Stanford professor predicts doom for health insurers


Competition among health systems and pressure to cut costs will transform--if not doom--health insurance companies in their current form, Stanford University Professor Jeffrey Pfeffer argues in a Fortune article. Calling the existing healthcare payment system "a bureaucracy that would make Kafka blush," Pfeffer says payers must reinvent their way of doing business. They must adapt or die.

One problem that brought insurers to the edge of the cliff is failure to run lean. More than 460,000 people were employed in the health insurance industry in 2012, the article noted, and managing them costs money. When the Affordable Care Act required payers to spend at least 80 percent of collected premiums on healthcare, this implied that some insurers' administrative costs had topped 20 percent. That's wasteful and unsustainable, in Pfeffer's view.  

Then there's the ubiquitous annoyance factor. Doctors' offices must juggle the separate forms, protocols and requirements of different payers. Further, one physician described pre-authorization as "a wasteful administrative nightmare" that ate up 20 hours of a medical practice's time every week, the article noted. And some providers maintain that pre-authorizing certain office-based services may increase utilization of surgery or prescription drug benefits, as FierceHealthPayer previously reported.

Overall, the intermediary role insurers have played in the healthcare system--which drives high spending--is on its last legs, according to Pfeffer. "This should not come as a big shock," he wrote. "After all, in industry after industry, ranging from travel to publishing to finance, we have witnessed the disruptive effects of disintermediation or its beginnings." Pfeffer cited the example of shrinking numbers of travel agencies as airlines and hotels moved distribution online.

But if the traditional business model for health insurers is following the dinosaurs, what's the alternative? Pfeffer pointed to Kaiser Permanente, a healthcare provider that combines care delivery and insurance under one roof without a separate insurance middleman. This model saves money and lowers rates, Pfeffer wrote. As cost containment pressures build and more healthcare systems embrace "Kaiser-fication," those who rely on intermediaries will find themselves at a competitive disadvantage, Pfeffer argued.

For more:
- read Pfeffer's article in Fortune

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