Health+Benefits the June 2015 issue

Leaning Toward a Tipping Point

Health insurance slowly lists toward the inevitable.
By Mike Turpin Posted on June 1, 2015

While veteran healthcare advisors and benefits professionals find themselves wondering how the monolithic U.S. healthcare system remains standing, a surprising number of stakeholders continue to do nothing. Perhaps they believe in the system’s ability to bend but not break. Or perhaps they believe Congress is incapable of enforcing its own legislation. Or perhaps they’re just waiting for the most impactful elements of the Affordable Care Act to be repealed. Whatever the cause behind the drag, it seems the entire industry lags behind the best ideas designed to fix it.

Meanwhile, private equity continues to pour money into healthcare, intoxicated by the chance to correct the system’s obvious inefficiencies and convinced that new models will cannibalize the market share of traditional stakeholders. Yet the industry still lists—refusing to correct itself but unwilling to fall so it might be rebuilt. In the digital age, it seems that collapse is inevitable.

Consider $50 trillion in unfunded Medicare obligations coupled with the likely increase of the deficit as the Affordable Care Act settles into the second half of a decade of financial impacts. At the same time, a potential for 40 million newly insured people could swamp a system that is already dangerously inverted, with the majority of its dollars going to treat (instead of prevent) chronic and catastrophic illnesses. One would think technology and its accelerating global sweep across the industry would be the final tremor required to topple our system.

Enter Moore’s Law, in which the number of microprocessors that can fit on a densely integrated circuit doubles every two years and the rate of technology accelerates change across the planet at unprecedented levels. As new technology penetrates the dense exterior of the U.S. healthcare system, digital models are multiplying. These next-generation solutions will fundamentally change the way care is delivered, consumed and financed. Against that gravitational pull, an analog delivery system is resisting, trying to preserve its most lucrative and popular elements.

Cadillac, Anyone?

The impending Cadillac Tax remains poised to be levied against all health plans exceeding allowed IRS limits in 2018. While pundits debate the future of this lethal provision of the healthcare reform legislation, there is no doubt in anyone’s mind Congress is coveting the decades-old tax deductibility of employer-sponsored healthcare. The Cadillac Tax is likely to set in motion a fundamental sea change in public and private benefits financing. As employers effectively lose their ability to deduct a portion of their benefits, many are likely to cut benefits rather than pay taxes. With consumerism rising and a larger percentage of the population covered under public and private exchanges, expect an angry backlash against benefit reductions.

Congress is coveting the decades-old tax deductibility of employer-sponsored healthcare.

In municipalities across the country, taxpayers and city governments will be engaged in bitter debate with employees over whether it is the obligation of workers or local government to finance taxes on plans that, in many cases, already exceed allowable limits in 2015. Many large employers are watching and waiting. While they will continue to focus on work force productivity and well-being, there is a declining appetite to manage the cost and consequences of a system that cannot seem to impose an economic model that changes the way people manage their personal health. It seems the system is beginning to lean, and the ground near the foundation is beginning to break, at the notion of healthcare as a timeless private-sector entitlement.

Did I mention Moore’s Law? The rate of consolidation, digital transformation, disruption from new entrants and disintermediation of low-value stakeholders will only accelerate. At the same time, investors are scratching their heads, wondering why groundbreaking solutions are not more widely adopted by consumers, employers, health systems and insurers. It seems the best ideas in healthcare are often well ahead of the industry’s ability to accommodate them. Some of our failure to adopt new platforms may be generational, as digital millennials represent the new face of healthcare delivery. Meanwhile, analog baby boomers, their health on the decline, refuse to adopt new ways to consume healthcare services.

Resistance could be exacerbated by current stakeholders, who have a huge investment in the status quo, benefitting from delays in the inevitable shift toward market-based reforms and a new delivery model. Our slow march forward could be impeded by an increasingly impenetrable cat’s cradle of regulatory footfalls that discourage innovation and create barriers to entry. Employers who remain reluctant to adopt models that force fundamental changes in how consumers access the market could also delay market reform. Meanwhile, employers seem to be torn between their fiduciary obligations to shareholders and their intuition about how successful they can be in altering an age-old social contract with their employees.

Like the famous Pisa campanile, we’ve been leaning for some time. When the plates of innovation shift, will they topple this ancient wonder of the world? Or will we just keep leaning, refusing to yield to gravity and the pressure of our own weight?

Something feels different this time. The ground keeps rumbling, and the noises are deep and less familiar. Change is coming, and it feels like a tipping-point moment. Gladwell wrote of a “magic moment when an idea, trend or social behavior crosses a threshold, tips and spreads like wildfire.” In the healthcare industry, the silence spread across the dry brush of failed ideas just might give way to a loud whoosh of an uncontrolled burn.

Mike Turpin EVP & Managing Consultant, USI Insurance Services Read More

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