Employers Trying to Fix Healthcare...Good Intent, Failed Execution

The recent demise of Haven Healthcare, the joint venture started by Amazon, Berkshire Hathaway and JP Morgan Chase to attempt to improve healthcare and reduce costs, was disappointing but predictable. The fatal structural issues of the entity itself certainly contributed to its failure and it was difficult to see how Haven’s apparent strategy would do more than nip around the edges of fixing the prevailing problem. 

We have seen other private sector attempts to tackle healthcare costs through regional and national business coalitions such as the Health Transformation Alliance (HTA). There have also been a few notable initiatives launched by individual corporations. For instance, Boeing has contracted directly with a single hospital-based provider network in select cities where they have large concentrations of employees (again, applying buyer-side leverage). To date, there have been no employer-based initiatives that have truly moved the needle in terms of long-lasting, replicable reforms.

Company-paid health insurance began in the 1930s and mushroomed in the early 1940s (during WWII) as a vehicle for employers to compete for employees after wage and price controls were enacted by Congress. Private healthcare companies proliferated and employees receiving company sponsored healthcare benefits grew by 700% from 1940 through 1950 (source: AMA Journal of Ethics). What began as a benefit to attract employees has since snowballed into an out-of-control burden on both employers and their employees. Advancements in healthcare technologies and the availability of advanced procedures and treatments have certainly extended, improved and saved lives. These advancements in medical science and technology have also fueled exponentially increasing costs. In the decades since the 1940s, employers’ response to runaway healthcare costs has led to the entrenchment of, and dependence on, today’s third-party payer industry.

In a functional open market scenario, the price for goods and services is determined by the intersection of supply and demand allowing buyers and sellers to conduct transactions at some mutually acceptable price. In the U.S. healthcare economy, we have providers (sellers), patients (buyers) and third-party payers. Each of these participants have competing priorities putting them at odds with the other two participants and, hence, the marketplace does not determine prices. In fact, this thwarts normal, direct interaction between buyers and sellers thereby inhibiting price elasticity and overall market function.

Conflicting objectives further complicate the economic conditions of healthcare delivery. For example, employers have a foot in both the patient and payor camps. They want their employees (and their families) to be kept healthy, on the job and productive. However, they are also payers, assuming the largest portion of the financial risks and placing them on both sides of the healthcare market divide.

The Kaiser Family Foundation’s 2020 annual survey of private and non-federal employers reported that the average annual premiums for employer-sponsored health insurance was $7,470 for single employee coverage and $21,342 for family coverage. These average employee premiums did not include deductibles, co-pays or other out-of-pocket employee paid expenses. Premiums have increased annually at a faster rate than wages and inflation. On average, large employers (over 200 employees) pay 71% of annual employee healthcare expenses. This employer portion translates to roughly 35% of average employee total compensation. These costs have increased at any annual rate of 5% for the past ten years and are not slowing down. 

Even if the Haven Healthcare approach had managed to obtain some price concessions, constantly negotiating and renegotiating pricing with providers will never achieve real and lasting change. Redesigning how employers and their employees engage with providers at the local market level has thus far eluded these highly publicized, well-intended, employer initiatives. We do not need to view this task as akin to boiling the ocean, but we do need to stop repeating the same futile strategies.

Here are examples of strategies that have limited/short-term payoffs or have proven to not work at all:

• Create home-grown imitations of health insurance companies and other third party middlemen
• Contracting exclusively with a single hospital/physician network (i.e. hiring the fox to guard the hen house)
• Squeezing PBMs and pharmaceutical companies to reduce drug prices
• Looking for a national approach to reduce or contain the cost of healthcare services (remember: all healthcare is local).

Despite the false starts and outright failures thus far, we envision a technology-based model that is employee centered and achieves market-based, right pricing tied to measurable results (“outcomes” in healthcare vernacular). After analyzing and better understanding how not to create a workable private-sector healthcare delivery model, we now want to focus on how to build a technology-based model that would be welcomed by all the participants.

The next article will lay out tools and tactics for creating a private sector healthcare model that is driven by natural market forces.

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The Author:

Kevin O’Donnell was the founder of Healthcare Resources of America and is currently CEO & Managing Director of HRA Partners, a Dallas-based firm that provides advisory services to healthcare companies and investors. In February 2018, he and his Senior Partner, Frank Gerome, published an article entitled: “Three Corporate Icons Set Out To Tame the Beast-But What Should a High-Tech Health Plan Look Like?”

www.healthcareresourcesofamerica.com