Why Health Plans Want Medical Care to Cost More

Despite the refrain from many health insurance plans that they are trying to control costs, it seems medical expenses are always increasing.

Brian Klepper writes in Employee Benefits News about a possible reason:

The truth is that group health plans typically earn a percentage of total claims, and it is in their interest for healthcare to cost as much as possible. Employer or union group health plans are frequently associated with a variety of services — e.g., health IT, pharmacy benefit management, case management, reinsurance — each with its own revenue stream. By choosing and incentivizing vendors, plan administrators directly influence their systems’ capabilities to manage risk. Intentionally meek approaches to healthcare risk management result in excessive care and cost, in turn fueling higher expenditures, greater net revenues and elevated stock prices.

If you look at the 10-year stock prices for five commercial health plans — Aetna, Anthem, Cigna, Humana and United — it’s worked out well for them.

Virtually every healthcare organization —including physician practices, health systems, imaging centers, labs, drug manufacturers, pharmacy benefit management firms — earns a percentage of the spend within its niche. That leads to higher prices for everything.

The only solution is to tie payment to better results. Until that happens, it seems unlike that the growth in health care costs will slow.