Oscar Health CEO Mark Bertolini on fixing U.S. health care: We need to put consumers in charge

Key Concepts

• Affordable Care Act (ACA): Legislation aimed at increasing health insurance coverage in the United States.
• Enhanced Subsidies: Financial assistance provided under the ACA to help individuals afford health insurance premiums.
• Small Businesses: Businesses with a limited number of employees, a significant contributor to the US GDP.
• Farmers: Individuals engaged in agriculture, often with lower gross incomes.
• Uncompensated Care: Healthcare services provided to individuals who cannot pay for them.
• Qualified Account: A financial account designed for healthcare spending, potentially an alternative to traditional insurance models.
• Health Savings Account (HSA): A tax-advantaged savings account that can be used for qualified medical expenses.
• Individual Market: The market where individuals purchase health insurance outside of employer-sponsored plans.
• Risk Pool: A group of individuals whose health risks are pooled together for insurance purposes.
• Risk Adjustment: A mechanism to transfer funds between health insurance plans to compensate for differences in the health status of their enrollees.
• Narrow Networks: Health insurance plans that offer a limited selection of healthcare providers.
• Universal Health Care: A system where all citizens of a country have access to healthcare.

Current State of Health Insurance and ACA

The discussion highlights that health insurance premiums are likely to rise significantly in the upcoming year. This situation is exacerbated by confusion surrounding the Affordable Care Act (ACA) and the ending of enhanced subsidies.

Key Points:

• Misinformation about ACA Funds: There is a prevalent misconception that a large portion of ACA funds are spent on undocumented immigrants. This is inaccurate.
• ACA's Importance for Small Businesses: 50% of American small businesses utilize the ACA. As small businesses constitute 50% of the US GDP, their reliance on the ACA underscores its economic significance.
• Impact on Farmers: 27% of farmers use the ACA. With an average gross income of $60,000 per year, an increase in their monthly premium from $75 to $300 (due to subsidy changes) represents a substantial financial burden, potentially impacting their ability to cover essential living expenses and farm operations.
• Geographic Distribution of ACA Users: 75% of individuals enrolled in the ACA are from "red states," indicating broad support across the political spectrum.
• Uninsured Population: 100 million Americans lack access to employer-sponsored health insurance, making the ACA a crucial safety net.
• ACA's Impact on Uncompensated Care: The ACA has reduced the uninsured rate from 15% to 8%, saving an estimated $10 billion annually in uncompensated care and charity costs for hospitals. A reversal of this trend, with an increasing uninsured rate, could lead to an $80 billion problem over the next decade.
• Systemic Inflation: The healthcare system, built on a model from 80 years ago, has inherent inflation. This is partly due to a lack of price sensitivity among consumers regarding their benefits and the oversupply of healthcare facilities, which drives demand and costs upward.

Proposed Solutions and Frameworks

The conversation pivots to potential solutions for the rising healthcare costs and the perceived shortcomings of the current system.

Key Points and Methodologies:

• Beyond Subsidies: It is acknowledged that simply increasing subsidies is not a comprehensive solution, as numerous systemic issues contribute to rising healthcare costs.
• Qualified Accounts (HSA-like Model): A central proposal is the creation of "qualified accounts" where employers, government, or individuals can contribute funds. This model aims to empower consumers by giving them control over their healthcare spending.
  • Mechanism: Money is deposited into these accounts, allowing individuals to spend it on healthcare as they see fit.
  • Consumer Empowerment: When consumers are in charge of purchasing healthcare products, they tend to be more price-sensitive and influence the underlying costs and prices of services.
  • Comparison to 401(k)s: This approach is likened to the shift from defined benefit pensions to 401(k)s, placing more freedom and responsibility on the individual.
  • Addressing Fraud, Waste, and Abuse: While concerns about fraud exist, the actual numbers are presented as lower than often perceived. For instance, at Oscar Health, only 1.3% of covered individuals were involved in fraudulent activities.
• Technological Support for Consumers: A crucial element for the success of a consumer-driven model is the availability of technology and support systems to help individuals choose the right plans and manage their out-of-pocket costs.
• Redesigning the System: The suggestion is to "redo the whole thing," utilizing the individual market as a single risk pool.
  • Risk Adjustment: Implementing risk adjustment mechanisms to spread catastrophic costs across a larger population, rather than burdening individual employers.
• Integrating Subsidies with HSAs: The idea is to direct subsidies into these qualified accounts (HSAs), allowing individuals to use them for their healthcare needs.
• Consumer-Driven Purchasing: When individuals own their healthcare funds, they are incentivized to be more cost-conscious. This is supported by the statistic that 40% of Americans borrowed money to pay for out-of-pocket healthcare costs in the previous year, highlighting the financial strain.
• Choice of Networks and Benefits: The proposed model allows consumers to choose their preferred healthcare networks (moving away from employer-dictated narrow networks) and tailor their benefits based on their needs (e.g., enhanced obstetrics for those planning a family).
• Evolution, Not Elimination: The concept of "evolving" the ACA, rather than completely replacing it, is presented as a more feasible approach. The core idea is to leverage the concept of risk pools and networks.
• Republican Alignment: This approach aligns with the "Republican holy grail" of consumer choice and market-based solutions, but with a focus on ensuring subsidies reach those who need them, like farmers and small business owners.
• Role of Insurance Companies: It is emphasized that insurance companies would still play a role in this evolved system.

Arguments and Perspectives

The discussion presents a nuanced perspective on healthcare reform, bridging different political viewpoints.

Key Arguments and Supporting Evidence:

• Argument: The current healthcare system is inefficient and costly due to a lack of consumer price sensitivity and an oversupply of facilities.
  • Evidence: The statistic about 40% of Americans borrowing money for healthcare costs, and the mention of gross inefficiency in the system.
• Argument: Empowering consumers with control over their healthcare spending will lead to cost containment.
  • Evidence: The analogy of consumer behavior in other markets (automobiles, books) where online purchasing has compressed margins.
• Argument: The ACA has had positive impacts, particularly in reducing uncompensated care, but the system needs fundamental reform.
  • Evidence: The $10 billion annual savings in uncompensated care due to reduced uninsured rates.
• Argument: A hybrid approach, combining elements of the ACA with consumer-driven accounts and risk adjustment, is the most viable path forward.
  • Evidence: The willingness of Oscar Health to work with individuals across the political aisle to achieve universal coverage with consumer choice.
• Counter-Argument/Concern: The shift to consumer-driven accounts could place a significant burden on individuals if they make poor choices, with no safety net.
  • Response: The existence of brokers and the development of technology to assist consumers in making informed decisions.
• Counter-Argument/Concern: Where will the "margin" be competed away from? Will it come at the expense of providers or insurers?
  • Response: The margin will be competed away through increased efficiency and by consumers making value-driven choices, not necessarily by reducing profits for all stakeholders. The focus is on reducing "gross inefficiency."

Notable Quotes

• "Actually very likely will see their insurance premiums rise pretty sharply next year." - Becky (Host)
• "So what's happening currently in the Affordable Care Act and the enhanced subsidies is that there's a lot of rhetoric about who's getting access to these funds, like $1.5 trillion being spent on on illegal immigrants. Not true." - Mark Bertolini
• "50% of American small businesses use the Affordable Care Act. Small businesses are 50% of our GDP. They're the engine of our economy." - Mark Bertolini
• "The ACA has done that most people don't understand is it's reduced uninsured from 15% to 8%. That has saved $10 billion a year in uncompensated care and charity costs that used to go to hospitals." - Mark Bertolini
• "The answer isn't simply subsidies, though." - Becky (Host)
• "So we should create a qualified account. And there has been some, some concern about fraud, waste and abuse in the system." - Mark Bertolini
• "So if we're consumers in charge of buying the product, you're going to have an impact on price." - Mark Bertolini
• "I would redo the whole thing. I would use the individual market as a single risk pool." - Mark Bertolini
• "Well, nobody's actually put a real plan on the table." - Mark Bertolini
• "The insurance companies have to be there. They have to be there." - Mark Bertolini
• "What you're really looking for is every American to be covered, and that's almost universal health care. But what the choice in the hands of the consumer." - Becky (Host)
• "So what will happen? Just like in automobile sales and in books and in other things people buy online, is that they're going to compress the margins by buying what is valuable to them." - Mark Bertolini
• "Unless consumers are paying more. Right. But and it's not all margin. It's actually inefficiency, gross inefficiency in the system." - Mark Bertolini

Synthesis and Conclusion

The discussion with Mark Bertolini, CEO of Oscar Health, provides a critical analysis of the current state of the US healthcare insurance market, particularly concerning the Affordable Care Act (ACA). The core argument is that while the ACA has achieved positive outcomes like reducing uncompensated care, the system is plagued by inherent inflation and inefficiencies. Premiums are expected to rise sharply, impacting small businesses and individuals, including farmers, who rely on the ACA.

Bertolini proposes a fundamental shift towards a consumer-driven healthcare model, centered around "qualified accounts" akin to Health Savings Accounts (HSAs). This approach aims to empower individuals by giving them control over their healthcare spending, thereby fostering price sensitivity and driving down costs. Key elements of this proposed reform include:

• Utilizing the individual market as a single risk pool.
• Implementing robust risk adjustment mechanisms.
• Directing subsidies into these qualified accounts.
• Providing technological support for consumers to make informed choices.
• Allowing for greater consumer choice in healthcare networks and benefits.

This vision aligns with some Republican principles of market-based solutions and consumer choice, but with a strong emphasis on ensuring universal coverage and providing subsidies to those in need. The underlying belief is that by making consumers more accountable for their healthcare expenditures, the system can become more efficient and less costly, ultimately benefiting all Americans. The conversation acknowledges the complexities and potential challenges, such as ensuring adequate consumer support and determining where cost savings will originate, but emphasizes that the current system's "gross inefficiency" offers significant room for improvement.