$10,000+ Per Family Per Year Stimulus Hidden in ACA Thanks to American Ingenuity

Not long ago, I learned about a hidden gem inside of the ACA from a startup in our portfolio. They are in a fiercely competitive market for talent (Silicon Valley) where competitors are drunk on profits and happy to overpay for healthcare. Startups have to be more resourceful and they found a way to achieve what smart self-insured companies are doing to spend less than half on benefits with a superior benefits package.

They didn't fall for the tyranny of low expectations that is reflected in the Annual Health Benefits Kabuki Dance that has created an economic depression for the middle class. I'm now hearing on nearly a daily basis a CEO waking up to the fact that healthcare's hyperinflation is literally going to put them out of business in 12-24 months. Suddenly, they are doing the things that forward-looking benefits consultants have been recommending they do (sadly, there's another type of benefits broker that is going the way of the dodo bird that has been costing the middle class brutally). They are adopting elements of the Health Rosetta that gives them a blueprint for how to slay the healthcare cost beast.

First, a little background: Congress successfully undermined the new ACA cooperatives meant to be an alternative to the so-called “public option” to the point that many have failed. Senator Marco Rubio’s signature achievement was to get the so-called “risk corridor” defunded in the zeal to undermine Obamacare. The risk corridors were necessary as a pairing with the fact that ACA health plans would be required to accept all-comers (versus previously rejecting sicker people). Defunding risk corridors was one of the primary drivers of what led to several ACA co-ops to fail and why big insurers have left the exchanges. Once again, “preservative” political actions trumped creating new competition for incumbents.

Largely removing the cooperative option didn’t change the fact that out-of-control health insurance premiums have continued to make coverage unaffordable for many families. The most recent estimate of health insurance costs for a family of four are $25,826. As we’ve seen with many industries, incumbents can use their lobbying access and regulatory capture; however, that ultimately isn’t a match for American ingenuity reinventing health benefits.

To date, innovation has largely occurred with self-insured employers as was pointed out in “Health Plan Industry’s Worst Nightmare: Employers Realizing They Are Actually the Insurer.” There is added urgency for self-insured employers as enterprising attorneys are recognizing that it’s easy pickings to target unmanaged health benefits plans. It has been jarring for benefits leaders to realize that they’d be the target of aggressive plaintiffs. However, incumbent health insurers’ concerns are no longer limited to self-insured employers awakening to their legal exposure from under-performing health benefits plans that are akin to a 401-k manager delivering negative returns for decades.

While several ACA cooperatives have been dealt death blows, there are two other “cooperatives” that have been quietly growing while delivering high value to their members. Technically, these two types of entities aren’t cooperatives, however they essentially operate as cooperatives. These address the two other primary segments (besides Medicare and Medicaid) beyond self-insured employers—individuals and small employers. Outlined below are two examples of American ingenuity successfully delivering much greater value to American families than old-line health plans.

Health Insurance Captives on the Rise for Small Employers

Organizations not big enough or comfortable going it alone as a self-insured plan are using health insurance captives, which are exploding in popularity. Like individuals and families, smaller employers want to avoid over-spending on health coverage. A “captive” allows them to band together to create their own insurance entity.

A good example of a health insurance captive is Captivated Health. In their case, a large number of private educators ranging from Montessori schools to private colleges banded together to form their own insurance company. The best captives are employing Health Rosetta principles to control costs. As wise self-insured employers have demonstrated, it’s entirely possible to spend 20-55% less on health benefits with benefits packages better than the vast majority of the workforce. As healthcare industry veteran/executive Larry Hightower put it, “the bar is so low, a snake could jump over it.” That is, with proper medical management, healthcare’s hyperinflation can be reversed. Hightower’s firm, Vxtra, is setting up captives to assist medical practices stay independent. Medical practices themselves are small businesses facing healthcare’s hyperinflation like everyone else. With prudent approaches, captives have—at long last—brought deflationary economics to healthcare.

[Disclosure: As I've disclosed many times, the Health Rosetta is a set of guiding principles for success in the new health ecosystem and an open-source reference model for how purchasers of healthcare should procure health services. In my role as managing partner of the Quad Aim Fund, a seed-stage venture fund, the Health Rosetta is the foundation of our investment thesis.]

I’ve been briefed by several teams of highly seasoned healthcare professionals and technology entrepreneurs who see a great opportunity in the continued hyperinflation evident in traditional health insurance. Captives are growing in popularity as a result. One could expect that large incumbents will try to use their influence in Washington and in state houses to thwart the free market; however, the horse is already out of the barn. Just as industry incumbents tried to shut down early direct primary care organizations at state houses, the existing members of those organizations are a potent counterweight. It becomes difficult for legislators and regulators to take away from small employers and individuals one of the only things that has delivered an improved value proposition in healthcare every year. That is a strong contrast with the norm of getting less and paying more every year with health plans.

Health Sharing Ministries Save Families $20,000 Per Year

Few know about the individual mandate exemption for those in health sharing ministries. Most of them are quite restrictive and operate very differently than traditional health insurance. However, at least one of them operates in a manner that is similar to how health plans operate. LibertyHealthshare and LibertyDirect (which works with Hint Health to include direct primary care as an adjunct to Liberty Healthshare for the same price) are quick to point out they aren’t technically speaking insurance. However, as I’ve talked with healthcare providers who see many Liberty patients and speak with patients in their program, it operates in a manner that is familiar. They use different terms for items such as deductibles; however, it is similar in how the first $1,500 is covered by the individual/family.

The combination of the traditional health sharing ministry with a value-based primary care model such as Direct Primary Care is an embodiment of what I wrote about in 2010 following the passage of the ACA in “Health Insurance’s Bunker Buster.” As predicted, health insurers logically responded to having their margins capped by jacking up their premiums and increasingly pricing people out of the market. In doing so, health insurers are simply fulfilling their fiduciary duty to their shareholders. Even with the richest offering from LibertyDirect (see cost table here), a family of four saves over $20,000 per year while providing far superior primary care. Traditional health insurance has turned primary care into a milk-in-the-back-of-the-store referral machine (why else would health systems gobble up fee-for-service primary care practices?). With LibertyDirect, they are accelerating the growth of direct primary care—another little-known component of the ACA that is having a potent impact.

Health sharing ministries aren’t for everyone, although hundreds of thousands have participated in them for decades. Some may find their Christian roots aren’t a fit. Others may be among the ~5% who are excluded due to pre-existing conditions. That is, they operate like pre-ACA health insurance as they have some pre-existing condition limitations. However, since many of those pre-existing conditions are lifestyle-related, Liberty offers a provisional membership for an additional $80 per month (still far lower than traditional health insurance) to fund a health coach. Most of the $80 goes to pay for the health coach’s services to help people return to health—e.g., reversing diabetes, hypertension, etc.

Since health ministries have been around over 20 years, they have operated in a financially prudent manner. They also put a lie to the assumption that healthcare costs can’t be controlled—e.g., Liberty hasn’t had fee increases in many years. In part, because they have a faith-based foundation (some, not Liberty, require church attendance, etc.), it’s unlikely they’d be targeted by politicians even as the health insurance lobby would like to see them go away. Further, conservatives, in particular, wanted to see health insurance to operate like every other type of insurance—i.e., it’s only used for rare and unpredictable events. Conservatives argue the cost of having a high-risk insurance pool for those with pre-existing conditions is far less than the 12 million individuals receiving subsidies based on Congressional Budget Office estimates.

As with many things in the DIY health reform movement, conservatives and progressives may have different motivations, but they use similar tools to achieve their respective objectives. Many conservatives don’t care for the insurance exchange subsidies and would like to see the health insurance exchanges fail. Meanwhile, many progressives are comfortable with health insurers getting disintermediated and healthcare costs being tamed.

Rise of Health Innovators

As I speak around the country on the DIY health reform movement, some of the most innovative approaches have come from non-obvious places. Unions, municipalities, manufacturers, hoteliers and others have fought back and won against a healthcare system determined to have unbridled healthcare inflation -- they all spend 20-55% less per capita on health benefits with excellent benefits. They are aided by some of the most innovative benefits leaders in the country, such as David Contorno, Jim Millaway, Keith Robertson and folks I call the “Dream Team” of benefits leaders. The volume of requests to get introductions to these individuals demonstrates that there is a high degree of interest in how they have helped employers solve the biggest cost problems in healthcare.

There are recurring themes with the health innovators. They embrace the guiding principles for success in the new health ecosystem. Where others assume that all that can be done is try to make tweaks to a radically under-performing status quo, they see opportunity to reinvent the value chain through tactics such as direct contracting via transparent medical markets. The minuscule adoption of so-called “transparency tools” proves that people aren’t interested in transparency tools, they want actual transparent prices that are guaranteed. As one of the next-generation health plans stated, it’s possible to deliver twice the healthcare at half the cost and ten times the delight.

These patriotic DIY health reformers aren’t willing to sit idly by and watch their fellow citizens be devastated by medical costs. They realize we've gone to war for less than what healthcare is doing to America. Smart employers, captive insurance groups and the health sharing ministries have shown for 10-20 years what the true costs of great healthcare coverage ought to be -- roughly half of what it is for most. Never underestimate the power of American ingenuity. These are the sorts of stories to be highlighted in The Big Heist film that will demonstrate how American heroes are thwarting the greatest heist in American history.

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