The Death of Health Insurers? Don’t Start the Funeral Just Yet

February 20, 2012

In late January, just after my fellow instructors and I had led our students at the U-M School of Public Health in a discussion of the complexity of health coverage, and the difficulty of actually doing what health insurers do given the American system of financing health care, the New York times ran an opinion piece by Ezekiel Emanuel and Jeffrey Liebman that started like this:

“Here’s a bold prediction for the new year. By 2020, the American health insurance industry will be extinct. Insurance companies will be replaced by accountable care organizations — groups of doctors, hospitals and other health care providers who come together to provide the full range of medical care for patients.”

Now, maybe Emanuel and Liebman meant to simply be provocative. But the piece is based on some faulty logic, and it is concerning that these two esteemed policy makers would make such statements, especially in a publication like the New York Times.

The fundamental problem with the piece is that it both underestimates what health insurers do in the health care market place today and overestimates what providers of health care will likely be able to do in the health care market place post ACA coverage changes.

Just a few examples of their assertions:

“All that insurance companies do is process billing claims.”

This statement is simply not true when describing the majority of health plans in the market. All major health plans today—whether HMOs, for-profit national carriers, or non-profit plans like Blue Cross and Blue Shield—do more than process claims. Among other things, they negotiate contracts with providers of care, set payment rates and make medical policy coverage decisions, perform utilization review and quality oversight, monitor fraud and abuse, help set benefit designs and incentive structures for providers and consumers and answer inquiries on coverage from consumers.

Emanauel and Liebman may be referring to a minority of entities called “third party administrators,” who do perform limited functions; but these entities are a relatively small proportion of the health insurance market precisely because most employers or others do not want to take on the broader insurance functions that go beyond “processing billing claims.” Indeed, even when employers contract with third party administrators to administer their benefits, they often also contract with other network management organizations to do the kind of administration health plans otherwise do.

Another example:

“In addition to providing better and more efficient care, ACOs will also make health insurers superfluous. Because they will each be responsible for a large group of patients (typically more than 15,000), they will pool the risk of patients who have higher-than-average costs with those with lower costs.”

This statement reflects another significant misunderstanding of the health insurance market. While 15,000 individuals is a significant size to many providers, it is a small size to any health plan. ACOs by design are local in nature. They are made up of physicians and one or more hospitals, working together to coordinate the care of patients who come to see them. But, health purchasers generally are not so narrowly focused.

Think of auto companies as just one example. They have employees located across the country, and while they are self-funded, they expect uniform benefit delivery regardless of where their members go. Even mid-sized employers, who are more locally-based, have employees who go to more than one provider network.

And what happens to employers with employees in rural areas where there aren’t 15,000 patients in the population? How could one or even several ACOs serve to manage all the administrative and oversight functions that the diversity of employers expects?

And finally, Emanuel and Liebman make this point:

“Accountable care organizations will increase coordination of patient’s care and shift the focus of medicine away from treating sickness and toward keeping people healthy.”

We all certainly hope this will be true, but remember, that was the founding principal of HMOs in the 1930s and 40s, and only a few such plans—with much tighter structures than ACOs are likely to have—have shown the ability to do this, even for relatively small populations.

What magic will ACOs bring to the table that HMOs (who have been striving to meet this goal for 20, 30 or sometimes, 60 years) have not yet achieved? After all, HMOs have the same access to health IT today that ACOs will have, and working together, health plans and providers can integrate the clinical and billing data necessary to provide a complete picture of care.

There are relatively few certainties in life. But, I feel confident that I can say that despite what has been posited by Emanuel and Liebman, health insurers will not be replaced by ACOs by 2020.

And, indeed, unless we have a total change in political will and a sudden embrace of a British-style health care system, health insurers will remain a vital part of the health care landscape long into the future.

Perhaps the more relevant question for us is: what will these health plans of the future look like, and how can providers and health plans work better together to capitalize on the strengths of each for the betterment of all?