Working With Us | Products | Case Studies | FAQ | About Online Media

Yin and Yang – The wonderful world of health insurers


Not so long ago when I was a smart young health care consultant, I spent a great deal of time poking around the innards of health plans. Health insurers were going to be the vehicles of care management. Once the principles of how to manage population health were figured out, health plans were going to be run by wise medical directors who were going to explain the correct way to manage care.

The ideas was  to put all the information about a patient together from the many doctors and providers they see, and make sure that their treatment followed best practices. Everyone in health care knows that no doctor knows what the others treating the same patient are doing — that’s why there’s a huge push to get physicians to use electronic medical records. So the thought was that a central “sponsor” would oversee the process. This thinking went quite far.

If, say, patients needed care that wasn’t strictly medical, but would reduce problems and costs later, the health plans (or the medical groups they contracted with) would provide it. For example in the mid-1990s in Southern California some medical groups really sent handymen out to the homes of their elderly patients to check that the rugs were fixed down, and that hand rails were in the toilets. Consequently they reduced the number of broken hips caused by falls. Good for patients, good for the insurer. There was also an incipient industry called “disease management” in which call centers full of nurses contacted patients to make sure that they were doing OK and taking their meds, and hopefully had fewer of them show up in the emergency room because of something bad that happened because they didn’t take their pills.

Believe it or not, there are still many people working away within health insurers, or subcontracting to them, doing just this type of thing today. Hospitals and doctors make their living off sick people—which is a problem in and of itself. Insurers ought to make their living off keeping them healthy.

But a funny thing happened on the way to the Forum. The headline in the LA Times this morning is about insurers cancelling insurance of sick people based on the most tenuous of excuses. And we’re not talking podunk little fraudulent insurers. The villain in question is Blue Cross of California, which these days is part of Wellpoint, the second biggest health insurer in the nation. Now of course it’s possible that the policies they’ve been cancelling were fraudulently acquired by people lying about their health conditions, but it certainly looks as though the insurers went trawling for any flimsy excuse to kick them off the policy once they became sick.

And of course in the bad old days of managed care, it wasn’t just all sweetness and light and handymen helping little old ladies. There was the famous case of Christy deMeurers, a HealthNet member denied an experimental bone-marrow transplant, who’s brother was a lawyer who made out suing health insurers. Years later (and after Christy’s death and a huge judgment against HealthNet) the procedure was shown not to be medically helpful. But that didn’t stop Time writing about the case in 1996, and vilifying Malik Hassan, Roger Greaves and other executives who were making millions at the same time their lackeys were denying payment for care. At the same time Helen Hunt was swearing about HMOs in As Good As It Gets. OK, so she actually got the details wrong, and as a Hollywood celeb she’d probably had no idea what an HMO was — plus it was a dreadful movie. But it caught the public mood.

What actually happened in the mid-1990s was that health insurers (on behalf of employers like CalPERS) had ratcheted down the rates they were paying doctors and hospitals. Doctors and hospitals in return got very cranky and transmitted this crankiness to their patients—my doctor used to call Prudential’s “PruCare” health plan, “Zoocare”. Given the relative trust levels that doctors hold over their patients versus insurance executives, the politics of this worked their way out. The insurers faced a barrage of headlines, Congress threatened direct regulation of their business, and so they cut some of the worst excesses. Meanwhile hospitals began a huge series of mergers which won them considerable market clout, and enabled them to jack up their prices.

By the early 2000s the concept of an insurer managing care across a population was basically dead. So the insurers did two things. First they turned around to their clients and jacked their own prices up, in most cases faster than the cost increases they were getting from the providers. Secondly they looked in the company library for some articles about what it was like back in the days when they were risk managers rather than care managers. That’s when they noticed that if they stopped worrying about the care of the sick people and instead made sure not to insure any (or as few of them as possible), they made lots of money on the healthy ones they did insure. This is called “cherry-picking” in health wonk lingo.

The best example of cherry-picking is Aetna, an old line insurer which had a disastrous merger with US Healthcare, a managed care newcomer, in 1996. On the ropes by 2000, and being sued by doctors everywhere for not-paying their claims, Aetna changed tacks, mended its fences with doctors, and systematically went about kicking “non-profitable” groups of customers—those with higher health costs— off its rolls. It now insures a lot fewer people and makes a lot more money, as evidenced by its stock price over the last few years.


But Aetna is by no means alone. Everyone else including Wellpoint does exactly the same thing. In an interview last year Wellpoint’s (now-ex) CEO, Len Schaeffer complained bitterly about the poor care delivered in the American system, said that health plans could do little about it, and demonstrated conclusively that the most important part of the organization was the pricing, actuarial and underwriting department. That’s reflected in a improvement in what insurers quaintly called “medical loss ratios”—the difference between what insurers get in and what they “lose” by paying out to providers.

Whereas 10 years ago many plans had medical-cost ratios in the high 80s or 90s (%s), now the highest percentage among large, publicly traded health insurers is Health Net, at 83.9%. Aetna, which had a medical-cost ratio well into the 90s when CEO John Rowe, MD, took over in 2000, recorded a ratio of 76.9% in 2005, Dr. Rowe’s final full year before his retirement.

So the Yin of risk management and aggressive underwriting has taken over the insurers’ world. What’s strange is that the Yang of care management hasn’t gone away. Aetna, yup the same bunch that kicked all its sickies out, has purchased a company called Active Health Management which mines claims data in real time. It catches incidents of patients who haven’t filled a prescription, who have a lab test result that looks askew, or who are taking multiple drugs that might have bad interactions with each other. And it gets on the phone to the patients and their doctors with directions about what to do. In some cases these calls are life savers. This is the kind of technologically enabled oversight that health plans are in a position to deliver, and it’s a real value. Meanwhile United, Wellpoint and many others (and of course Kaiser which has done this forever) are re-focusing on how to deliver disease management services to their sicker members that improve care and maybe, just maybe, also lower costs.

So how do we get rid of the Yin of the risk selection (and the attendant waste and bad behavior that goes with it such as Wellpoint’s being accused of  today) without throwing out the Yang of the care management that doctors and hospitals are not in a position to do? Well the answer is simple. We change the rules and put everyone in the same risk pool, and make “insurers” compete over how best to do the care management part. Of course that will mean two more consequences. We have to get those without insurance into that pool, and the profitability of those insurers who are cherry-picking (that is to say all of them) will go down. That will put some peoples costs and taxes up and other people’s profits and incomes down. So a simple solution will not be an easy one.

Share  Posted by Matt Holt at 2:20 PM | Permalink

<< Back to the Spotlight blog

Matthew Holt's bio
Email Matthew Holt

Get Our Weekly Email Newsletter

What We're Reading - Spot-On Books

Hot Spots - What's Hot Around the Web | Promote Your Page Too

Spot-on Main | Pinpoint Persuasion | Spotlight Blog | RSS Subscription | Spot-on Writers | Privacy Policy | Contact Us