Updated: Apr 26, 2020
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 place.
There is a unique element to the commercial health insurance landscape that is also often overlooked, self-insured employers. If you are employed by a relatively large employer, and that employer has had a lengthy track record of financial success, your employer may very likely "self-insure" their employees' medical benefits. This is more common than most people may realize. Such an employer would devote financial resources to cover medical benefit expenditures incurred by their employees. There are several approaches that could be taken of course to accomplish this.
To keep it simple for brevity's sake (if there is any saving this article for brevity sake at this point) the employer choosing to self-insure would seek out one of the commercial health insurance companies to administer the processing of claims and disbursement of payments for employee health benefits while the funding is provided by the employer. There is already a large volume of financial resources devoted to this self-insured approach in our US economy and that element should also be included when considering a single-payor system. How do we address the financial resources of all these employers with insurance companies if a single-payor takes their place?
It doesn't appear likely that a single-payor format would arise from our existing commercial payor cohort based on this short list of considerations above. We may need to consider other options that are provided by the government that may give this dream of a single-payor system a head start to leverage.
"Perhaps Medicare or even Medicaid should become the single-payor for US healthcare?"
If allowed the points made above as to what may be in the way of moving to a single-payor healthcare system, what could be done in the near term to begin moving in that direction, is a potentially political question. Without creating too much of a heated debate, we could examine a couple of the options worth considering. Knowing that single-payor healthcare economies tend to be state and national government managed, we may want to look at our own government-based healthcare payor already in action.
We have at least three government-led payor plans in the US: Medicare, Medicaid, and Veterans Affairs (VA). It should be noted that the VA is in many cases administered by commercial health insurance companies, Humana Veterans is who currently administers health benefits to military, veterans, and their families. Additionally, both Medicare and Medicaid have recently opened up markets to allow commercial health insurance companies to recruit patients to their Medicare and Medicaid-derived plans and administer the operations accordingly. This would add another layer of consolidation when moving to a single-payor environment, but is important to mention.
It is commonly known that Medicare is the likely insurance plan for those over the age of 65 or those with certain chronic conditions, particularly end-stage renal disease (ESRD) regardless of patient age in addition to those meeting specific disability requirements. Medicare is often suggested as the platform to build a single-payor healthcare system in the US since such a large contingent of our population moves into this payor when of a certain age.
With Medicare, there are a few sub-components each would to be addressed for a single-payor system to succeed:
Medicare Plan A - Hospital coverage
Medicare Plan B - Medical coverage
Medicare Plan C - Private insurance options
Medicare Plan D - Prescription drug plans
It should be noted that even Medicare offers a bit of a commercial insurance marketplace for additional coverages for those inclined. So, if Medicare is to be determined as the starting point for a single-payor system there is some work that needs to be done in order to truly make it a single-payor category already described earlier and many other considerations as well.
If not Medicare, perhaps Medicaid is a viable option to pursue a single-payor system. The challenge with Medicaid is it is jointly funded at both the federal and state levels, but administered through distinctly separate programs within each state. Those currently classified in the Medicaid population are those with certain income levels, disabilities, or children not enrolled with other insurance.
In essence, there are at least 50 versions of Medicaid in existence. Thus, Medicaid would need deeper exploration to determine how to consolidate all of those state-specific variations for a single-payor healthcare system to be accomplished.
Veterans Affairs (VA) is currently administered in large part by Humana Veterans. This in a way appears much like a self-insured employer where Humana administers the credentialing as well as claims and payment processing which is funded by the Veterans Affairs division of the federal government. Perhaps the VA is an appropriate candidate when pursuing a single-payor system. Considering the VA is a federally funded program, administered primarily by a single payor, and covers noteworthy, and diverse in its own right, subset of our country's population could make it poised for such a task at taking on the rest of the country's healthcare payor needs.
Consider this, Humana as a publicly traded company has $38B in market capitalization, putting it 4th on the list amongst its peers and well overshadowed having only 17% market capitalization compared to United Healthcare and 9% of the top eight publicly traded companies. One might correlate market capitalization as investment of financial capital into the company, United Healthcare has far more market support than Humana in that regard.
An interesting element of the VA program that does not exist with Medicare and Medicaid are medical facilities and medical staff providing dedicated access and service to those with VA benefits. Given this health benefit program has dedicated facilities and staff to provide service across the country, and is administered by a primary payor, Humana, and is already federally funded that adds a very important element making the VA an interesting candidate worth looking at further for a single-payor system.
And there's one more thing… up through all of 2017, the VA program had been pursuing a contract with Cerner Corporation. Cerner is a leading electronic medical record and medical billing software developer. With this single computer system being deployed the VA would have a single system for electronic medical records and revenue cycle operations across all of its locations and services. With a single system for all of that information, the VA would have an additional factor in being a candidate for a single-payor system foundation. The success of such a large system implementation and the capabilities Cerner has to offer are both big question marks.
Perhaps if Cerner is investigating Blockchain technologies this may be an interesting approach to build out the system with blockchain techniques and capabilities to explore applications and new efficiencies in healthcare. Taking that one step further, could help make a single-payor system with the VA model as a starting point that much more efficient. Considering the large number facilities, providers, and patients along with a single payor and the government's oversight are the makings of a great proving ground for blockchain to be put through its paces to really help the veterans of our country and perhaps be a better way forward for all of us.
"Or maybe, the patient being the center of care should be the center of any new healthcare economy too?"
For a long time and still to this day in many ways, the employer appears to bear the majority of financial costs as well as the accountability of their employees' healthcare as well as the consequences of health issues, preventable or not. Since all of us are patients, regardless of who helps cover our healthcare costs we'd like to think we should be the center of healthcare. We will cover this in more detail in an upcoming post, but there are couple quick points worth highlighting here.
If you've seen one patient in healthcare, you've seen one patient in healthcare, as the circumstances and performance of each individual patient varies greatly from the next. There are countless ways our own individual decisions factor into our short and long-term health performance for good or bad. And there are unfortunately many factors that are out of each of our control that weave into our overall health picture. There needs to be a way to incentivize each patient to maximize their performance in the areas that they have control while helping provide support for the times when medical needs are out of one's control or could not be prevented.
The world we live in today offers so many technological advancements in the care, diagnosis and treatment of health matters. In addition to that, we have so many options for monitoring our health with personal computers, mobile devices, wearable technology that we can see much deeper into the current state of our health along with how certain decisions affect our health performance. It is just still too early for these technologies to really be put to good use. The consolidation of this personal computing gathered health data is still in its infancy, but it is quickly evolving.
Given this information, one might suggest that to move to a single-payor system, all patients need to be put at the center of that discussion and accountability be re-aligned in that same fashion while creating support mechanisms where they are needed. Blockchain, with its ability to leverage publicly accessible data, ability to keep secure confidential information, and the capability to build smart contracts based on performance from several parties, offers a lot of potential to build a compelling system that would put the patient at the center and if a single-payor could be identified might just be plausible as a whole.
Credit: nour c @nourc via unsplash.com
Regardless of what side of the debate you may find yourself, it is easy for ALL stakeholders in healthcare to agree that a new way forward is of increasingly critical importance
Thank you for reading this far, we hope the summary here has been helpful and perhaps thought-provoking. We have just examined publicly traded health insurance companies, Medicare, Medicaid, VA, and even the potential for patients at large and on the individual level as prospects for consideration when moving to a single-payor system.
In addition to the current state of these systems there are considerations to be included as far as Blockchain technology is concerned. As proof of concepts continue to emerge these should be put to the test to refine this nascent technology and reinforce its strengths while finding ways to mitigate its risks and weak points. For those that have made their way up the blockchain learning curve reaching the aha moment where you understand the technology enough to begin seeing the possibilities it is likely we've thought that a single-payor system sounds great in theory, but would be more likely with a blockchain-based technology underpinning.
What are some suggestions for how to move to a single-payor healthcare system in the US?
Is the existence of issued shares of stock a reasonable barrier to moving to a single-payor system? What would be some tactical steps to address this matter?
Please share your thoughts in the GAME CHAiNGER Forum.