The Health Insurance Conundrum: Crossing the Divide

Zachary Hafner
Advisory Board

Given this issue’s focus on autoimmune disease, which includes a host of lifelong chronic conditions, I can’t help but consider the role of health insurance in this country. For many, it bears resemblance to other insurance products such as fire or auto coverage: It’s there in the event of an emergency, but the hope is that it will never be needed. But for people with a chronic autoimmune disease, where consumption of health care products and services is a regular and ongoing reality, health insurance becomes something entirely different: a financing mechanism for expenses that would otherwise be unaffordable.

Zachary Hafner

Zachary Hafner

Insurance works on the premise that across large populations it is possible to predict the probability of adverse events occurring, to estimate the likely costs associated with those events, and to distribute those costs over the insured population in the form of premiums.

The ACA initiated two major streams of industry activity that challenge this foundational insurance principle: first, the rise of population health management and, second, dramatic expansion of the individual insurance market via public and private exchanges.

Seven years later, both are struggling.

Economics aren’t working out

Population health management is built on the notion that prevention, early intervention, and proactive management of chronic disease can reduce the incidence rates of costly episodes. In pursuit of these reductions, payers and providers have introduced waves of new partnerships in structures such as joint ventures, ACOs, and clinically integrated networks. They have layered on new approaches to care coordination and have invested heavily in big data and analytics. They have collaborated in ways never attempted previously.

So far, these efforts have yielded advancements in quality and reductions in utilization. But the economics are not penciling out. The cost of innovation is outstripping the financial return on investment. As a result, the participants remain dependent on their old business models to support what amounts to experimentation in the new.

Against insurance principles

As for the individual health exchanges, one need only look to the headlines to know they are up against the ropes, with staggering double-digit annual premium increases and many insurers backing away entirely.

The issue, it seems, is that when individuals purchase health insurance, they do so intending to use it. Seems intuitive, but it is in conflict with that foundational insurance principle I mentioned earlier and is the turning point where insurance becomes a financing vehicle. For the underwriters, this has been a wake-up call about consumers and consumerism in what had previously been a classic “b-to-b” arrangement.

The real opportunity involves bringing these two streams together. It may be complicated, but is it too much to ask for health care that delivers consistently better outcomes while offering a range of participation models designed to meet the different needs of various customer segments?

Not everyone thinks so. Organizations of all stripes—from payers and providers to technology giants (think Apple and Google), from retailers (think Amazon and Walmart) to Wall Street financiers—are working feverishly to crack the code. This is leading to entirely new innovation focused on breaking down the biggest barriers to rendering the vision into reality. They’re just getting started.

But while there is good reason to be optimistic, overhauling the health care system is much like overhauling a 747 in mid-flight. Tinkering can be done relatively safely but major re-engineering is fraught with risk.

All that said, do we really have a choice? For tens of millions of Americans, including those with chronic autoimmune disease, the innovation can’t come soon enough. They need sophisticated health care to treat their diseases—treatment that can make their lives immeasurably better—without bankrupting them in the process. So buckle up—new insurance models are already taking flight.

Zachary Hafner leads the Advisory Board’s strategy consulting practice.

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