Skip to main content
The Keckley Report

Is health insurance reform the key to affordability and lower costs?

By February 3, 2025No Comments

For most Americans, having health insurance is still considered a hedge against unexpected or otherwise unaffordable medical bills.

For most employers, offering health insurance to employees is still considered necessary to their workforce recruitment and retention efforts.

For most elected officials in Congress and state legislatures, Medicare and Medicaid are insurance programs that consume a large and growing piece of public funding, squeezing out other areas of need.

For virtually all hospitals, physicians, ancillary and long-term care providers, insurance is still the unwelcome front door through which all must go to get paid but their administrative hassles and low reimbursement rates are ruining the system for everyone.

And large majorities in each of these groups are unhappy with insurers for a myriad of reasons well-documented in trade publications and polling.

Context:

Health insurance was born in 1929 during the Great Depression when Dallas teachers agreed to pay $6/month to cover their hospital bills—a hedge against rising hospital costs welcomed by physicians and hospitals. Blue Cross Blue Shield was formed in 1932 as the first non-profit healthcare organization to offer health insurance. After World War II, the National Labor Relations Board granted tax exemptions for health insurance benefits to employers to encourage hiring during the post War wage freeze. A failed National Health Plan by President Truman in 1945 was followed by LBJs Great Society in 1965 that gave birth to Medicare and Medicaid. And in 2010, the Obama administration passed the Patient Protection and Affordable Care Act that promised expanded coverage thru subsidies for low income and small businesses, federally funded Medicaid expansion and popular reforms (guaranteed issue, elimination of lifetime limits, coverage for ‘young invincibles,’ et al). Today, because of its insurance provisions, the ACA is popular among a majority of voters despite efforts to dismantle it by political adversaries.

Health insurance plays an integral role in U.S. healthcare. It’s what sold the ACA to voters and what keeps it from being repealed or replaced. What’s evolved in the 100 years from its modern-era beginning is an industry that directly impacts almost every dollar spent in $4.9 trillion U.S. industry. Consider:

  • 316 (92.3%) million in the U.S. have health insurance, up from 233 million in 2019: 64% of these are covered through one of more of 1127 U.S. company’ private plans; 36% are covered through a gov’t program i.e. Medicaid, Medicare, et al.
  • 86% of premiums are spent on medical expenses (Medical Loss Ratio); 11% of on administration and 3.3% on profit (margin). But the MLR varies by enrollee population ranging from 79% in the individual market to 85% Medicare, 87% Medicaid and 93% in the FEHBP.
  • The corporate health insurance industry is a juggernaut: Based on US enrollment, 5 companies controlled 50.5% of enrollment in 2024—UnitedHealth (15.7%), Elevance (9.7%), Kaiser Permanente (9.2%), Centene (8.6%), Humana (7.3%). Of the 10 largest health insurers in 2024, 4 have roots in not-for-profit organizations: Kaiser, HCSC, GuideWell and Independence BC. Recent operating losses across the industry (2023-2024) has benefited investor-owned, for-profit insurers at the expense of not-for-profit and community-owned health plans threatening their futures. Per Pitchbook, stock returns for investor-owned insurers were strong: in 2024, mean of 54% and median of 18%; for the prior 5 years, mean of 105% and median of 118%. (Note: corporate hospital stock returns were higher: 2024 mean of 78% and median of 65%; 5-year mean of 215% and median of 115%).

Looking ahead, discussion about health system reform must necessarily address the role played by private insurance companies as well as hospitals and drug companies. The murder of Brian Thompson December 4 sparked attention to corporate insurers like UHG and overall discontent with the health system. The new Trump administration vows to eliminate marketplace subsidies due to expire this year and authorize short-term, high deductible policies as a means of insuring the 4 million expected to lose coverage altogether. It promises to revisit as-yet-to-be-specified elements of the Affordable Care Act it dislikes which will protect corporate insurers from losses and voter disaffection in the November 2026 mid-term election. But a discussion about health system transformation is unlikely.

So, the reality is this:

Trust in health insurers is low and sinking: Trust and confidence in the U.S. health system overall is eroding: that’s been the case for almost 50 years. While doctors, nurses, pharmacists remain trustworthy, the CDC, insurers, and drug companies are not. Increasingly, business practices and media attention to insurers is focused on corporate (investor-owned) insurers.   

Affordable coverage will fall on states to fix: 47% of those who have health insurance and 85% of those without have difficulty paying their medical bills. States control insurer licensing and business practices. The Constitution does not address insurance nor relate “the pursuit of health” to the health system per se. Rather, per Article 10, it leaves responsibility for the health system to state legislators and Governors. Polls show consumers are worried about health costs and blame insurers, prescription drug companies and hospitals (in order) for unnecessary cost. For large, self-insured employers that operate under ERISA, that means state-level compliance will be more complicated and costly. States will be the epicenter for insurer regulatory reforms that address affordability: addressing it will mean heightened transparency about prices, profits and business practices among all who play a role in the system.

Differentiation between investor-owned and not-for-profit insurers is a moot issue: What matters most to employers is their costs of coverage and the accessibility of the insurer’s provider network. What matters to enrollees is understandable benefits, predictable out-of-pocket costs and how their questions (complaints) are handled. What matters to hospitals and doctors are a plan’s reimbursement rates, payment efficiency and hassles with referrals, prior authorization, denials and coding. All things being equal, the tax status of the plan seems of less importance. Thus, it falls on states to delineate policies about not-for-profit insurers, provider sponsored health plans and co-ops relative to their unique roles, tax exemptions and governance. And it falls on non-corporate insurers to make their exceptionality cases effectively.

Final thought:

The issues associated health insurance are complicated and increasing. They cannot be addressed without consideration of the elephant in the room: affordability. As Bill Maher: “We have the most expensive health care system in the world spending far more per person than any other country with far worse results. Life expectancy: 49th in the world; infant mortality, 54th. More people here live with multiple chronic conditions than any other rich country. It’s enough to make you sick, but you can’t afford it.” Having some form of health insurance is no assurance against personal bankruptcy or business failure. And the plaintiff bar now holds employers liable for insurer attestations about network adequacy, treatment efficacy and timeliness, provider competence and more.

The original premise for health insurance was to enable Dallas teachers to pay their hospital bills. It was supported by hospitals and doctors because it enabled predictable payment and by employers who felt employees who have “skin in the game” use health resources with caution.

100 years later, no one is happy. Affordability and costs are the issues. Doctors and hospitals think insurers under-pay them to pad their profits, and insurers think doctors and hospitals are unnecessarily wasteful and unconcerned about costs. It’s reached an impasse. At a minimum, facilitated intervention between insurers, hospitals and physicians is needed to address simplification and standardization in areas like these:

  • Provider credentialling and network adequacy.
  • Prior authorization & denial management processes and enforcement.
  • Standardization of coding and outlier designations in managed Medicaid and Medicare Advantage.
  • Stand-by capacity costs, site neutral payments & facility fee determination calculus.
  • Consumer protections & claw back policies resulting from insurer and hospital consolidation.
  • Price and cost transparency.
  • Specifications for tax exemptions for employer benefits, not-for-profit insurers, hospitals et al.
  • And others.

These foci and others that can be added involve AI-enabled solutions and data-driven policymaking to reduce administrative costs by at least 30% and improve satisfaction across the system. They’re a start.

The blame and shame game to which insiders in healthcare are addicted is a zero-sum game: blaming any single sector for the cumulative deficiencies in affordability and costs is misleading and does not serve the greater good.

Is health insurance reform the key to health system affordability and lower costs? It plays a role but not alone.

Paul

 

Resources in addition to citations that follow…

 

Quotables

Christiansen Institute on Health System Transformation: “The way business models solidify over time and become resistant to change poses a challenge in our current health care landscape, where there’s been a regulatory push to shift to value-based care, or VBC. As theory explains, legislation and tweaks to the profit formula alone won’t create the desired change. Instead, full-scale business model innovation is required because value-based care isn’t aligned with established insurer or provider value propositions and profit formulas, nor their solidified capabilities that have led to past success

It’s also important to note that a business model doesn’t exist in the ether. While business models determine an organization’s capabilities and its priorities, it’s critical to understand that a value network—the ecosystem of individuals, other organizations, institutions, and regulations a company interfaces with to establish and maintain its model—determines the resources an organization has access to, the rules it must follow, and the permissions it needs to operate. It also includes external entities with varying degrees of power to shape the organization’s priorities through resource dependence, regulation, and democratic governance. For business model change to create transformation, the value network must be an enabling force. For instance, if innovators want to eliminate the problem of unsustainable health care cost inflation, the environment the innovator operates within must enable it to do so with supportive regulations, partners, suppliers, customers, and more….

US health insurance offers the worst value proposition in today’s economy: poor quality care that perpetuates high and rising insurance premiums and bankrupts the country…”

Zero-inflation health care: A national strategy for unlocking and scaling insurance innovation – Christensen Institute

Hospital consolidation and prices: “…Our results suggest that, overall, concentration of insurers is associated with up to 15% lower hospital prices, while concentration of hospital systems is associated with up to 11% higher hospital prices. However, the negative relationship between insurer concentration and hospital prices is attenuated in highly concentrated hospital markets, suggesting that insurers’ bargaining leverage is lessened at greater levels of hospital consolidation…

To sum up, the substantial increase in hospital HHIs over the past decade means that many local hospital markets that used to be relatively competitive have become concentrated over time, and some markets that were already concentrated are moving closer to monopoly. As a result, the greater market power gained by health systems could decrease the potential ability of insurers to extract rents and decrease prices.

Finally, although our findings suggest that greater insurer consolidation is associated with lower hospital prices, they do not imply that insurer consolidation is the solution to lowering health care costs. In fact, the literature points to the concern that insurer consolidation can increase health insurance premiums and overall health care spending.”

How do hospitals exert market power? Evidence from health systems and commercial health plan prices January 16, 2025 https://academic.oup.com/healthaffairsscholar

Goodnow on system discontent:” What drives the discontent with US healthcare, which then fuels the Federal and State level legislative initiatives for change? In large part, high costs and resultant lack of affordability; for individuals families; for businesses that provide commercial insurance to their employees; and most definitely for the Federal Government, given the percentage of the federal budget consumed by Medicare and Medicaid. That national frustration fuels the national and state legislative environments…”

John Goodnow January 15 CEO Report, Benefis Health System, Great Falls MT

Pitchbook: 2025 health services investor market forecast: “Healthcare services underperformance continues: Healthcare services underperformed major indexes in 2024, with Q4 proving particularly challenging for publicly traded companies in the sector…

Value-based care struggles: Value-based care stocks faced significant headwinds in 2024, with all companies in the category posting negative returns. Despite average revenue growth exceeding 20%, valuations have continued to decline from prior highs, as EBITDA margins remain in the low single digits…

Markets expect multiple stabilization: Consensus estimates project moderate declines in enterprise value/revenue and enterprise value/EBITDA multiples over the next two years, though the pace of contraction has slowed since the initial impact of higher interest rates. With current valuations at historically low levels, there may be greater potential for upside as multiples stabilize. While many hospital systems continue to operate at a loss, median margins have shown signs of stabilization, supported by decelerating wage growth and easing inflation. The anticipated shift to a lower-interest-rate environment is expected to improve healthcare financing, easing access to capital and refinancing opportunities.”

Healthcare Services Public Comp Sheet and Valuation Guide Q4 2024

Politico on RFK Senate Finance Confirmation January 29: “He flip-flopped on vaccines. His answers on the health care system, particularly Medicare, Medicaid and the Affordable Care Act, were sloppy. He got the programs mixed up. He got the numbers mixed up. He got the financing mixed up. To put it mildly, Robert F. Kennedy Jr.’s confirmation hearing today to become Health and Human Services secretary didn’t exactly inspire confidence.

Many of us who write about or work in health care occasionally say Medicare when we mean Medicaid — but we catch ourselves and fix it. We don’t get it wrong again and again through a three-plus hour hearing when we’re shooting for the top health job in the country…Yet he got them all jumbled up — and said they don’t work. And that everyone hates them…

If nothing else, while he may have gotten the policy details wrong, Kennedy did a really good job throwing around the favorite jargony Capitol Hill catchwords – some of which Cassidy is particularly prone to use — about “transparency” “accountability” and “value-based care.”

Politico “RFK Jr.’s Rocky Rollout” January 29, 2025 www.politico.com/newsletters/politico-nightly/2025/01/29/rfk-jr-s-rocky-rollout-00201389

Egg prices: “If there’s a single product that epitomizes what consumers hate about high prices nowadays, it’s eggs. People buy them regularly and therefore know their exact cost…

The cost of a dozen grade-A large eggs hit $4.15 in December, per the Bureau of Labor Statistics, up from $2.51 a year ago. The average price of eggs hasn’t been below $3 since June, and it hasn’t been below $2 since the start of 2022… No one knows when prices will come back down. This interminable bird flu might not be an aberration, and other factors, such as the push to move toward cage-free eggs, may keep prices up, too. The acute causes of this price spike — a drop in supply, a jump in demand — point to long-term structural issues that might stick around.”

Eggs may be expensive forever Business Insider January 26, 2025 https://www.businessinsider.com/egg-prices-expensive-avian-bird-flu-changing-tastes-cage-free

Leadership: “Today’s business leaders face a conundrum. They need to make transformative plays to drive growth amid dramatic changes in technology, markets, and politics, yet shorter CEO tenures mean many of them won’t last in the job long enough to see the fruits of their efforts. That dilemma requires a two-pronged leadership approach. CEOs should pursue efficiency initiatives and routine investments through rolling six-month plans tracked against real-time market signals that allow for course corrections. And for real transformation, leaders should adopt visionary seven-year or longer plans with strategic bets based on their view about trends in technology, competition, regulation, and changing consumer preferences. Such growth strategies should be rooted in a genuine culture of truth-seeking. That may sound quixotic in a world awash in subjective “truths,” but long-term success requires that organizations invest in mission-critical data, challenge assumptions, ensure that meetings surface any uncomfortable facts, actively identify vulnerabilities, and be ready to rapidly counter disinformation.”

Oliver Wyman Forum January 2025 www.oliverwyman.com

 

Economy

Consumer Confidence: The index of consumer sentiment published by the Conference Board group, fell 5.4 points to 104.1, it said Tuesday, worse than the 106.0 expected by economists polled by The Wall Street Journal.

Conference Board Consumer Confidence Survey

Altarum: January 2025 Report: Highlights of Altarum’s monthly Health Sector Economic Indicators (HSEI) brief released Friday

  • In December, the overall Health Care Price Index (HCPI) held steady at the 2.7% revised November year-over-year value.
  • Economy-wide inflation rose, with year-over-year growth in the overall Consumer Price Index (CPI) increasing by 0.2% to 2.9% and growth in the Producer Price Index (PPI) increasing 0.3% to 3.3%.  This extends the recent overtaking of general inflation over the HCPI seen last month.
  • Among the major health care categories, prices for hospitals (3.3%) and dental care (3.0%) were the fastest-growing, while prescription drugs was the slowest (1.1%).
  • For major payers, year-over-year Medicaid price growth (5.3%) exceeded services price growth for private insurance (3.4%) and Medicare patients (1.3%), continuing a trend beginning in June of 2022.
  • The implicit measure of health care utilization growth was 4.7% year over year in November, down from the revised October value of 5.1%.
  • Home health care utilization increased 8.5% year over year.  While this was the fastest-growing category this month (as it has been since August of 2023) it has been steadily declining in recent months since peaking at nearly 17% in May.  This category was followed by physician and clinical services (6.4%), nursing care (6.0%), dental services (5.3%), and prescription drugs (4.8%), while hospital care and trailed the other categories at 3.9%.
  • In December 2024, health care industry employment increased by 46,100 jobs while non-health care industries increased by 209,900 jobs.
  • By major subsector, December’s health care job growth was led by ambulatory health care services, which added 20,600 jobs, followed by nursing and residential facilities, which added 14,000 jobs.  Hospitals added 11,500 jobs.

January 2025 Health Sector Economic Indicators Briefs | Altarum

BLS Compensation Report: 2024: Compensation costs for civilian workers increased 3.8% for the 12-month period ending in December 2024 and increased 4.2% in December 2023.

  • Wages and salaries increased 3.8% for the 12-month period ending in December 2024 and increased 4.3% for the 12-month period ending in December 2023.
  • Benefit costs increased 3.6% over the year and increased 3.8% for the 12-month period ending in December 2023.
  • Within private industry by bargaining status, compensation costs increased 5.1% for union workers and 3.4% for non-union workers for the 12-month period ending in December 2024.
  • Wages and salaries increased 5.5% for union workers and 3.5% for non-union workers for the 12-month period ending in December 2024. Benefit costs increased 4.6% for union workers and 3.1 % for non- union workers for the period ending in December 2024.
  • Hospital wages increased 4.1% for the 12 months ending in December vs. +3.6% for all workers.

Employment Cost Index Summary – 2024 Q04 Results

2024 Healthcare investment results: “Consumer-facing digital health companies continue to face challenges, underscored by their poor performance relative to the greater stock market in Q4 2024. Among healthtech companies, these virtual care and remote patient monitoring businesses were hit the hardest last quarter, while electronic health record and clinical information companies had a strong 2024 overall and outperformed major indexes.”

Pitchbook Healthtech Public Comp Sheet and Valuation Guide Q42024 https://pitchbook.com/news/reports/q4-2024-healthtech-public-comp-sheet-and-valuation-guide

 

Insurers

KFF prior authorization rates in MA plans: Per data submitted to CMS by Medicare Advantage insurers for prior authorization determinations, denials, and appeals for 2019 through 2023: Key Takeaways:

  • Medicare Advantage insurers made nearly 50 million prior authorization determinations in 2023, reflecting steady year-over-year increases since 2021 (37 million) and 2022 (42 million) as the number of people enrolled in Medicare Advantage has grown.
  • In 2023, there were nearly 2 prior authorization determinations on average per Medicare Advantage enrollee, similar to the amount in 2019. In contrast, in 2023, about 1 prior authorization review was submitted per 100 traditional Medicare beneficiaries – a rate of about 0.01 per person — which reflects the limited set of services subject to prior authorization in traditional Medicare.
  • In 2023, insurers fully or partially denied 3.2 million prior authorization requests, which is a somewhat smaller share (6.4%) of all requests than in 2022 (7.4%). Though there were substantially fewer prior authorization reviews for traditional Medicare beneficiaries, a larger share was denied – 28.8% in 2023.  Denial rates varied across the limited set of services subject to prior authorization in traditional Medicare. Blue Cross and Blue Shield of Alabama, UnitedHealthcare, Health Care Service Corp. and Molina Healthcare denied more than one-quarter of in-network claims from members with federal health insurance exchange plans in 2023. Health insurers selling marketplace plans in states that use the federal HealthCare.gov enrollment platform rejected 19% of in-network claims on average in 2023–up from 16% in 2022 and matches the share from 2015.
  • A small share of denied prior authorization requests was appealed in Medicare Advantage (11.7% in 2023). That represents an increase since 2019, when 7.5% of denied prior authorization requests in Medicare Advantage were appealed. A relatively small share of denied prior authorization reviews was appealed in traditional Medicare (6.4% in 2022) as well.
  • Though a small share of prior authorization denials were appealed to Medicare Advantage insurers, most appeals (81.7%) were partially or fully overturned in 2023. That compares to less than one-third (29%) of appeals overturned in traditional Medicare in 2022. These requests represent medical care that was ordered by a health care provider and ultimately deemed necessary but was potentially delayed because of the additional step of appealing the initial prior authorization decision. Such delays may have negative effects on a person’s health.

Medicare Advantage Insurers Made Nearly 50 million Prior Authorization Determinations in 2023 | KFF

Medicare Advantage Insurers Made Nearly 50 Million Prior Authorization Determinations in 2023 KFF January 28, 2025 https://www.kff.org/medicare/issue-brief/nearly-50-million-prior-authorization-requests-were-sent-to-medicare-advantage-insurers-in-2023

 

Physicians

Study: quality of clinician in VA networks: Researchers analyzed how clinicians’ performance on quality measures differed between those who treated veterans within the VHA Community Care Network and those who did not in 2022. Finding:

  • 0% of community-based clinicians treated VHA enrollees. These clinicians were more likely to be male, have less practice experience, be affiliated with group practices, and be based in rural and socially vulnerable areas compared with clinicians who did not treat VHA enrollees.
  • Notably, clinicians in the lowest quartile of quality performance measures were 8.8% more likely to treat VHA enrollees than those in the highest quartile. This pattern was most pronounced among primary care and mental health clinicians, and it persisted across

Veterans May Be Seeing Lower-Quality Clinicians In The VHA Community Care Network Ma et al January 2025  https://doi.org/10.1377/hlthaff.2024.00900

Physician opinion about health insurers, PE: Sermo, a social networking site for physicians, published its 36th Barometer poll with findings from 529 global physicians across a range of specialties fielded Jan. 21, 2025:

  • “Clinical outcomes, patient access to care, and population health management are ranked as the top indicators of a successful value-based care system. Only 1% of U.S.-based physicians ranked readmission rates as their first choice on how they’d evaluate a value-based care model and only 4% of US physicians ranked patient satisfaction scores as their first choice on how they’d evaluate a value-care model.
  • 78% of physicians feel health insurancecompanies hold too much influence by approving or denying procedures and treatments for patients. Those feelings drop to 52% globally, and 38% in European nations, according to the findings of Sermo’s latest Barometer study of 529 doctors across a range of specialties
  • 54% of U.S. physicians said they feel private equity investments lead to lower quality of patient care. A full 26% said they felt PE investment leads to a significant decline in quality, while just 2% said they have seen significant improvement in care with that investment.
  • Worldwide physicians’ biggest financial concerns related to retirement are increased cost of living, insufficient retirement savings, and uncertainty around national social security systems. In the U.S., changes in reimbursement rates, market volatility, and increased cost of living were the top concerns. No other country had changes in reimbursement rates as a top concern. Regarding retirement preparedness, only 22% feel fully prepared. 52% reported they don’t have a secondary source of income but are considering one; 26% already have a secondary source of income.”

Barometer Releases – Sermo; Health insurance companies hold too much sway over patient care, doctors say

 

Polling

Arnold Ventures Hospital Price Survey conducted November 11-13, 2024: Among registered voters, these were the top 5 issues based on a 0 to 10 scale with 10 indicating the highest priority:

  % High Priority

(8-10)

 % Low Priority

(0-3)
Combat inflation and high prices 84 1
Reduce healthcare prices 71 2
Reduce healthcare costs 69 3
Strengthen the border 60 10
Reduce the budget deficit 59 4

 

In the same poll, respondents indicated how responsible each is for the problem of high healthcare prices:

  % Very/Fairly % Somewhat/

Little/Not at all
Health insurance companies (11/24 v. 4/21) 81 v. 84 16 v. 16
Pharmaceutical companies (11/24 vs. 4/21) 81 v. 88 17 v. 12
Hospitals (11/24 vs. 4/21) 70 v. 78 28 v. 22
Wall Street Cos. that Own Physician Practices (11/24v4/21) 67 v. 78 24 v. 22
The Federal Government 64 v. 72 31 v. 28
Doctors 47 v. 51 50 v. 49
Not for Profit Hospitals (11/24 only)) 23 65

 

Public Health

American Lung Association State of Tobacco Control report: Per the ALA report:

  • Cigarette smoking has faded significantly over the past few decades but remains the country’s leading cause of preventable deaths — and causes 1 in 5 of all U.S. deaths.
  • Maine (107.4%), Utah (90.2%) and Oklahoma (89.8%) lead the nation in meeting or exceeding the CDC’s recommended funding levels for tobacco prevention and cessation; Texas (3.6%), Georgia (4%) and Tennessee (4.8%) are furthest from their CDC-recommended levels based on allocated spending for fiscal year 2025.

Status of Tobacco Report, American Lung Association https://www.lung.org/research

SCOTUS on E-Cigarettes: “On July 2, 2024, the U.S. Supreme Court agreed to hear a case about the e-cigarette crisis among U.S. adolescents and the role of the Food and Drug Administration (FDA) in addressing it. Leading medical organizations have filed briefs clarifying the case’s high stakes for children’s health. A ruling against the FDA could have implications for the agency’s authority and for public health.

FDA v. Wages and White Lion Investments, L.L.C. pertains to flavored e-cigarette products. E-cigarettes with fruit or candy flavoring tend to be appealing to young people, and the vast majority of adolescents who use e-cigarettes use flavored products.1 Once addicted to nicotine, children may become lifelong tobacco users…

Ultimately, the Supreme Court has the power to allow onto the market thousands of e-cigarette products that the FDA has determined don’t support public health. In addition to exacerbating addiction risks among young people, this result could undercut the FDA’s premarketing authority and signal that courts can second-guess expert decisions about which products can be marketed.”

E-Cigarettes at the Supreme Court — Potential Implications for the FDA and Public Health | New England Journal of Medicine