One Obstacle in the Way of a Single-Payor System No One Mentions

With all the talk of moving the US healthcare industry to a single-payor system, there is one element that is often overlooked and seems to stand in the way of this objective, publicly traded insurance companies

Credit: Kelly Sikkema @kellysikkema via unsplash.com

"Once pulled out, it's really hard to put the tissues back into the box." - Anonymous

There are frequent claims in the political or economic arenas of the dire need to move the US healthcare industry to a single-payor system. The next phrase usually mentioned is that the US is one of only a couple lone countries without a single-payor healthcare system.

Philosophically speaking, what made and still differentiates America is its free-market economy mixed with a capitalism-friendly environment. This economy and environment are important parts of our American quilt that was sown well before our Constitution was drafted. Thus, capitalism and a free-market economy are terms often mentioned in the counterpoint raised when a single-payor system is suggested.

The US economy is a well-established one, and as they say "it's really difficult to put the tissues back in the box." Most other countries were not set up at the onset like the US. And thus, it was easier for the majority of other countries to find themselves in this day and age with single-payor healthcare systems. However, you'll find in several of these countries with traditionally only one payor, a rise in private insurance or cash-based concierge medicine for those that can afford the "premium" to get improved access to care. In other words, some countries with single-payor systems are finding a free-market or capitalistic economy emerging to address healthcare patient throughput deficiencies.

This post aims to explain one obstacle in the way of the US moving to a single-payor healthcare system that often goes unmentioned. But don't worry a couple suggestions will also be presented as to some preliminary steps in the single-payor direction, along with ways Blockchain technologies may be implemented to stay on topic with the theme of this blog in support of the blockchain cause.

What's the first thing that comes to your mind when you hear the single-payor healthcare topic arise?

When I hear the suggestions made for a single-payor healthcare system in the US, the first thing that comes to my mind is the sheer number of commercial insurance companies that are publicly traded and the volume of shares of stock that have been issued for each of these payors. The fact that so many commercial insurance companies are publicly traded, in my mind, is a key limiting factor in the move to a single-payor environment. Further, the US economy encouraging free-market and capitalism environments allowed for these insurance companies to arise makes sense in hindsight. And as companies regardless of industry evolve, many of them move to issue shares on stock exchanges in order to bring in more financial resources for strategic objectives and as a result become considered publicly traded.

Recent regulation of publicly traded companies still leaves a couple gaps that prevent healthcare from being delivered more effectively

As companies move to a publicly traded status, certain objectives and expectations become more important. For example, the Sarbanes-Oxley Act of 2002 arose as an approach by US Congress to do several things, in particular for this discussion, require more documentation, transparency, and accountability of publicly traded companies' financial processes and controls. This Act went so far as to require much greater accountability of publicly traded companies' Chief Executive and Chief Financial Officers to review and sign off on financial controls, as one example.

I saw this Sarbanes-Oxley transition first-hand. Early in my career I had the privilege of working with a "Big 5" international accounting firm. I joined shortly before Sarbanes-Oxley was instituted and before too long the "Big 5" became "Big 4" as one of my employer's rivals closed shop. One of my last roles at the accounting firm was working with an international commercial property and equipment insurance company teaching one of their analysts how to perform depreciation calculations on property, plant, and equipment along with documenting the financial controls and processes in order for review and sign-off by executive leadership, per Sarbanes-Oxley regulations.

I mention all of this because being a publicly traded company in the health insurance market is governed by significant regulations requiring material effort to document financial controls and processes. In theory, all of this oversight should create strong expectations for how the business is conducted. Despite this oversight, there is at least one key dynamic of being a publicly traded company that regulations haven't seem to address that allows publicly traded health insurance companies to behave in ways contrary to what many patients and provider organizations would prefer.

What makes publicly traded companies successful impairs the financial mechanisms of delivering healthcare successfully

Before we get to a barrier in the way of a single-payor healthcare environment we need to consider the nature of publicly traded companies. Publicly traded companies are those that have shares available for purchase on stock exchanges. In addition to that simplified definition, what makes a publicly traded company's stock desirable for purchase is a pattern of profitability and wise financial decisions benefitting the balance sheet and income statement in combination with a stock price that is considered a "good value" among many other criteria. In general, companies that preserve cash, keep expenses low, and make good investments of their financial resources are rewarded in the stock market.

In the case of commercial health insurance companies that are publicly traded, preserving cash may mean that claims of patients' health they cover may result in denied claims for what may be deemed less than necessary or at best case a delayed processing of payment for insurance claims submitted. While examining claims with the incentive of minimizing cash outflow eventually this mechanism could reduce healthcare costs long-term - in theory.

Commercial health insurance companies striving to minimize expenses would not be incentivized to invest financial capital in new technologies, resources, or processes that would help process insurance claims more swiftly. The faster claims are processed the more cash would move from the payor to the provider, incongruent with their motivation to preserve cash on the balance sheet - in theory. Don't misread these statements, there are really important purposes for health insurance in our economy, and in particular for the patients that need access to and financial support for medical care. The economics just happen to work this way as a result of being publicly traded companies. As far as profitability is concerned, this is where a blockchain-based technology in healthcare may actually benefit the payors in addition to providers and patients. A subsequent post is in the works that expands on this particular topic, stay tuned.

The incentives that make publicly traded companies successful may be interpreted as contrary to what patients and providers feel is necessary for healthcare to be delivered successfully in the US economy.

The volume of stock shares in circulation across several insurance companies is a very tangible barrier to moving to a single-payor healthcare environment

There are several health insurance companies that are publicly traded and happen to be household names for those patients who rely on their financial backing to support the much-needed medical care these patients expect. The chart above lists the top eight publicly traded commercial health insurance companies ranked by market capitalization demonstrating how large an issue their shares of stock in circulation would be as a barrier to moving to a single-payor system.

Described simply, market capitalization is the total value of a publicly traded company's shares of stocks on the market exchange. Taking the number of shares of stock issued and multiplying that number by the company’s stock price per share at a particular moment brings one to a market capitalization number. This shouldn't be confused with market share as that can be measured in a variety of ways including covered lives with one payor as a portion of all covered lives in the commercial health insurance sector.

The top eight publicly traded health insurance companies' market capitalization would add up to approximately $405B in market value. Not even looking at each payor's stock price or total shares outstanding, this is a massive amount of financial capital that has been put into a capitalistic free-market that would be very difficult to unwind. Looking at the chart, one particular payor certainly stands out from the crowd, United Healthcare. Perhaps for discussion sake if that payor should be a candidate if moving the US healthcare sector to a single-payor what would that be like.

Suppose, United Healthcare was chosen as the new single-payor for healthcare. What would happen to all the other commercial health insurance payors' properties, employees, equipment, and data, let alone the financial funding provided by shareholders? To address the shareholders, a "buy-back" might be the mechanism each of these payors would have to take. As for all the other assets of these companies, what would be leveraged from those former competitors' resources by United Healthcare and what would be scrapped? Perhaps those resources would be merged into United Healthcare's system if appropriate. And then we would be left with one payor that was established in a free-market capitalistic economy now without competition. That may not bode well to incentivize United Healthcare to deliver competitive pricing, seek technological advancement, and find efficiencies even if United was no longer a publicly traded company.

What about all of the patient data, we should touch on that. As far as all the data in each of these supposed former commercial health insurance companies this may be a great exercise to build out the foundational starting point for a blockchain approach. There will be so much change involved in this supposed scenario for all of the patients that a blockchain technology may help ease the transition. The process to establish a blockchain-based platform in this scenario would be benefited from a technology-based reconciliation of records and benefits. It would be important for blockchain to reach widespread acceptance and adoption before such a transition were to take