As it Turns Out, Health Insurance Executives Are Really (Really) Good at Their Jobs

Don’t hate the player, hate the game.

This may sound strange coming from someone who’s been very critical of health insurance companies and their actions, but you shouldn’t hate the people who run these companies, their CEOs or their medical directors. They’re only doing their jobs and if they did anything less, they could be removed for failing in their primary function. 

Ok, stay with me here. This will make sense.

The mission of any for-profit company is to maximize its shareholders' investment. Period, hard stop. It’s not to make its customers happy. It’s not to make the world a better place. The mission is to maximize shareholder value. Anything else can be viewed as failing in its fiduciary responsibility to the company and the owners, i.e. the shareholders. Lucky for us, in most industries the best way to accomplish that mission is to make your customers happy.

The problem with health insurance, specifically the for-profit companies like UnitedHealth Group, Cigna, CVS/Aetna and Elevance, is that it differs greatly from almost any other industry. Let me explain.

Let’s say Apple hired me as its new CEO. My primary job is to drive up the stock price and return dividends to my shareholders. That’s how I maximize their investment and make them happy. The best way to do that is to provide our customers, you, me and everyone else who wants or has a MacBook or iPhone with better products. That will gain more customers, increase sales and improve earnings. So, the best way for me to do my job is to make sure my customers are happy. Everyone wins.

Now let’s assume that after a successful career at Apple, I am hired as the new CEO of Cigna. My job is the same as it was at Apple, just with different shareholders. The problem becomes one of who is the customer and who is the consumer. The customer pays for the product and the consumer uses it. With Apple, the customer and consumer are the same person. At Cigna they are different people. The customer, the one paying the bill, is, for the most part, either an employer or the government. The way to make the customer happy is to keep its cost as low as possible. The consumer, the one using the product, is the individual enrolled in a Cigna health plan who, sooner or later, will also be a patient. The way to make consumers happy is to pay for every product they want or need and make it very easy for them to use their insurance. The problem with this arrangement is that making the consumer happy drives up health care costs, and that makes the customer unhappy.

This is the big problem with health insurance. The consumer is not the customer. This creates perverse incentives. Another problem is the more you use your Apple products the better for Apple. In the health insurance world, the more the consumer uses the product, the worse it is for the employer or the government and the insurance company. This is why Cigna and all the other insurance companies make it so hard for their health plan members to use their products. It’s because they don’t want you to use it.

At this point, you likely are thinking, “Well they can’t make all their customers unhappy or no one would want to buy what they’re selling.” That would be true if everyone needed their products. Health insurance is bizarre because a small portion of the population needs it at any given time. Consider this, 5% of the population consumes 50% of all the health care costs. The bottom 50% only consume 3% of all the health care costs. So, I don’t need to make all my consumers unhappy, just 5% of them. The other 95% don’t really use much of my product. The problem with this environment is the 5% that use their insurance are the people who really need it. To be in that top 5% means you are consuming at least $70,000 a year in health care costs. Very few people could absorb that kind of expense without insurance.

So, the way I do my job at Cigna is to make it very difficult for that top 5% to consume the product and then limit how much of the product they can consume. That makes my customers happy, drives up my stock price, and in the words of one of my former colleagues at Cigna, results in the three B’s: Big Bonus Baby!

Think about how this would look if the same situation existed at Apple. I walk into an Apple store and tell them I am a business that needs 100 laptops and 100 iPhones. If this was like insurance, the store would do something like this, “Well sir, you can only purchase 10 at a time, and before we can sell them to you that you need to fill out this prior authorization form. We will review it and get back to you in 30 to 45 days.” When I tell them that I need the laptops to have the highest processing speed and the maximum memory available, I am told, “Unfortunately, that’s not possible. Our policy is that you must start with a lesser laptop and if that fails you then you can apply for a better one and it will be reviewed. Oh, and don’t even think about asking for the latest iPhone. That technology is not necessary and therefore not approved to be purchased by you.”

This is not really how that scenario would work. There would be no store. You would have to call a 1-800 number and wait on hold for an hour only to get someone who really can’t help you.

Do you see the problem? That’s why I say don’t hate the players, hate the game. They are only doing their job. The problem is that the profit motivation in the health insurance business creates inherent perverse incentives. These incentives hurt patients, frustrate doctors, and do more harm than good for the people who need care the most.

Wait, what’s that? The top executives at UnitedHealth sold stock the very day of the cyber-attack on Change Healthcare that crippled our health care delivery system for weeks? Seriously? Ok, you can go back to hating those people. Turns out they deserve it.