For most of the past century, the main job of a health insurance company was pretty simple to describe, if not simple to perform: Protect people from the actual costs of medical care, especially when they get really sick.
For over 90 years at At Louisiana Blue, we have done this by building strong networks of physicians and hospitals. We work hard to negotiate good prices for your medical care. In our not-for-profit, Blue business model, we see our mission as standing in the breach between our members and financial ruin from health problems. We use our scale — our 1 million-plus members — to be your mediator between powerful health systems (those setting the prices and access, and thus, the cost of care) and ordinary Louisianians who need care.
But over the past 15 years, especially after the Affordable Care Act capped insurers’ gross margins at 15-20%, some large, publicly traded carriers found it advantageous to move to something else. These large, publicly traded health insurers no longer see themselves as insurers FIRST.
They have used their capital to transform into sprawling medical conglomerates — owning medical data services, physician groups, clinics, home health agencies, hospitals, pharmacies and giant pharmacy benefit managers (PBMs). These non-insurance operations are not limited by the ACA’s gross margin restrictions. These large conglomerates can often make more money from their medical provider ownership than they make from actual insurance operations.
When a health insurance company becomes the hospital, the clinic, the pharmacy and the PBM, it stops being an insurer and becomes a vertically integrated, revenue machine.
This produces a clear moral hazard for the insured patient because:
- The insurance company profits more when healthcare costs go up.
- It loses money if costs go down.
- The company controls both the claims and the prices.
- It can shift revenue across divisions to appear compliant while generating enormous aggregate profit beyond what the ACA intended.
This vertical integration has created an ongoing moral hazard because their insured patients no longer benefit from the insurance company fighting high healthcare costs on their behalf. The company’s loyalties are divided now. And with this trend has come some of the largest increases in healthcare costs in history.
In a way, I can’t blame these giant insurance companies’ leadership doing this. As an economist, I understand the concept of “maximizing shareholder value.” A publicly traded entity, owned by millions of anonymous shareholders around the globe, has a primary responsibility to maximize the return on investment of those shareholders. The ACA gross margin caps limited their ability to do that if they only operated as an insurance company. But I believe this downstream ownership of medical providers, accelerated by the ACA restrictions on gross margins, is fundamentally misaligned with the public good.
Instead of medical costs being an expense, a negative to their overall bottom line and something to be avoided, that spending becomes income, with a strong incentive to maximize it. The entity responsible for protecting you from rising medical costs often profits more when those medical costs rise. That’s a pretty serious moral hazard and patients rarely understand what is happening to them because of it.
“But Mike, what about Louisiana Blue? Aren’t you playing that game too?”
Since we are a not-for-profit, tax-paying organization, our primary responsibility is STILL to our members, not to anonymous shareholders scattered all over the world. We have no incentive to profit from medical provider ownership at the expense of our insured members. We want our focus to be building strong provider networks with high-quality providers while negotiating constantly with them to bring our members the absolute best value possible. We partner and contract with independent physicians to incentivize them to keep you healthy and help them maintain their independence at the same time. We still want to stand in the breach between our members and high medical costs.
Sometimes this is easy; sometimes it is very hard, but it is NEVER something we have a built-in incentive to avoid. You can rest assured that we are working very hard to keep healthcare prices down. And, since you know at least 80-85% of your premiums have to pay for ONLY healthcare, that work adds value to you.
The Straight Talk is, unlike our competitors, Louisiana Blue has no gray areas here. No mixed incentives. No confusion or moral hazards. YOU are our top priority and that has never changed. Whether you are an employer offering coverage to your workforce, an individual buying through HealthCare.gov or a retiree looking to the security of Medicare Advantage, you can rest assured that we are negotiating constantly for the best healthcare prices for you. There is nobody else in line ahead of you. There is no other profit center we have to defend. You are OUR top priority.
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