The health insurance industry's identity crisis

As lawmakers and policy groups debated the mechanics of what would become the Affordable Care Act, health insurers saw the writing on the wall.

The public viewed as intolerable insurance strategies that denied coverage to people with pre-existing conditions or charged higher premiums to sick members. More people needed access to care, and that meant the system had to expand coverage and rewrite the rules.

America's Health Insurance Plans, then led by Karen Ignagni, supported some of the Obama administration's goals.

“They wanted to be seen on the side of getting something done,” said Richard Kirsch, a senior fellow at the liberal Roosevelt Institute. But AHIP also quietly funded the anti-reform U.S. Chamber of Commerce, hedging that there was still a chance to hang onto those traditional business tactics, looser regulations and high-margin employer plans. Like any industry on the precipice of massive change, insurers craved survival.

Almost six years into the ACA and three open enrollments later, the health insurance industry still suffers from an identity crisis. Most insurers have embraced the law now that it has survived two major U.S. Supreme Court threats. The law has helped many insurers financially through the tacit encouragement of products such as high-deductible plans, although the exchange market is a work in progress. But many are still trying to figure out how to pivot beyond what was the core of their business for so long: employer-based plans and holding down medical claims.

Hospital consolidation also has raised alarms in the industry, with insurers arguing that larger health systems are jacking up prices at will. Many of those same systems are cutting out the insurer by starting their own health plans.

As a result, insurers are shifting their attention to taxpayer-funded coverage and finding ways to grow outside the bounds of traditional health plans, such as selling technology services. And AHIP is working to emphasize that the industry is creatively maneuvering into new lines of business. But these changes have also contributed to friction with some of the big for-profit players. Aetna and UnitedHealth Group recently ditched AHIP, deciding to fight political and business battles on their own.

“This is by far the most dynamic and fluid time in our history as a broader industry,” said Mark Ganz, chairman of AHIP's board and CEO of Cambia Health Solutions, the parent of Regence Blue Cross and Blue Shield. “The health insurance sector is no different. People to a much greater extent than ever before—and I celebrate it—are striking out on their own paths to redefine themselves.”

Ganz in many ways embodies how AHIP portrays the future. He rarely talks about what he calls the company's “legacy” product, its Blue Cross and Blue Shield plan, and instead focuses on Cambia's tech investments and consumer-facing healthcare companies. It's less about insurance companies being claims processors and more about facilitating care for people and their families “from birth until the completion of life,” Ganz said.

For many consumers, that's a hard sell with insurance an issue in the presidential race: single-payer on the left and ending employer-based coverage on the right. Although more than 60% of Americans say their health insurance is either an excellent or good value, half hold unfavorable views of insurers, according to recent Kaiser Family Foundation polls. Banks and airlines are held in higher regard. But Ganz is confident a movement is building. “The health plan of today is going to be the health solutions company of tomorrow,” he said. “It's going to be something different.”

Ganz acknowledged that Aetna and UnitedHealth have already moved in that direction. UnitedHealth's Optum subsidiaries, which provide analytical, pharmacy and consulting services to numerous organizations, are the fastest-growing parts of the company. Aetna hopes to build out an Optum-like unit after acquiring Humana. Several Blues plans are making various investments in new non-insurance ventures as well.

“Each of our organizations has its own strategy,” said Bernard Tyson, CEO of Kaiser Permanente and an AHIP board member, using his own hospital and health plan system as an example.

That doesn't suggest insurers are dropping their core operations. However, employers ranging from small 50-worker shops to multistate conglomerates continue to choose self-funding. They would rather take on the medical risk of their employees to save costs, leaving insurers in the less profitable role of being a claims administrator. Instead, the multiyear shift from fully insured commercial plans and toward government-funded managed care is hitting a crescendo.

“Insurance companies are relying more and more on government programs,” said Wendell Potter, an industry critic and former public relations head of Cigna Corp. “And they want to have more.”

Federal spending on healthcare surpassed Social Security for the first time in 2015, thanks in large part to Medicaid expansion and the ACA's public exchanges, according to the Congressional Budget Office. Investor-owned HMOs that focus almost exclusively on outsourced Medicaid—such as Centene Corp. and Molina Healthcare—have thrived.

Medicare Advantage, perhaps more than any other federal program, has attracted the most interest because of the substantial revenue prospects from the growing numbers of baby boomers becoming Medicare-eligible. Almost 18 million people have a private Medicare Advantage plan, up from 10.5 million in 2009.

Marilyn Tavenner, AHIP's CEO who most recently led the CMS—a job that includes regulating the insurance industry—told Modern Healthcare that Medicare Advantage and Medicaid managed care are two of the group's largest lobbying priorities. Both programs continued their rapid expansion under her watch at the agency.

But the broad-based AHIP has increasingly had to share the lobbying spotlight with other groups, such as the Better Medicare Alliance and Medicaid Health Plans of America, which advocate exclusively for those programs. Tavenner and Better Medicare Alliance CEO Allyson Schwartz touted the merits of their respective groups, but said they both play important, albeit different, roles.

“We really have a diverse coalition,” Schwartz, a former Democratic U.S. representative from Pennsylvania, said of the Better Medicare Alliance. The alliance includes Aetna and UnitedHealth as two of its original backers, as well as providers and business groups. “That's really quite different from being a trade association.”

Potter said there will always be divergent priorities between investor-owned and not-for-profit payers in any advocacy group. He believes for-profits still want to regain their ability “to sell junk insurance” with minimal benefits because those types of plans were extremely lucrative and pleased investors.

“I cannot overstate the difference between nonprofit insurers and for-profit insurers,” Potter said. “For-profits look at the world in three-month segments. The nonprofits don't have that. That frees them to think a little bit more long term.”

Tavenner said that she has worked closely with the CEOs of Aetna and UnitedHealth, Mark Bertolini and Stephen Hemsley, and that AHIP's “door is open” for them. Several board members also said there is value in shaping the industry's image with one voice.

“We still have unfinished business,” Tyson said of AHIP's efforts with health reform, government programs and other cross-cutting issues such as drug pricing. “We've always historically had different points of view on issues that we've dealt with. And we've always figured out how to work out those issues in the interest of the whole.”