Understanding Our Precarious Healthcare Landscape: The Cost Bubble

The insurance industry dominated U.S. healthcare for decades with promises of high-quality care at reasonable cost. Yet we stalled in the moderate range on quality, and costs have spiraled higher every year. Insurers angered many along the way. Our field responded with parity. Physician and hospital companies grew and gained power to create a more even playing field. Healthcare is complex today.

We should understand these broad trends. Our healthcare cost bubble may burst into a destructive crisis one day. The basic dilemma of how healthcare is funded in our country has not changed. New types of insurance plans have changed little. Consolidation protects some without offering solutions. Our field increasingly depends on the greater healthcare industry. Let us consider the big picture.

Having “skin in the game” was once a popular expression in healthcare. It emerged as high-deductible and consumer-directed health plans gained popularity. The hope was that consumers would become more careful about healthcare spending when personally paying more for it. They presumably needed an incentive to act prudently. Having no skin was understood as driving waste in healthcare spending.

Insurance executives tried this approach after other cost control models had failed. The HMO focus on limiting the supply of services was unsuccessful in the 1990s, and various PPO plans built on consumer incentives then failed to suppress demand. They mainly shifted costs from payer to consumer. The PPO model grew in popularity despite its impact on consumers, but overall costs have continued to soar.

What is the legacy of innovative insurance products? Patients and providers were able to survive the micromanagement of both supply and demand. Those controls did not slow overall cost increases, partly because provider consolidation gradually changed the nature of the players. Insurers no longer dominate the contracting process. Care providers have become worthy adversaries. 

Insurers have changed as well. UnitedHealth Group provides insurance and healthcare, and it owns one of the country’s largest groups of doctors. Aetna is the insurance component of the giant retailer CVS. Safety and strength are found by being a diversified company. Healthcare companies today seek new markets, a larger share of each market, and higher rates. The old battle lines have been redrawn.

As the U.S. healthcare cost bubble has grown (18% of GDP), so too has each specialty. Our field started as a cottage industry and progressed into larger specialty corporations, many of which now seek acquisition by bigger healthcare entities. Physicians have steadily sold their practices based on the high cost of doing business. Private practice is barely a consideration for most younger doctors.

Yet a genuine solution may be emerging. Awareness is growing of the perverse incentives of fee-for-service (FFS) payment. Experts suggest its end is approaching. This may be positive but not a silver bullet solving everything. For example, global payments might replace FFS. This requires capitated providers to offer quality care for a population-based fee. Only some healthcare companies will succeed at this.

Could everything still implode? Predictions of disaster for healthcare have been made for many years. Turmoil may be around the corner, or the industry may have something like a chronic disorder. Forces to preserve the status quo are many. Countless people make a good living from this gigantic industry. Lessons can be learned from elsewhere, but any solution put in place will be uniquely American.

The payer’s role in American healthcare has been controversial, and yet the longstanding us-versus-them battles are changing. Healthcare is now dominated by large, powerful corporations. Big insurers are still wealthy, but they are contracting with other big companies, often backed by private equity, or being publicly traded. Sorting payer from provider, good guys from bad guys, is difficult.

A growing number of physicians are insulated from insurers today. They are more likely to complain about the company employing them or the EHR they use than conflicts with an insurer. The behavioral healthcare field has consolidated too, but it is still more fragmented and less well subsidized. Our field is fitting into the larger healthcare industry. We must understand the context in which we are living.

What is that context? Behavioral companies that separately insure and manage care are gone. Our industry is one specialty among many vying for investment in growth and innovation. The national cost of healthcare seems unsustainable. Should the cost bubble burst without a plan, smaller companies and industries will be disadvantaged. Insurance parity has helped our field, but we now live among giants.

The title’s reference to our “precarious healthcare landscape” points to final concern in an ironic way. Many in our field do not see anything precarious. They just work hard and adapt to new challenges each day. Healthcare is a big, rich industry. Can it get too big, and what happens then? This is a wake-up call, not a proclamation of doom. Let us advance our field and be mindful of our business environment.

Ed Jones, PhD, is senior vice president for the Institute for Health and Productivity Management.