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OP-ED | Consumers Getting ‘Skinned’ By Health Insurers

by | Mar 18, 2015 3:14pm () Comments | Commenting has expired | Share
Posted to: Business, Health Care, Insurance, Opinion, Health Care Opinion, Reprinted with permission from the Center for Public Integrity

The reason health care costs are so high is because Americans don’t have nearly enough “skin in the game.”

That was the phrase that many of my former colleagues in the insurance industry and I began using in the early 2000s as a way to deflect attention away from us. 

Americans — especially American employers — looked to private insurers to help control medical costs. But insurers were failing miserably, and some of them — Aetna in particular — were also failing Wall Street.

Thirteen years ago, investors and Wall Street financial analysts were not happy with the way some managed care companies were running their businesses. They felt that Aetna and other big for-profit insurers were spending far too much of their policyholders’ premiums paying claims. And they didn’t like it that insurers hadn’t been aggressive enough in getting rid of “unprofitable” customers.

One way to satisfy Wall Street was to begin shifting more and more of the cost of health care — and health insurance — to their customers. That meant that sick policyholders in particular would be paying more out of their own pocket for their care.

Our marketing folks came up with an almost Orwellian name for this cost shifting — consumer-driven health care. In retrospect, it was a brilliant strategy, and one that got virtually no pushback from lawmakers or regulators. Little by little, year after year — and long before many people outside of Illinois had ever heard of Barack Obama — Americans began putting more of their skin in the health care game. They had no choice.

The strategy has been so successful that insurers are back in Wall Street’s good graces. Their profits keep breaking records, and so does the price of their stock.

But what’s good for them has been anything but good for a growing number of Americans. Out-of-pocket expenses have gotten so high that nearly half of American families don’t have enough money in the bank to pay their deductibles if they get really sick.

That was one of the findings of last week’s report from the Kaiser Family Foundation, which decided to look into how the skin-in-the-game strategy is affecting family budgets. KFF’s researchers found that 49 percent of American households wouldn’t have enough liquid assets to meet what their out-of-pocket obligations would be if they were in a plan with a $2,500 individual deductible and $5,000 family deductible.

While conventional wisdom holds that consumer driven health care has contributed to a slowing in the rate of medical inflation, it also undoubtedly has contributed to a very troubling phenomenon: people with health insurance who are no longer getting the care they need because they don’t have enough money to meet their deductibles.

“High deductibles may be OK for people who are generally healthy and have the resources to pay their cost sharing when they need to,” Kaiser Family Foundation CEO Drew Altman wrote in a Wall Street Journal commentary last Wednesday. “But big deductibles can also be a real barrier to needed care for people with moderate or lower incomes who are sick.”

The additional skin we’ve had to put in the game has been fairly modest on a year-to-year basis, so modest, in fact, that it hasn’t attracted much attention. But when you look back over the past decade, the cumulative increase is startling. Out-of-pocket costs have increased 100 percent or more in most states since 2003, according to The Commonwealth Fund, which also has been following this trend.

And while this has been going on, premiums have been going through the roof. The average premium for an employer-sponsored plan nearly tripled between 1999 and 2014, from $5,791 to $16,834. And lest you think Obamacare is to blame, some of the biggest annual increases occurred during the decade before the Affordable Care Act was passed.

Not only that, but a growing percentage of the premiums is coming out of worker’s paychecks. In 1999, the employee contribution to premiums for a family policy averaged 26.6 percent, according to KFF. It had risen to 29 percent by 2010, the year Congress passed the Affordable Care Act.

After the law went into effect, the percentage actually declined. It stood at 28.7 percent in 2014. Even with that modest decline, workers in 2014 nevertheless were paying more than three times as much for their employer-sponsored family coverage as they did in 1999 ($4,823 versus $1,543).

The first time I recall an insurance company executive use the term skin-in-the-game was in 2002 when then Aetna CEO John W. Rowe used it during a call with financial analysts and investors. The occasion was the company’s first quarter earnings report. Rowe described what he and his management team had been doing to turn the company around, which included getting rid of millions of members Aetna considered to be money losers.

Rowe said that to keep shareholders happy, Aetna would increase premiums 18 percent that year and shift more of the cost of care to its remaining members.

“’We are giving people some skin in the game, a personal financial interest in being cautious about seeking care,’” Rowe told The New York Times.

That was music to investors’ ears. Aetna’s shares rose 13.5 percent that day.

The stock price closed at $11.42 on April 26, 2002 (after adjusting for subsequent stock splits). Last Friday it closed at $104.09, an historical high. Thanks, in large part, to all that skin its policyholders have had to put in the game.

Former CIGNA executive-turned-whistleblower Wendell Potter is writing about the health care industry and the ongoing battle for health reform for the Center for Public Integrity.

DISCLAIMER: The views, opinions, positions, or strategies expressed by the author are theirs alone, and do not necessarily reflect the views, opinions, or positions of CTNewsJunkie.com.

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(8) Archived Comments

posted by: ocoandasoc | March 18, 2015  4:53pm

For people with good or even average health, high deductible health care plans are the best way to go.  If you bank the monthly difference between a high deductible and low deductible plan for 12 to 18 months you’ll have a reserve that will cover your out-of-pocket difference if you get seriously ill or have a medical emergency. I was on a high deductible plan for nine years from the time I was 56 until I went on Medicare. Despite having one year where I had to pay out the full amount, I saved $42,000 over that period. The increase in people having “skin in the game” came quite naturally as folks who had been on company-paid plans got laid off and realized that they could simply not afford to pay the exorbitant amounts of premiums that their companies had been paying for them.
Many people who remain uninsured don’t realize the big benefit that a high deductible plan can offer. Because with that plan your costs for care and prescriptions will be MUCH LOWER than if you were uninsured due to the fact that the insurance company gets a de facto discount and passes it on to the plan holder, even on services and drugs that the planholder must pay out of pocket. (It is a great irony that the highest prices charged for healthcare are those charged to the uninsured!) Having “skin in the game” also makes patients much more aware of costs, options, generic medications, etc. and their right to avoid the unneeded tests and procedures that many medical care establishments now try to make routine with their insured patients. (I was admitted to the hospital for food poisoning and after my symptoms were calmed down they told me they wanted to take an MRI and a chest x-ray. When I asked why they didn’t seem to have a good reason, so I refused. But somehow a chest x-ray still found it’s way on to my bill!) It also encourages them to look at the itemized bills – which the healthcare industry seems to make as indecipherable as possible - to make sure they aren’t being billed for care/treatment/medications/tests that they neither needed nor wanted. (If you didn’t bring your own aspirin the hospitals will usually charge you about $12 per tablet!)
Having worked as a volunteer in educating low-income folks on budgeting, credit, and the trap of predatory lenders, I am quite aware of the large number of families who live paycheck to paycheck and feel that savings accounts and investments are just for “rich people.” But often these folks have no health insurance at all and would benefit greatly from a high-deductible plan that they could afford.(And if catastrophe strikes, hospitals will be a little more patient with you if the amount you have to pay is $5,000 instead of $120,000!
Mr. Potter is all for socialized medicine, I get it. But he should show a little more balance before he condemns high-deductible health insurance plans which are a great tool for the financially responsible.

posted by: art vandelay | March 18, 2015  6:51pm

art vandelay

I’m getting the feeling that Ct. News Junkie is not fair and balanced.  I have yet to see any published articles opposing Mr. Potter’s views.

posted by: MyOpinion | March 19, 2015  8:42am

Insurance companies could have taken on excessive Health spending on their own, without sticking it to the premium policy payer.  It was just an easier way to grow their profits at the expense of the consumer.

posted by: cp17 | March 19, 2015  10:19am

I used to work where Mr. Potter did and I would agree that there are any number of practices that favor profits over patients.  However, this latest OpEd piece on consumer driven care misses a couple of key points.  First, I doubt Mr. Potter would argue that, prior to the recent trend towards higher deductibles and the advent of greater price/cost awareness, consumers had much economic incentive to check bills, investigate alternative treatments and- God forbid- negotiate provider fees.  When you’re spending other peoples’ money, who cares, right?  So, consumer driven healthcare has at least created greater cost awareness and introduced economic incentives that didn’t used to exist.  Second, Mr. Potter ignores- or chooses not to address- the fact that consumer driven healthcare is truly not “driven” by the consumer anyway!  The employer still chooses the carriers who provide the coverage and administration.  The employer still dictates which plans and what benefit levels are offered.  And, perhaps most importantly, the employer and the carrier determine the premium and contribution levels that translate into consumer cost.  So, the consumer drives some of the healthcare- which providers, when to actually get care, maybe if/how much to put in a Flexible Spending Account or Health Reimbursement Arrangement or Health Savings Account, etc.  True consumer driven healthcare will only happen when the individual purchases his/her coverage and care with their own money and with full transparency on the cost of care.  You know, kind of like how we buy EVERYTHING else in our lives!!

posted by: Politijoe | March 19, 2015  9:20pm


Most of the responses to Mr. Potters piece appear predicated on the premise poverty is strictly a matter of choice, a perspective that lacks context and clouds reality. Everyone recognizes the importance of individualism but at some point what individuals need is security. Thirty million Americans are in low-wage jobs. Most earn between $7.25 and $10 per hour or $300 weekly. Average rents are $1200 monthly, leaving nothing without a spouse or second job to support utilities, fuel, childcare, food, clothing, transportation and in this case high deductible healthcare costs. In many cases the working poor don’t qualify for government assistance creating disincentives within a regressive system.

This isn’t about choice and certainly shouldn’t be about peddling high deductibles to the working poor as an educational tool in personal finances.  This is about closing the empathy gap and gaining an awareness of the challenges facing the working poor. We must begin to value those who work preparing our food, caring for our elderly and children while remaining unable to meet their basic needs of food, shelter, clothing and healthcare.

We must maintain clear pathways to the middleclass and the current challenges facing the working poor and their lack of affordable healthcare as a result of a for-profit, out-of-pocket, employer-based system that is regressive in nature. We should not confuse this with misguided assessments of choice or worthiness. Poverty is expensive and a broad solution that addresses the economic challenges of the working poor should include healthcare as a right of citizenship not a privilege of employment.

posted by: art vandelay | March 20, 2015  12:27am

art vandelay

The last time I read the U.S. Constitution it never said U.S. citizens have a “right” to healthcare.  It does say citizens have a right to bear arms, a right to assembly, a right to a fair trial, but I didn’t see anything in there about a “right to healthcare”!  Can you tell me where that is so I can double check?

I agree.  Poverty IS expensive.  Since President Johnson declared an unconditional War on Poverty in his 1964 State of the Union Address, the U.S. has spent roughly 22 TRILLION on anti-poverty programs.  Adjusted for inflation this spending which does not include Social Security or Medicare is three times more than this nation has spent on all its wars since the Revolution.  Our progress as measured by the U.S. Census Bureau has been minimal to say the least.  There are more citizens in poverty now than when Johnson declared war.  One out of every 3 Americans today receive so form of government assistance.  The cost on a per individual basis is $9,000.00.  The government now spends 16 times more on means tested welfare and anti-poverty programs than it did in 1964.

Johnson’s main goal was to reduce the causes of poverty.  In this respect he failed miserably. Our population is less capable of self-sufficiency now than when it was in 1964.  Nationalized medicine will only decrease self-sufficiency, not increase it.

posted by: ocoandasoc | March 20, 2015  1:10am

Politijoe: I’m afraid that it is well-documented that neither empathy nor awareness are much help to the working poor. For a young able-bodied couple that makes $10 an hour (that’s $40,000 a year) it IS all about choices. And educating them about the consequences of their choices before they make them is the single most important thing our public education system and governmental and non-profit agencies can do.  If they make the right choices, $40,000 a year can meet a couple’s basic requirements for food, shelter, clothing and healthcare. (Though maybe not late model cars, unlimited cell phone plans, cable TV, and huge monthly credit card payments.) Making the right choices can also help insure that their $10 an hour status isn’t permanent, and that they will have upward career and income mobility and the opportunity to save and invest. We need to change the curriculum in our public schools to teach kids from low income families the life skills and financial lessons that their classmates from wealthy and upper middle income families are learning from their parents.  Only then can we break the cultural chain of ignorance that threatens to perpetuate a growing lower caste in our society.
What the working poor could also use is more programs like the EITC and the Affordable Care Act (which features relatively high deductible plans). The Federal and State government could also help by eliminating ALL Federal withholding and all Federal and State income taxes on incomes under a threshold level. And bringing back Income Averaging to assist and encourage upwardly mobile low-income workers. And broadening the exemptions on the sales tax. Educational opportunities for independent students should also be expanded. The State of Tennessee offers two free years of college to ANY student who graduates high school. Why can’t a rich state like Connecticut do that?
Faux-progressives talk about the poor a lot…. And complain about the rich. But it would be nice to see them do something that would actually help.
Free healthcare is no more a “right of citizenship” than free food or free shelter. Someone always has to pay. And the regressive employer-based healthcare system you denigrate is actually an invention of organized labor, not the companies that offer it. The fact is, the best healthcare deal in America right now for the working poor is a subsidized high-deductible plan through Obamacare, and the failure of so many low income workers to take advantage of it underscores my argument for the need for more effective education efforts on its behalf.

posted by: Politijoe | March 20, 2015  12:56pm


Ocoan: I agree with your broader sentiments however, I believe the independent bootstrap philosophy that influences your beliefs remains incomplete. You stated the public schools should teach low-income families life skills and financial lessons that their classmates from wealthy families are learning from their parents. I understand your sentiment however, it’s an over-simplification. Affluent children attend private high schools or top ranked pubic schools with far better resources accessible to families wealthy enough to live in these communities. Affluent children have access, resources, life experiences and connections, all of which working poor cannot afford or have access to. The obvious benefits and advantages affluent students and families have is a better education, increased opportunities at higher education and better paying careers which is one of the best methods to boost the earnings and mobility. The point is we have to recognize the challenge and solution is more complex than simply explaining to working poor families about their investment choices.

For example in your analogy you stated an annual household income of $40k “can meet a couple’s basic requirements for food, shelter, clothing and healthcare, if they make the right choices” Using that example a typical household of four where both parents are employed full-time at $10 per hour will earn $40k gross annual income. However, the basic requirements of this family cost an average of apx. $ 40k. Therefore, the family is already behind without even taking into account real net income, high deductible healthcare costs or childcare-not to mention the slight regarding cell phones, cable, and new cars. So I don’t think this is a matter of choice, it is however a simple math problem….the working poor are not poor because of choice or because of government disincentives, they are this way because as a nation we have limited the pathways to middleclass mobility. We have saddled families with financial burdens related to healthcare cost, we have tied people to their employers as a result of employer-based healthcare policies and we have continued supporting a regressive healthcare system that costs all of us more, delivers less and still doesn’t insure all our citizens. Labor unions gave the middleclass the power to demand healthcare from employers when there was none available. That benefit along with many other protections served the nation well. Its now time we look at better ways to address our fragmented healthcare system. Citizens have a right to basic healthcare, just as we have a right to basic food and shelter. We don’t provide fire and police protections with an expectation of a deductible or because it’s stated in a law book but because it’s the right thing to do and because these protections ultimately benefit the individual, neighbor, the community and the nation as a whole.

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