The trouble with commercial insurance companies is that they are not in the business of reducing risk. They are in the business of lending money. The risk thing is just their way of collecting deposits and determining which depositors to repay. As a general principle, however, they want to insure the largest possible risk, as that creates the largest amount of deposits and, therefore, the largest amount of profits.
Insurance companies compete for premiums on price, but that does not give them an incentive to reduce the risks for which those premiums are collected. An insurer cannot own an insured’s best practices. If your insurance company teaches you how to reduce your risk, you can still shop elsewhere and offer your new, improved risk profile as an inducement to the new carrier to lower its rates. So what’s in it for the commercial carrier to reduce your risk?
Captive insurers provide a different dynamic. They can have lowering their premiums as an objective, as they do not seek to make money for their stockholders on money they get from their insureds (the two groups being identical). So captives are a source of risk-reduction innovation. Nevertheless, mutual insurance companies, which are really very large captives, are not thriving. Mutuals tend to have difficulty raising capital, don’t get the focus from their owners that true captives get, and end up being bureaucracies that exist to provide claims-handling jobs to their employees.
Still, there ought to be a way to tweak the health insurance company’s business model so that it seeks to reduce losses. One way to do that, I suggest, is for the insurance companies to ally themselves, through investment or otherwise, with providers of medical technology. In other words, just as a car company offers financing, medical technology companies should offer health insurance, with enhanced benefits to users of their products. But since no one company offers enough cost-saving technologies to support an entire insurance company’s worth of enhancements, the medical technology industry needs an insurance company that advances a wide array of devices and technologies and makes its money if those technologies actually work to reduce costs.
Imagine, then, a health insurance company that offered reduced co-pays and deductibles for treatments with (or, in some cases, relapses or sequellae after using) a given treatment. Just as patients shop for “in network” docs and hospitals, they would seek out practitioners who use “in network” technology. Because the insurer would receive money from its arrangement with the vendors, it would not seek to maximize the risk it insures. That would give it the ability to pressure competitors into adopting similar subsidies, which would in turn encourage the use of the company’s technologies, making more money for the company even as it loses market share on insurance.
To put it another way, just because insurers have always been bankers, it’s not at all clear why bankers are the only ones who can be insurers. If bankers can use insurance to attract deposits, why can’t manufacturers use it to attract customers? If your product will save lives and reduce costs, why not agree to sell insurance against those costs at a price that reflects the savings you think you can generate? All the manufacturer needs is someone to provide the insurance function, and that someone ought to be a free-standing operation that can make each manufacturer’s product more appealing by offering incentives for the use of many manufacturers’ products.
Indeed, the insurer should offer subsidies for the use of competing products, so that each manufacturer prospers only if it makes the best version of the thing it makes, with that call being made by medical professionals, not by the insurer. Of course, the manufacturers will have to pay to be granted favorable treatment under the insurance policy, a preference analogous to in-network and out-of-network coverage of providers. But competition among in-network technologies should be encouraged.
Anyway, the idea of an insurance company that makes its money from the enhanced sales of “in-network” technologies could facilitate the adoption of good technologies, lower the cost of insurance, and improve the health of insureds. Just a thought…