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The healthcare industry is changing—same old headline. You have read of all the buzz regarding ACOs, PCMH, ACA, and every other acronym. Since we’ve been in the industry, the “unsustainable” cost increases have been the talk every year, yet somehow we have not reached a tipping point.


How has the ACA impacted insurers?

So what’s different now? How has ACA impacted the healthcare industry, and more specifically the insurance companies?

The drafters of the ACA set up a perfect adverse selection scenario—come one, come all, with no questions asked. First objective met: 20 million individuals now have coverage.

Next objective: Provide accurate pricing for these newly insured. Insurance companies have teams of individuals who assess risk, so they can establish an appropriate price for the insurance protection. We experience this “underwriting’ process with every type of insurance—home, life, auto. In fact, we see this process with every financial institution, like banks, mortgage companies, credit card companies, etc. If a financial institution is to serve (and an insurance company is a financial entity), it has to manage risks, e.g., loan money to people who can repay the loan. Without the ability to assess the risk of the 20 million individuals, should we be surprised that one national insurance carrier lost $475M in 2015, while another lost $657M on ACA-compliant plans? Now if you’re running a business and a specific line has losses, your choices are pretty clear—either clean it up or get out.

Risk selection is complex. When you add this complexity to the dynamics of network contracting tied to membership scale, there is a reason numerous companies have made the decision to get out of health insurance. In 1975, there were over 2,000 companies selling true health insurance plans, and now there are far fewer selling true health insurance to the commercial population. Among the ones that got out were some big names—MetLife, Prudential, Travellers, NYLife, Equitable, Mutual of Omaha, etc. And now, we’re about to be down to a few national carriers, which is trending consistently with other industries—airline, telecommunications, banking, etc.


Will we start the uninsured cycle all over again?

Let’s play this one out for the 20M newly covered individuals. The insurance companies have significant losses on ACA-compliant plans. Their next step—assess the enrolled risk and determine if they can cover the expected costs. For those carriers that decide to continue offering ACA-compliant plans, they will adjust the premiums accordingly. While the first year enrollees are lulled into the relief of coverage, they then get hit with either a large increase or a notice to find another carrier. In some markets, the newly insured may be down to only one carrier option. The reason most individuals do not opt for medical coverage is that they can’t afford it. If premiums increase 15% or more, how many of the 20M have to drop coverage because premiums are too expensive? Will we start the uninsured cycle all over again?

Net net, ACA has enabled more people to have health insurance, but at prices that are even less sustainable than before. ACA offers a web of subsidies to low-income people, which simply means each of us, including businesses, will be paying for part or all of their premium(s) through taxes. As companies compete globally, this additional tax burden will impact the cost of services being sold. As our individual taxes increases, we reduce our spending. While ACA has the right intention of expanded coverage, the unintended consequences of the additional cost burden on businesses and individuals will have an impact on job growth.


The bottom line

While it’s hard for anyone to dispute the benefits of insurance for everyone, we first need to address the drivers behind the high cost of healthcare, so we can get the health insurance prices more affordable. Unfortunately, ACA steered us further in the wrong direction. Self-insured employers are the key to lead the way in true reform of the cost and quality of healthcare.

Tom Emerick and David Toomey
Thomas G. Emerick is the President of Emerick Consulting, LLC and Host of Cracking Health Costs. Tom has served on a variety of employer coalitions and associations, including being on the board of the influential National Business Group on Health, the U. S. Chamber of Commerce Benefit Committee, and many others. David Toomey is a senior healthcare executive with 30 years of extensive healthcare expertise in addressing the fragmentation within the healthcare system. He spent 25 years with two national insurance companies, before he spent close to 5 years in an early stage healthcare company. His experience includes revenue/P&L management and business development, with products ranging from transparency, wellness, performance networks, medical cost management, and clinical management programs.


  1. Good questions, Mark. In most other countries with single payer systems, the cost of medical care per capita is about half that in the US. See this link or google it: http://www.commonwealthfund.org/publications/issue-briefs/2015/oct/us-health-care-from-a-global-perspective

    BTW, the US has one of the highest corporate income tax rates around.

    Congres sha s proven unable to deal with meaningful reform of heart care costs, not only insurance costs. Thus by default if such reform will occur it is left to self-insured employers.


    Tom Emerick

  2. Why is it that the companies in countries that provide health care for all their citizens can still compete globally and generate profits for investors even though the are paying even higher taxes to support their country’s health care program? How self insured employers are necessarily better able to address the cost of care than ACOs or other types of managed care entities is unclear to me. Saying it is so does’t make it so. Fact is, few organizations have been able to effectively address this issue, probably because a confluence of factors, including patient expectations, societal attitudes towards end of life care, the unwillingness of Congress to allow more aggressive negotiations with the pharmaceutical industry to lower the cost of drugs, unproductive for-profit insurance management overhead, and others; all combine to constrain efforts at cost-containment. If the PPACA failed to impact the cost of care, it is probably not because it failed to promote self-insured employer plans over other mechanisms to reduce the number of uninsured.


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