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The Keckley Report

Post Pandemic, Investor Owned Health Insurers Have the Advantage

By September 21, 2020March 1st, 2023No Comments

Last week, four new reports lend credence to the likelihood that large investor owned health insurance companies will emerge from the pandemic as the big winners:

GoodRx analysis of prices across healthcare: The GoodRx Research Team compared data from the Bureau of Labor Statistics’ Consumer Price Index to its Drug List Price Index.

  • Key finding: since 2014, prescription drug prices have increased by 33%. During the same period, prices for other medical services increased less: inpatient hospital services (+30%), hospital outpatient services (+26%), nursing home care (+23%), dental services (+19%) and physician services (+10%) respectively. Nonprescription drugs aka over the counter (OTC) medications were the only service that has seen a drop in price since 2014 (-2%).

  • Key takeaway: price increases at or above inflation are systemic in U.S. healthcare. It’s business as usual.

RAND Study of Hospital Prices: RAND researchers studied data from 3,112 hospitals including 750,000 inpatient claims and 40.2 million outpatient claims between 2016 and 2018.

  • Key finding: private insurers and employers paid 247% on average and up to 400% more than what Medicare paid for the same hospital services. Had they paid Medicare rates, they would have spent 58% less. The study also found that prices correlate to CMS star ratings: among high-priced hospitals—those whose relative prices were 2.5 times that of Medicare—20% received five-star CMS ratings and 4% received one-star vs, lower-priced hospitals—those with relative prices below 1.5 times Medicare—just 2% received five stars and 1% received one star. The study noted that 91% of “high-value hospitals,” (low prices and high quality) received three or more stars. Further, 17% of higher-priced hospitals received one or two stars, compared with 10% for lower-priced hospitals.

  • Key takeaway: hospital prices (charges) are substantially higher than Medicare rates and vary widely. High value hospitals (low price-high quality) are disadvantaged in the CMS Star Rating system.

The Physicians Foundation annual survey:  The Physicians Foundation survey of 2,334 physicians found that the pandemic has significantly worsened the problem of burnout.

  • Key finding: 58% of physicians say they’re burned out, 22% knew a doctor who committed suicide, 8% have had thoughts of self-harm as a result of COVID-19’s effects on their practice, 30% cited feelings of hopelessness or having no purpose due to the changes of their practice because of COVID-19.

  • Key takeaway: physicians are under intense pressure and receptive to employment by insurers, hospitals and other organizations who can effectively attend to their financial and emotional needs effectively.

Modern Healthcare analysis of Blue Cross plan financial performance: The Modern Healthcare team analyzed of the 36 Blue Cross Blue Shield plans’ financial performance in 2020.

  • Key finding: found “across the companies for which quarterly reports were publicly available, 18 reported lower net income and 17 reported worse margins compared with the first half of 2019. “The variation in financial performance during the pandemic diverges from that of the national, publicly traded health insurers, all of which grew profits in the first half of the year as patients put off routine care and hospitals postponed non-urgent services, primarily during the second quarter.” Note: Blues plans grew revenue 4% to $114.6 billion in the first six months of 2020 compared with the same period in 2019and reported combined net income of $7.9 billion, up 1.3%, or $103.1 million.

  • Key takeaway: unlike large investor-owned insurers like United, Humana and others that have seen profits soar during the pandemic, the financial performance of the Blues varies widely based on their relative market share in states and board determinations about solvency and liquidity. 

These reports point to market conditions that favor large investor-owned national health insurers.  Their advantages are…

1- Unsustainable Cost pressure: The Congressional Budget Office forecast that total health spending will increase 5.4% per year through 2028. That means higher costs for everyone, especially those privately insured. Per Bain Capital “All the efforts of the past decade have done little to curb rising healthcare costs.” For insurers, cost management is their sweet spot; for large national plans, it’s license to flex their muscles even more by requiring hospitals, physicians, and other providers to assume more accountability for avoidable costs.

2-Increased Demand: Americans believe some health insurance is better than none. The growth of managed Medicaid and Medicare Advantage coupled with new models of insurance in the employer and individual markets assure disproportionate enrollment gains for large national insurers.

3-Significant Risk and Entry Barriers: Of the nation’s 931 health insurers, 5 control 46% of total health insurance premiums. The top 10 control 58%. In recent years, their relative market share has increased in their core insurance business while all have ventured into direct primary care, retail health and wellbeing management programs.  Regulatory barriers to growth and diversification are minimal for investor-owned health insurers and their access to capital is high. Thus, they enjoy enormous opportunities to drive health system transformation.


During the pandemic, the public’s trust in hospitals and caregivers has increased. Access to and the affordability of healthcare have taken a temporary back seat to Covid-19. Attention will return to both issues next year: that much is clear.

What’s also clear is that the large investor-owned health insurers are in an enviable position to take advantage of these concerns. United, Humana, Cigna, Anthem, Centene, CVS-Aetna and their peers are playing long-ball… calling attention to rampant waste and inefficiency in the U.S. health system, advancing models of primary and preventive health that integrate physical, behavioral and social determinants seamlessly, designing insurance programs that reward providers for value while penalizing others and so on. They have deep pockets, political influence, and analytics few can rival. And they take no prisoners: they play to win for their shareholders.

The reality is this: large investor-owned health insurers enjoy a strategic advantage in the current and post-COVID environment.  It will have profound impact on the health system of the future.

P.S. Since its passage in 2010, the Affordable Care Act (ACA) has been the focus of 5 challenges in the US Supreme Court (SCOTUS). Its most recent decision, Maine Community Health Options v United States April 27, 2020, affirmed the right of insurers to collect $12.3 billion in risk-reduction obligations guaranteed. Next up: the November 10 arguments in California v. Texas that will decide the fate of the ACT. The death of RBG makes this even more suspenseful: Might the court delay these arguments until a later date when a jurist is confirmed by the Senate to replace Justice Ginsburg? Might the process of finding the nominee be consequential to the Presidential election in 43 days? If the court proceeds as a body of 8, will the court’s four conservative justices convince Justice Roberts to decide in their favor thus reverting it to back to the lower court that ruled it unconstitutional? And then what happens to Medicaid, state marketplaces et al? Big questions! Big consequences!


  • 61.3% of U.S. population covered by private insurance vs. 37.4% by government plans and 10.3% who are uninsured (CDC National Health Interview Survey Early Release Program)

  • 931 U.S. companies provide health insurance employing 530,000 in 2019—up from 319,000 in 1999 (NAIC)

  • Total health insurance premiums in 2019: $758.9 billion.The top 5 account for 45.6% and the top 10 account for 58.3% (United Health 14.1%, Anthem 9.6%, Humana 8.4%, Centene 8.3%, HCSC 5.2%, CVS 3.4%, Kaiser Permanente 2.6%, Guidewell 2.5%, Independence 2.3%, Blue Cross Blue Shield of MI 1.9%) (Statistica)

  • U.S. Health insurance growth forecast: 2.9%/year through 2026 (IBIS)


Shelby Livingston “Blues plans report mixed earnings results amid pandemic” September 12, 2020 Modern Healthcare

“COVID-19’s Impact on Physician Wellbeing: 2020 Survey of America’s Physicians” September 17, 2020 The Physicians Foundation  

Rebecca Pifer “We Feel Bullish” September 17, 2020 Healthcare Dive  

“Intelligent Payer: Consumer Trust in Healthcare” Accenture

“Prices for Prescription Drugs Rise Faster Than Any Other Medical Good or Service” September 17, 2020 GoodRx

“Healthcare Consumer Trust Survey Report” December 10, 2019  Bright MD

“Global Healthcare Private Equity and Corporate M&A Report 2020” Bain & Company



Study: Covid-19 Tests Prices Range Widely

According to a study in the Journal of General Internal Medicine based on analysis of 182,000 claims for COVID tests provided by independent laboratories and outpatient hospital settings:

  • Providers billed insurers $144 on average for COVID diagnostic tests, with the prices ranging from one penny all the way up to $14,750 (Medicare’s rate is $51).

  • 8% of tests cost insurers more than $306. The typical value, or interquartile range, of charges from independent labs, which performed about 50% of COVID tests in the study, was $67 to $100. The most expensive bill from an independent lab was $14,750.

  • For outpatient hospital settings, which performed about 35% of tests, that typical range was $94 to $204. The highest bill from a hospital outpatient facility was $2,436.

Meiselbach, M.K., Bai, G. & Anderson, G.F. Charges of COVID-19 Diagnostic Testing and Antibody Testing Across Facility Types and States. Journal of General Internal Medicine

Pew: Young Adults Living at Home Highest Since Depression

The 26.6 million adults 18- to 29-year-olds living with their parents has become a majority (52%) since U.S. coronavirus cases began spreading early this year, surpassing the previous peak during the Great Depression era. That’s up from 46% in January 2020.

Fry et al “A majority of young adults in the U.S. live with their parents for the first time since the Great Depression” September 4, 2020; Pew Research

Census Survey: Food Insecurity Increasing

Data from the US Census Bureau released last week found that during the week ending July 21, 2020…

  • 12.1% of adults reported that their households sometimes or often experienced food insufficiency in the previous week, up from 9.8% in early May 2020. Those figures are considerably higher in lower-income households, with 21% of those earning less than $50 000 per year and 29% of those earning less than $25 000 going hungry at times.

  • 23% of adults enrolled in Medicaid reported that their household faced food insufficiency in the week ending July 21, up from 20% in the week ending March 13.

  • Black and Hispanic Medicaid enrollees had higher rates of food insufficiency (25% and 27%, respectively) compared with White Medicaid enrollees (21%).

  • Difficulty accessing food has persisted for many, with 65% of Medicaid recipients who reported food insufficiency in March doing so in July as well.

Joan Stephenson “Coronavirus Disease 2019 Has Worsened Food Insecurity Among Families With Low Incomes, but Medicaid Is a “Potential Vehicle” for Relief” September 11, 2020 JAMA Network


CMS Releases MSSP, Pathways Results

After six years of operating the Medicare Shared Savings Program, in December 2018 the Trump Administration redesigned the program, issuing the “Pathways to Success” final rule requiring that providers assume greater financial risk. Results for the first six months of performance under the Pathways to Success policies in July 2019:

  • 11.2 million fee-for-service Medicare beneficiaries are served by health care providers in ACOs.

  • In 2019, 541 ACOs in the Medicare Shared Savings Program generated $1.19 billion in total net savings to Medicare– the third year in a row that the program has achieved net program savings.

  • The ACOs under Pathways to Success participation options performed better than legacy track ACOs, showing net per-beneficiary savings of $169 per beneficiary compared to $106 per beneficiary for legacy track ACOs. New entrant ACOs under Pathways to Success achieved net per-beneficiary savings of $150.

  • ACOs that took on “downside risk” or responsibility for additional costs under the program outperformed ACOs that did not, with net per beneficiary savings of $152 per beneficiary compared to $107 per beneficiary. ACOs that took on downside risk performed better than those that did not, achieving net per beneficiary savings of $193 per beneficiary compared to $142 per beneficiary for those that did not.

  • 92% of eligible ACOs earned quality improvement reward points in 2019, with ACOs showing the greatest improvements in the patient safety and care coordination quality domain. ACOs continued to show comparable or better-quality performance on measures compared to other physician group practices.

Verma “2019 Medicare Shared Savings Program ACO Performance: Lower Costs And Promising Results Under ‘Pathways To Success’ Health Affairs September 14, 2020 Health Affairs

CMS Announcements: Medicaid Financing, 2022 MA Risk Adjustment Methodology

Last week, the Centers for Medicare and Medicaid Services (CMS) announced withdrawal of its Medicaid Fiscal Accountability Regulation (MFAR) that would have disallowed mechanisms like provider taxes and intergovernmental transfers  used by states to maximize the money they get in federal matching dollars for Medicaid enrollees.

Also last week, CMS released the first part of its 2022 Medicare Advantage (MA) Advance Notice detailing changes to how it pays insurers for beneficiaries enrollees using a new risk adjustment methodology that replaces the adjusted the per-member capitation rate based on the health status of enrollees using diagnosis information with actual encounter data actual clinical information on diagnosis and treatment entered by hospitals and doctors.

September 14, 2020; CMS

Pew: U.S. Image Abroad Tarnished

According to the new 13-nation Pew Research Center survey conducted among 13,273 respondents in 13 countries – not including the U.S. – from June 10 to Aug. 3, 2020.:

  • The share of the public with a favorable view of the U.S. is as low as it has been at any point since the Center began polling on this topic nearly two decades ago.

  • Across the 13 nations surveyed, a median of 15% say the U.S. has done a good job of dealing with the outbreak. In contrast, most say the World Health Organization (WHO) and European Union have done a good job, and in nearly all nations people give their own country positive marks for dealing with the crisis (the U.S. and UK are notable exceptions). Relatively few think China has handled the pandemic well, although it still receives considerably better reviews than the U.S. response.

  • Majorities have an unfavorable opinion of the U.S. in nearly every country surveyed

Wike et al “U.S. Image Plummets Internationally as Most Say Country Has Handled Coronavirus Badly” Pew Research September 15, 2020 Pew Research

Obesity Rate at All-Time High

Obesity is estimated to increase healthcare spending by $149 billion annually (about half of which is paid for by Medicare and Medicaid) and being overweight or having obesity is the most common reason young adults are ineligible for military service. According to 2019 data from the Centers for Disease Control and Prevention’s Behavioral Risk Factors Surveillance System (BFRSS):

  • The U.S. adult obesity rate stands at 42.4%, the first time the national rate has passed the 40 percent mark, and further evidence of the country’s obesity crisis. The national adult obesity rate has increased by 26%since 2008.

  • Obesity rates vary considerably between states and regions of the country.Mississippi has the highest adult obesity rate in the country at 40.8% and Colorado the lowest at 23.8%.Twelve states have adult rates above 35% (Alabama, Arkansas, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Oklahoma, South Carolina, Tennessee, and West Virginia vs, 2012 when no state had an adult obesity rate above 35%.

  • Rates of childhood obesity are also increasing: 19.3% of U.S. young people, ages 2 to 19, are obese vs., 5.5% in the mid-70’s.

  • the data show that the more a person earns the less likely they are to have obesity.Individuals with less education were also more likely to have obesity. Rural communities have higher rates of obesity and severe obesity than do suburban and metro areas.

“The State of Obesity 2020: Better Policies for a Healthier America” Trust for America’s Health

Private Equity Investments in Healthcare at All-Time High

Per Bain’s latest private equity report for 2019 activity:

  • Total disclosed deal value reached $78.9 billion, the highest on record and the deal count of 313 was in line with the of 2018

  • The average deal size rose roughly 25% as funds focused more on larger assets: There were 27 deals greater than $1 billion in value in 2019 vs. 18 such deals in 2018

  • North America remains the most active region and provider and related services the most active sector

“Global Healthcare Private Equity and Corporate M&A Report 2020” Bain & Company