Insurance Broke Healthcare. Together, We Can Fix It.
When we pitch the idea for CareForAll–a movement focused on winning a healthcare system we can all count on by putting an end to for-profit insurance in the United States–we often get the same question: why target health insurance?
Hospitals sell us services we don’t need, charge us exorbitant prices for it, and then sue patients for medical debt. Hospital consolidation–driven in part by private equity–is driving up medical costs and reducing access to care, especially in rural areas. Pharmaceutical companies charge exorbitant prices for life-saving medications while raking in billions in profits. As a result, one in five Americans report not filling a prescription due to cost. Medical device companies push risky procedures to bolster the market for their devices, even when it may not be in patients’ best interest. In short, America’s healthcare system is full of bad actors in urgent need of reform.
And yet, health insurers have become a focal point of public dissatisfaction with healthcare in the U.S. A majority of US adults report a problem with using their health insurance in the past year. One YouGov poll found as many as 90% of Americans blame insurance for problems with the healthcare system to at least some degree. The assassination of United Healthcare CEO Brian Thompson brought these frustrations to the surface, as thousands of people shared horrifying stories of navigating their health plans.
Regardless of our backgrounds, we all recognize that it shouldn’t be this way. Previous efforts at major healthcare reform–both successful incremental reforms (like the Affordable Care Act (ACA)) and ambitious new programs (like Medicare for All)–have identified this and centered on reforming how we pay for healthcare. But why is private insurance so uniquely terrible? And why is reforming it the essential first step?
Health Insurance is the “Original Sin” of American Healthcare
Insurance is at the root of exploitative, profit-driven healthcare. In her book An American Sickness: How Healthcare Became Big Business and How You Can Take It Back, Elisabeth Rosenthal, the editor-in-chief at KFF Health News, calls health insurance “the original sin” that upholds America’s medical-industrial complex. She is far from alone in this assessment amongst health policy journalists and academics. This is because the introduction of health insurance led to a fundamental shift in the healthcare system, wherein patients became insulated from the true costs of care and the system oriented increasingly around profits.
When health insurance was first introduced in the early 20th century, it was designed to help patients afford hospital care. The idea was simple–most people weren’t spending much on healthcare most of the time; however, everyone knew that there may come a time when they needed to stay in the hospital for an extended period, and these costs could be hard to bear on your own. Insurance allowed this risk to be distributed across the population–large numbers of people paying a little bit at a time created a pool of money that you could draw from if and when the day came that you needed to spend big on medical care.
The first insurance plans, like the first hospitals, were not for-profit organizations operating in the public interest. At the time, even the most costly medical care was cheap by today’s standards because there was little physicians could do to treat most illnesses, but this would change rapidly over the next century. In 1910, Salvarsan emerged to treat Syphilis, representing “the first drug treatment to destroy disease—and not the patient”, and surgeries for conditions like cancer, infected tonsils, and appendicitis were becoming more common. The discovery of penicillin in 1928, and its mass production as part of the war effort in the 1940s, further accelerated medical progress. Medical advances would continue at a breakneck pace through the latter half of the 20th century, saving countless lives; however, as scientific research revolutionized medical care, better and better treatments cost more and more money. Prices skyrocketed, making insurance increasingly necessary for patients, but also increasingly attractive as a for-profit endeavor. The money flowing through this emerging market was ripe for exploitation. For-profit insurance companies came to dominate. By charging different rates for patients based on age and health status, or even denying some riskier patients coverage at all, they outcompeted or gobbled up the original, mission-based, non-profits.
Today, America spends nearly $5 trillion on healthcare, nearly double the amount per person on average when compared to peer countries. Since 1970, annual per capita health spending has increased nearly sevenfold after adjusting for inflation, rising from $2,151 in today’s dollars to $14,570. Nevertheless, we have worse health outcomes, meaning spending more hasn’t gotten us better healthcare. So where is all that money going? The separation of payment from consumption has enabled healthcare providers to inflate prices without fear of losing patients. Insurers, in turn, negotiate complex contracts with providers, often resulting in opaque pricing structures and billing practices that further obscured true costs. This incentivizes overutilization of services, unnecessary treatments, and administrative waste, contributing to the exorbitant healthcare expenditures in the United States. Insurance is at the root of this system that is interested first and foremost in profits.
The United States is an Outlier Among Peer Countries
Not only does America spend more on healthcare to get worse outcomes compared to peer nations, we also fail to protect our people from financial ruin. There are many paths to universal, affordable, equitable, and high quality healthcare systems. In the United Kingdom, the National Health Service provides universal coverage and public provision of care. In Canada, a publicly funded single-payer system provides most coverage. Other countries, like Germany, use a mix of public and strongly regulated private insurers to cover their populations. Each of these have their merits and their flaws, but they all have one core thing in common: they don’t allow health insurance to be the kind of big business it is in the United States.
American healthcare has evolved along a markedly different path from that of other wealthy nations, and the status quo has proven particularly difficult to change. During World War II, as the American workforce was drafted to fight abroad, companies at home began raising wages to compete for sparse labor. To prevent spiraling inflation, President Roosevelt froze wage increases during this time. In lieu of raising wages, companies began offering benefits–specifically health insurance–to recruit workers. Around the same time, the IRS made health insurance a tax-exempt benefit, further incentivizing employer-provided coverage, the dominant form of coverage for Americans to this day. Even with the addition of game-changing programs like Medicare and Medicaid, the result is a patchwork system in which patients fall through the cracks.
Though this series of wartime decisions unintentionally set America down a divergent path from other wealthy nations, changing course has proven exceedingly difficult. As early as 1945, President Truman led a push for a national health care system. Although the public supported the proposal, businesses opposed it for fear of losing this powerful new tool for recruiting workers. Many unions, who had fought vigorously to expand benefits for workers, also opposed it for fear of losing these hard-won benefits for their members. In coalition with medical industry players such as the American Medical Association, this opposition, along with public opposition driven by industry-funded fear-mongering about changing the system, killed national healthcare reform–a dynamic that has stifled subsequent attempts at healthcare reform as well.
The unintended consequences of our employer-based system wreak havoc on people’s lives beyond driving up costs and limiting access to care. The coupling of health insurance with employment limits job mobility. As many as 1 in 6 adult workers with employer provided coverage report staying in a job that they want to leave due to fear of losing insurance, with numbers being even higher for Black workers and low-income workers. In addition, the tax exempt status of health insurance benefits high income people with expensive health insurance over lower income people, who might receive lower-cost medicaid or ACA subsidies. At the same time, lost revenue from tax exempt employer provided coverage is expensive for the federal government, equalling approximately ⅔ of total expenditures for Medicaid and the Children’s Health Insurance Program (CHIP).
Built to Deny, Priced to Exploit: How For-Profit Insurance Fails Us by Design
Regardless of how we got here, our current system of health insurance is terrible for everyone except the wealthy few who profit from the status quo. The need for some form of insurance to distribute the risk of the potentially catastrophic costs of healthcare has never been greater; however, for-profit insurers prey on this need to make a fortune. Like any for-profit system, health insurance companies’ first responsibility is to shareholders rather than clients—profits come before patients. Other parts of the healthcare system are also motivated by profit, but for-profit insurance companies are particularly egregious because unlike for-profit hospitals or for-profit pharmaceutical companies, they exist solely to extract profit from the system—they don’t make anything, drive innovation, or add value to the system. For-profit insurers claim that market competition will drive prices down and incentivize building a better product. In reality, it incentivizes companies to deny care, make claims difficult and opaque, and extract as much as possible from the funds we all contribute to pay for our care when we need it.
Many of us have experienced the results first-hand. Patients–and their doctors–spend hours on the phone trying to get coverage for needed services, when they should be free to take care of themselves, their loved ones, or their patients. Out-of-network bills surprise us, incurring unexpected stressful expenditures. Too often, despite paying premiums to retain insurance, we find medical costs are still crippling, bankrupting millions. This isn’t inevitable, and it isn’t the result of a failure of insurance companies to understand the impact of these policies and practices. Instead, these hardships are the result of the for-profit insurance system succeeding at its primary goal–to profit–at our expense. This is how our health insurance system was designed to work.
For-Profit Insurance Promotes a Culture of Profit in Healthcare
Whether we’re white, Black, or brown, we all agree: no one should profit from denying care. Yet insurance companies do this year after year. Not only do they deny care and financially enable other components of the healthcare system to inflate prices, but the acceptance of these practices also promotes a moral norm in which profiting off of patients is deemed acceptable throughout the healthcare sector. So long as this industry which adds no value is allowed to extract money from the system, critiquing the profit motives of hospitals that provide life-saving care or pharmaceutical companies that make life-saving drugs rings hollow. Why should a pharma executive accept a pay cut when insurance CEOs continue to collect huge salaries, without making anyone's insulin? This moral status quo is unacceptable. Challenging insurance’s practice of profiting off patients is the first step to challenging the broader orientation around profit in healthcare.
Additionally, insurers are limited by the ACA in the percentage of their revenue they can keep for profit (rather than spending to pay for patients’ healthcare). While this sounds like a good idea, it winds up incentivizing them to drive up healthcare costs so that they keep the same fraction of a larger pie. This benefits a few greedy insurance executives to the detriment of the rest of us.
Fixing Health Insurance is the First Step Towards Building a Healthcare System We Can Count on
In summary, American health insurance is a disaster. For-profit insurance companies enable hospitals and pharmaceutical companies to inflate costs, passing the bill onto patients in the form of rising premiums and high deductibles to maximize their own profits. Though a pool of money to distribute risk is essential, insurance companies make their profit by extracting money from this pool without providing any additional services–they are the ultimate middle man. Insurance companies deny needed care. They orient around dollars, not health outcomes. Employer provided coverage limits our freedom even outside of healthcare. Lastly, the continued existence of for-profit insurance promotes a culture that accepts profiting off patients as morally acceptable, allowing the whole system to align around profit. All of this is the result of how America has structured our healthcare system.
Today, we have curbed some of the worst abuses of the health insurance industry. Medicare and Medicaid, along with Obamacare subsidies, provide coverage to millions of vulnerable Americans (though these important programs are going to be eroded in the wake of this year’s tax and spending bill, causing millions to lose medicaid coverage). Insurance companies can no longer deny care to patients due to pre-existing conditions, and their profits are legislatively limited. However, these are bandaids that do nothing to address the fundamental, “original sin” of our healthcare system. Insurance continues to enable the rest of our healthcare system (like Big Pharma and greedy hospitals) to exploit patients for profit. Fortunately, it doesn’t have to be this way.
One of our co-founders recently experienced the power of incentive realignment firsthand when, during a routine physical, her blood work was in the pre-diabetic range, like millions of patients each year. Unlike many of these patients, she was immediately referred to health education specialists who guided her through information on lifestyle changes to prevent progression into diabetes and monthly coaching to support her to make those changes, at no additional cost. Her appointment was through Kaiser Permanente. Kaiser is a non-profit organization that functions as both a payer (like insurance) and a provider. By combining these roles in the same organization, they've altered the incentive for wasteful service utilization that adds unnecessary costs to the consumer and lines the pockets of the industry. Instead, they are incentivized to keep you healthy through providing high quality care, including preventive services.
Kaiser has long been respected for its delivery of high quality and value care, including achieving unusually high rates of screening services (such as for breast cancer and high cholesterol) and preventative care (such as smoking cessation).1 Similar to Kaiser’s integrated system, Accountable Care Organizations (ACOs) involve a partnership between a payer (such as for-profit insurance companies or Medicaid) and a network of providers who assume responsibility for the care of their patient population, in which providers are paid for delivering high-value care, rather than receiving individual fees for each service provided. Though evidence for cost reduction is mixed, ACOs appear to perform better than traditional models on several metrics, including reduced inpatient hospitalization, reduced emergency department visits, and improved preventative care and chronic disease management.2 ACOs are far from perfect, but these examples illustrate how realigning incentives through addressing the way that we finance healthcare can have downstream impacts on other aspects of the healthcare system, such as healthcare providers and ultimately, us patients. Addressing insurance—the root of our rotten healthcare system—can similarly realign incentives for the rest of the system in a way that benefits patients.
Looking to the varied models that other countries have adopted doesn’t reveal a perfect solution, but does provide some principles of the type of system America must move towards. We have identified seven principles that a replacement system should embody: (1) puts people over profit, (2) cares for all without exceptions, (3) is easily accessible and affordable to everyone, (4) moves us towards health equity by addressing health disparities, (5) produces quality health outcomes, (6) treats us as human beings worthy respect, and (7) is co-owned by and responsive to all of us who access the system. Fixing health insurance isn’t a cure-all for the ails of American healthcare, and won’t address all these problems overnight, but it does take a major step towards re-orienting the incentives of the healthcare system from profit to wellness.
We aim to change the American health insurance industry because it is key to upholding the profit-driven incentives and culture of healthcare, and once we change this, the whole system will be forced to follow. It is the keystone that upholds the way the entire health sector operates. When we revolutionize the way insurance is provided in the US, it will open the door to changing every other industry in the sector as well.
D. McCarthy and K. Mueller, Kaiser Permanente: Bridging the Quality Divide with Integrated Practice, Group Accountability, and Health Information Technology, The Commonwealth Fund, June 2009.
Kaufman BG, Spivack BS, Stearns SC, Song PH, O’Brien EC. Impact of Accountable Care Organizations on Utilization, Care, and Outcomes: A Systematic Review. Medical Care Research and Review. 2017;76(3):255-290.