The stock market is rewarding the narrow list of surviving healthcare companies since profits are surging, yet a slight ripple to the floating tea leaves yields significant adjustments. Just two days ago, Walmart hired a former Humana executive to lead their healthcare initiative, and a leader has been selected for the Amazon-Berkshire-JPMorgan joint venture – and the market flinched. UnitedHealthcare reported quarterly earnings which exceeded Wall Street’s estimate, yet lost 3% in value.
The insurance carriers right now are the only game in town and they are the lightning rod for blame. Yet the real problem with healthcare is that no one has figured out how to reduce the rate of escalation of healthcare costs. Health insurance companies are a cost-plus business. As costs increase so do the insurance companies’ profits and their stock price. Yet investors are worried that the status quo will be disrupted.
Medicare and Medicaid can use the legislative and regulatory process to keep a lid on their costs – but let’s not kid ourselves. If we don’t control healthcare inflation, those costs are shifted somewhere (through taxes or to other payors) since the cost of services for non-government provided healthcare subsidizes the reduced profits, or even losses, created by underpriced government care. This increases health insurance cost inflation for other plans.
Small groups and individuals are the most vulnerable since the ACA-spawned health exchanges are a disaster. The premium subsidy mechanism is being tossed around as if it is a football. And the Department of Justice elected not to defend a lawsuit attacking major ACA provisions which, if the plaintiffs win, would neuter the individual and small group markets. Fingers are pointing all over Washington as party in-fighting, states’ rights, religious and moral issues block even the most reasonable efforts to patch up the dysfunctional healthcare market.
Larger employers still have some element of control – with funding changes, high-deductible plans, increased cost sharing, narrower networks, and even reference-based pricing. But they are running out of runway.
The health insurers realize that if they are not the ones to solve the cost equation, their happy equilibrium will be gone forever. So that explains the CVS-Aetna and the Cigna-Express Scripts deals and why UnitedHealthcare is buying up providers all over the country. Government has found that there are no easy answers – and that leads to trying radical fixes such as single-payer solutions as powerful lobbyists like pharma use their influence to squash any changes to their status quo.
I have been writing this blog for many years and at the risk of being repetitive, here are some low-hanging fruit solutions:
- Rationalize drug costs. Multiple price increases for established drugs are unconscionable. Pharma is daring the government to act in a game of chicken and I think the government should act. Innovation should be rewarded but prices should be regulated to avoid the price gouging that exists today.
- Reduce hospital bed oversupply and increase efficiency of providing this care.
- Promote wellness and wellbeing. Create disincentives for unhealthy lifestyles.
- Align incentives to encourage appropriate settings for care. I like the Kaiser Permanente model and believe that CVS-Aetna and Walmart-Humana will create better models for routine care.
Government, insurers and providers seem to be getting the message – but now it is essential that they get it done.