Unless legislation or the products offered by health insurance carriers change, healthcare costs will continue to rise unchecked.

Transitioning from a Fee-for-Service model to a Value-Based Care Model

Traditionally, health insurance carriers have reimbursed providers using a fee-for-service model, which incentivizes providers for increased volume of care. Essentially, providers get paid for providing medical services, promoting the idea of quantity over quality (Lockner & Walkner, 2018, para. 1). Additionally, “providers are paid for seeing patients regardless of clinical outcome” (Lockner & Walkner, 2018, para. 4). This phenomenon has been a main contributor to rising healthcare costs, which is unfortunate for health insurance carriers who foot the majority of the bills and consumers who are impacted in the form of higher premiums and deductibles.

According to the National Conference of State Legislator’s report on value-based insurance design, the Affordable Care Act of 2010 (ACA) paved the way for value-based healthcare. Section 2713 of the Act in particular required that “all health plans include certain preventative services without a copayment for the patient” and implemented guidelines to “permit a health insurance plan to use value-based insurance design” (2018, para. 3). After the passage of the ACA, the Centers for Medicare and Medicaid Services (CMS) championed the movement towards value-based care. In 2015, CMS “announced their intent to tie 85% of all traditional Medicare payments to quality or value by 2016 and 90% of payments by 2018” (Chee, Ryan, Wasfy, & Borden, 2017, p. 2198). Following the lead of CMS, other private health insurance carriers and medical providers have started to pursue value-based healthcare alternatives to the traditional fee-for-service model.

Value based healthcare is available in many different structures. One of the most well known forms is the Accountable Care Organization (ACO). These health systems allow “allow providers to share in savings if they can reduce costs below a benchmark”  (Lockner & Walkner, 2018, para. 8). This benchmark is a targeted level of spending based on the number of members within the providers’ care. ACOs can have “one-way risk” where provider penalties are limited or “two-way risk” where providers can assume downside risk but receive greater profits if they are below their benchmarks for a given period. (Lockner & Walkner, 2018, para. 11-12). Another value based care model is bundled payments. The ACA included provisions for bundled payments, and many healthcare carriers have begun to bundle payments as result of the CMS Bundled Payments for Care Improvement initiative piloted in 2013 (Centers for Medicare and Medicaid, 2016, para. 2). A bundled payment model can lead to lower healthcare costs by reimbursing providers a fixed fee for an entire episode of care instead of by individual service. An episode of care includes the entire period from “diagnosis through recovery”  (Lockner & Walkner, 2018, para. 13). Since this fee covers the costs of all services rendered during the episode of care, it “incentivized providers to collaborate across the continuum of care to deliver high-quality, low-cost health care” (Lockner & Walkner, 2018, para. 13). Decreasing provider spending and resource waste leads to higher profits.

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Finally, one of the hallmark value-based care models is the capitation model. True capitation is the opposite of the fee-for-service model. Instead of paying providers for individual services rendered, under capitation, providers are paid a flat per-member-per-month rate. This model is intended to incentivize preventative care and prevent the misuse of expensive and unnecessary healthcare procedures. A health insurance carrier will pay the provider the set contracted amount at the end of a period, regardless of whether the provider has exceeded the rate.

Transitioning to value-based healthcare models, many health insurance carriers have already seen reduced healthcare costs. In 2018, health insurance carrier Humana reported 15% reduction in costs from their value-based care business (Lockner & Walkner, 2018, para. 22). Similarly, UnitedHealthcare has decreased its costs through value-based care compared to its fee-for-service model. In a 2018 survey of the NEJM Catalyst Insights Council, which is comprised of top U.S. executives, clinical leaders, and clinicians in the healthcare industry, it was reported that right now the healthcare industry is seeing broad change, which is impressive for an industry that has mostly remained unchanged for years (Feely & Mohta, 2018, p. 1). Already, executives report that 25% of their organization’s revenue is from value-based reimbursement, while 75% remains tied to fee-for-service (Feely & Mohta, 2018, p. 1). 25% of revenue tied to value-based care is a significant achievement, when virtually 100% of revenue was tied to fee-for-service five years ago. According to Feely & Mohta’s study, organizations are most commonly pursuing ACOs and bundled payment programs, and 29% of respondents say their organizations will adopt value-based care models within the next three years. 22% say they already have (2018, p. 8).

Ultimately, the healthcare carrier industry is in the formative phase of transitioning from fee-for-service healthcare to value-based healthcare models. Only 42% of respondents in the NEJM Catalyst marketplace survey feel confident that value-based care will significantly lower healthcare costs (2018, p. 2). Additionally, many health insurance carrier executives and clinical leaders see barriers to transitioning fully to value-based care models, namely infrastructure requirements, changing policy/regulation, and effectively aligning payers and providers (2018, p. 2).  According to senior health policy advisor John O’Shea, in both the fee-for-service and value-based care models physicians spend too much time completing paperwork to get paid for the services they provide. From his research, he’s found that “the aggregate cost of dealing with billing complexities is as much as $54 billion a year, just for outpatient visits” (2018, para. 4). This is a significant drain on the healthcare system that value-based care is not currently equipped to address. While shifting to value-based care has the potential to reduce costs for large health insurance carriers, problems regarding total healthcare spend need to also be tackled at the legislative level. Until administrative burdens on physicians are reduced or removed, total healthcare spend will not experience tangible decreases (O’Shea, 2018, para 7).

Conclusions

Many healthcare insurance carriers have seen promising financial results when switching from the traditional fee-for-service model to a value-based healthcare model. Implementing value-based models such as ACOs, bundled payments, and capitation on a large-scale has the potential to reduce costs for health insurance carriers. However, building the infrastructure necessary to develop these models takes time. In 2019, there is not enough market penetration to fully realize the benefits of a large-scale shift to value-based care. Health insurance carriers like Humana and UnitedHealthcare have begun to reap some financial benefits from their value-based care models, but not enough to demonstrate a tangible decrease in total U.S. healthcare expenditure. The U.S. health insurance industry is still plagued with regulatory and administrative burdens that continue to drive up national healthcare costs. Despite the innovation from CMS and private and non-profit health insurance carriers, the administration needs to address its excessive healthcare regulations. With new legislation to reduce administrative burdens, time will tell over the next decade whether value-based healthcare models can truly decrease healthcare spend when implemented on a national level.

References

• Chee, T. T., Ryan, A. M., Wasfy, J. H., & Borden, W. B. (2016). Current state of value-based purchasing programs. Circulation, 133(22), 2197–2205. http://dx.doi.org/10.1161/CIRCULATIONAHA.115.010268
• Feeley, T. W., Mohta, N., S. (2018). Transitioning payment models: fee-for-service to value-based care. Retrieved from NEJM Catalyst website: https://catalyst.nejm.org/transitioning-fee-for-service-value-based-care/
• Haefner, M. (2018). Four recent acquisitions involving UnitedHealth. Retrieved from https://www.beckershospitalreview.com/payer-issues/4-recent-acquisitions-involving-unitedhealth.html
• Health Catalyst Editors. (2019). The top five 2019 healthcare trends. Retrieved from https://www.healthcatalyst.com/insights/top-5-2019-healthcare-trends
• Keehan, S. P., Stone D. A., Poisal, J. A., Cuckler, A. M., Sisko, S. D., Smith, S. D., …Lizonitz, J. M. (2017). National health expenditure projections, 2016-25: Price increases, aging push sector to 20 percent of economy. Health Affairs, 36(3), 1-11. http://dx.doi.org/10.1377/hlthaff.2016.1627
• Lockner, A. M., Walcker, C. A. (2018). Insight: The health industry’s shift from fee-for-service to value-based reimbursement. Retrieved from https://news.bloomberglaw.com/health-law-and-business/insight-the-healthcare-industrys-shift-from-fee-for-service-to-value-based-reimbursement
• National Conference of State Legislatures. (2018). Value-based insurance design. Retrieved from http://www.ncsl.org/research/health/value-based-insurance-design.aspx
• O’Shea, J. (2018). Patient-centered, value-based health care is incompatible with the current climate of excessive regulation. Health Affairs. Advance online publication. http://dx.doi.org/ 10.1377/hblog20180927.405697
• Resnick, L. (2018). Get ready for a future of rampant healthcare consolidation. Retrieved from https://www.beckershospitalreview.com/healthcare-information-technology/get-ready-for-a-future-of-rampant-healthcare-consolidation.html