Supplying the Rope

As agents, brokers and consultants, we have presided over unprecedented medical inflation. Many of the employers we represent have been ineffective in managing their healthcare costs, and those they depend upon for counsel—the 38,000 agents, brokers and consultants—have failed to take on stakeholders who seem more invested in the status quo.

We have been essentially powerless to prevent the oligopolies that now dominate the payer and provider communities, which often engage in opaque pricing practices and exploit the lack of resources and expertise among employers and even within our industry.

In this Darwinian landscape, the weak have suffered the most—the uninsured, individual and small businesses, community hospitals and primary care providers. With more than 50 million Americans now uninsured, our $2 trillion system is on life support, and we are its co-dependents.

Fatigued employers wonder whether the burden of solving the healthcare crisis should remain the problem of the private sector or the government. Who can tame medical inflation and solve the affordability crisis? Most professional buyers recognize that achieving a low, single-digit medical cost trend means hard work. Many are privately examining the Affordable Care Act and wondering if it offers an avenue of escape.

While many firms publicly predict their longevity in the face of emerging private and public exchanges, others are panicking at the prospects of a split system in which low-paid employees shift into public exchanges, creating a larger base of individual insureds and setting the stage for private employer plans to explore defined contribution designs.

Irrational exuberance is now becoming a daily event as brokers announce an affiliation with a third-party enrollment firm or christen the creation of a proprietary private exchange. It’s beginning to feel like a high school locker room where every adolescent is claiming to have “done it” when in fact no one has actually gone beyond talk. A handful of players have declared themselves either open for business or aligned with an enrollment partner that offers decision support tools, online enrollment and a myriad of medical options.

What’s troubling about public and private exchange models is the risk that some employers may adopt private exchanges and lose interest in affordability and employee engagement. The theory behind defined contribution arrangements that offer a single carrier or multiple carriers is valid: Employees crave more choice, and the ability to tailor one’s benefits will build greater goodwill.

Exchange proponents believe exchange-based competition will supplant traditional employer-sponsored defined benefit medical plans the way 401(k) plans erased the traditional defined benefit pension plan. The notion that commercial insurance costs will decline as insurers compete for a slice of exchange-based members has yet to be proven. Given the profit margin expectations, most commercial insurers will not adopt arrangements that cannibalize existing programs.

In practice, insurers are not jumping into public and private exchanges until they understand the economics and the basis of competition. Carriers will selectively participate in public and private exchanges in which they believe they can gain market share or protect their share of the market—but only at margins that can be defended to shareholders.

Online enrollment systems that offer consumer decision support tools can create greater workforce satisfaction, but they do nothing to modify the underlying risk profile of a client. Some would argue that poorly designed options could ruin a risk pool. Without investing in many of the solutions that have been proven to reduce medical costs, employers will be forced to absorb higher increases or use their defined contribution plan to pass on the majority of annual costs to their members. Over time, premiums will increase, and enrollees will recognize that the exchange did not solve the rising cost of healthcare but merely shifted it.

Defined contribution plans are hardly new. They have existed since the 1980s, when cafeteria and flex plans offered “credits” to employees to purchase from a menu of options. Flex plans were difficult to administer and were too abstract to explain in an era of analog communications and on-site enrollment. The plans were vulnerable to adverse selection as younger, healthier workers often opted for plans with lower premiums that allowed enrollees to pocket savings. They were also vulnerable to workers use of flex dollars to buy additional non-medical benefits, such as vacation or ancillary coverage.

With fewer premium dollars to cover the spread of risk, the flex plan claims experience deteriorated. One flex plan that offered many choices discovered over time that its platinum level options became too expensive. Choice disappeared, cost increased and dissatisfaction spiked.

Brokers must evolve and grow a stronger advisory spine. They must push benefits clients and financial buyers who are reluctant and change-averse to adopt programs that do not merely shift costs but also drive sustained affordability. And they need to serve a greater public good and commit to wellness planning.

Insurers and other stakeholders are at much less near-term risk if employer-sponsored healthcare fails. Many managed-care firms are quietly eyeing a lower margin but an ever-expanding consumer business of individual coverage through Medicare Advantage, Medicaid and individual commercial clients purchasing through exchanges.

As we shift into the “decade of the consumer,” costs will likely continue to increase, leading to more calls for a public option to compete with a failed Affordable Care Act exchange system of private payers. Once we leave the highway of affordability, all roads lead to a single-payer system.

Despite the rising tides of change, the brokerage and advisory community seems more distracted by the hype around exchanges and less committed to insisting on affordability. By failing to focus on low, single-digit medical cost trends and measuring our own performance against this as a standard, we may unwittingly be severing the last tie between those who finance healthcare and those who care about making it affordable. Like doctors, we need to be governed by the same principle that governs any other trusted advisor—Primum non nocere (first, do no harm).

If we become too cynical to believe that affordability is possible, we will become like Lenin’s last capitalist: We will sell the rope that will ultimately be used to hang us.