In this episode, Stacey Richter discusses 'Three Surprising Ways Carriers Make Lots of Money' with Preston Alexander. The episode highlights how carriers leverage financial strategies—like using premium dollars as float, intracompany eliminations, and upcoding in Medicare Advantage—to enhance their profits.
The discussion emphasizes the importance for plan sponsors and policymakers to understand these tactics to better manage healthcare costs. Alexander advises collaborating with unbiased consultants who are experts in health plan design to navigate these complex financial dynamics effectively.
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08:29 What is float, and why is it a surprising way that carriers make money?
14:01 Summer Shorts on pharma rebates with Ann Lewandowski.
14:41 Why carriers really do denials and delays of payouts.
17:34 What are intercompany eliminations, and how do they make carriers more money?
22:21 How do carrier-owned pharmacies play into this?
23:19 How are carriers creating profit off of Medicare Advantage and Medicaid Advantage markets?
27:18 How the fee-for-service price increases affect Medicare prices.
28:12 Why aren’t large insurance carriers motivated to make costs go down?
32:42 What is a potential way forward to fix the rising cost of healthcare?
33:36 As a plan sponsor, how do you address carriers making profit on your float?
35:07 EP478 with Andreas Mang and Jon Camire.
36:34 “Our economy’s not gonna survive healthcare.”
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Episode 482.
" Three Surprising WaysCarriers Make Lots of Money.
What Do Plan Sponsors and ClinicalOrganizations Really Need to Know." Today
I am speaking with Preston Alexander.
(00:23):
American Healthcare Entrepreneurs andExecutives You Want to Know, Talking.
Relentless Seeking Value.
If you want to save the most money,look where the most money is.
You lot listening arelike, no kidding Sherlock.
If you want to figure out how tocut down the GDP being sucked into
(00:44):
healthcare, or the spend for anygiven plan sponsor on healthcare, look
at how much money is being made byFortune 10 companies like carriers.
Or big, huge consolidated providerorganizations their billions and
billions of dollars in marginor profit or quarterly earnings
or Redonkulous C-suite bonuses.
(01:07):
Let me misquote Jeff Bezos right now.
Excess healthcare industry marginis my mission for us to take
back for members and patients.
And there's trillions of dollarson big healthcare company balance
sheets that we can eye up here.
Just pull up these big guysfinancial reports, which is something
that my guest today, PrestonAlexander does on the regular.
(01:30):
And all of what we're talkingabout today is very actionable
if you consider it strategically.
Now.
Before we get into this episode, I'm goingto quote Robert Sundelius and he said on
LinkedIn I will link to it, "Profits arenot evil and for-profit companies are
not evil. Many organizations that createprofits also provide societal benefits.
(01:53):
However, when we exploit establishedinsurance or medical care systems to
maximize problems at the expense ofpublic health, we are treading a fine
line between business and ethics".
If you are interested in more alongthese same lines, I definitely
would recommend going back andlistening to the episode from a few
weeks ago with Dr. Ben Schwartz.
(02:15):
Hi, I am Dr. Vivian Ho.
I'm a health economist at RiceUniversity in Baylor College of Medicine.
I listen to Relentless Health Valuereligiously because this is the
show for those who are part of thetribe that wants to improve the
quality of healthcare, improve accessto care, and make it affordable.
So make sure that you subscribe tothe newsletter and subscribe to the
(02:37):
podcast and keep up with every episode.
Okay, back to the topic at hand,Surprising Ways Carriers Make Money.
Today I am speaking with asaforementioned Preston Alexander.
And we're gonna talk about, as Ijust said, not the normal boring
ways like underwriting profit.
Today we're gonna talk aboutthe surprising ways, and this is
important, these three surprising ways.
(02:59):
They're important if you're a plansponsor or if you're a taxpayer or a
policymaker, because these surprising wayscarriers make money are news you can use.
They drive carrier behavior inways that impact you, the plan,
sponsored member or taxpayer.
There's probably some lessons in therefor some indie physician groups as well.
And if you're a policymaker, these arethe flags on the top of the hill that
(03:23):
carriers are gonna try to protect.
There's a lot of extremelyrelevant details that Preston
Alexander reveals, but, oh wow,I can't stop with the spoilers.
So let me tell you the big kahunaof surprising ways they make money
off of taking taxpayer or plan,sponsor, or member dollars, and
then playing the float, as they say.
(03:45):
As much as 20% of some carrier'srevenue can come from taking member
premium dollars or some kind ofcapitated payment, and then trying to
not pay bills for as long as possible.
Dr. Eric Bricker made a point on avideo the other day that is adjacent
to all of this, so I will link to it.
But Dr. Bricker was talking about someof these rev cycle AI, augmented, tech
(04:08):
the crap out of it promises made to someprovider organizations to like increase
the speed carriers will pay bills.
And Dr. Bricker pointed out slowpaying bills is a feature, not a bug.
The slower the carrier paysbills, the more interest they make
off the money in the meantime.
Like so much in healthcare, gettingpaid faster is not a technical
(04:29):
problem, it's a, they don'tactually want to pay you problem.
A carrier, I just read in 2024made something like $4.8 billion
in investment income, $4.8 billion.
I wish I had that money.
I'd use it for Medicaid patients.
But a carrier with 4.8 billionlying around can use it too
for one thing, buy companies.
(04:50):
And then they get even more verticallyintegrated and consolidated, which
allows them more of the secondsurprising way to make money,
which is intracompany eliminations.
If you don't know what I'm talking aboutwhen I say intracompany eliminations,
well you're in the right place.
Listen to the episode, and you will.
But if you're up on this general conceptalready, consider 48.86% of United
(05:15):
Healthcare premiums went to Optum, UHC.
UnitedHealthcare paid their sister companyalmost half of their premium dollars.
Things that make you go, Hmm.
I will link to an interestingpost written by Joshua Brooker
and referencing something thatChris Deacon had written earlier.
(05:36):
But using these intercompany eliminationsfor the purposes of, I don't know,
potentially obscuring profits, it allowsany so inclined carrier to get even more
saucey with the third surprising way manyconsolidated carriers can make money,
which is upcoding in Medicare advantagefor excessive risk-based payments.
And those capitated paymentsare oh, right, made upfront.
(05:59):
So more float to be had.
Nice little flywheel therewhere the big get bigger.
What's Preston's advice movingforward, especially for plan
sponsors, considering all of this?
Critically evaluate relationshipswith carriers and look for consultants
who can offer unbiased expert advice.
Every guest lately hasbeen saying the same thing.
(06:20):
Andreas Mang, Jon Camire are probablythe latest, but I think it's come up on
the show like 90 times in the past year.
Find an impartial, you can trustthem, expert who understands
the intricacies of all of this.
This is so wildly important becauseyeah, regulations slow to change.
Policy reform is uncertain.
(06:41):
So we all gotta, sadly listen toshows like this one so that we
can competently grab a seat at thetable and advocate for ourselves.
Because you know what they say,If you aren't at the table,
consider yourself on the menu.
Also, unfortunately on the menu, aremembers, and if we're in policy, then
all of the taxpayers in our state ordistrict or country are also on the
(07:01):
menu., If you aren't at the table.
But hey, you know anotherway to stay off of the menu?
Read the Healthcare Breakdown which iswritten by my guest today, as I've said
multiple times already, Preston Alexander.
What Preston does over there atthehealthcarebreakdown.com, is he
pulls back the curtain primarilyfor clinicians, but frankly, I'm
not a clinician and I find thesebreakdowns ridiculously insightful.
(07:24):
But his goal is to use these insightsto help bring back independent practice
for physicians looking for a different,better way to practice medicine.
And he's also got some really greatposts on LinkedIn, so I would certainly
follow Preston over on LinkedIn as well.
My name is Stacey Richter.
This podcast is sponsoredby Aventria Health Group.
Preston Alexander, welcometo Relentless Health Value.
(07:44):
Thank you so much for having me.
It's an honor to be here.
Well, it is an honor to have,the Taylor Swift of LinkedIn
Healthcare writing on the pod today.
Thank you very much.
We are big Swifties in this household.
It helps me aspire to be thebest that I can be by trying
to be as cool as Taylor Swift.
Well, I learn a lot fromThe Healthcare Breakdown.
(08:05):
Just the analysis that you do.
So thank you.
I appreciate it.
It means a lot coming from you.
Let's talk today about the threesurprising ways that carriers make money.
And when we say carriers, this probablymeans all the service lines, meaning
fully insured Medicare Advantage,ASO businesses, Administrative
(08:26):
Services Only for plan sponsorssuch as self-insured employers.
We're not talking about how everybodyknows that carriers make money, i.e.
charging premiums and et cetera.
We're talking about surprisingways that carriers make money.
How would you begin our list here?
I think the first one that'ssurprising is what's called float.
Float is a concept and mechanismWarren Buffet kind of brought
(08:49):
to the mainstream and loves.
He said that I think it's, Compoundinginterest is the eighth wonder of
the world and float is the ninth.
It's something carriers usein leverage to their benefit.
The easiest way to think about float, Ithink is if you think about a gift card.
So if you bought a gift card to sayStarbucks, because we all need our
(09:11):
caffeine to get through the day.
You have bought basically the right tobuy something later on, and so Starbucks
takes the money for the gift card.
You've actually paid them, but they knowthat they're going to have to pay back
that value with a beverage at some point.
And so what happens is they have thecash, but they put it in their balance
(09:32):
sheet as a liability and because they knowthey're going to have to pay it out later.
But they still have the cash thatthey can do whatever they want with.
Insurance carriers work kind of thesame way, so you pay them your premium.
They know that they're goingto have to pay out either a
portion or all of that premium.
So instead of just saying, oh good, apremium, here's a bunch of cash that
(09:54):
we have, they record part or mostof, or all of it as a liability, as
typically you would find it under currentliabilities as medical costs payable.
And so it looks like they havethis huge amount of debt owed
these huge liabilities, but often asignificant portion of their current
(10:15):
liabilities is medical costs payable.
So they already have the money.
This is where the world ofaccounting collides and just how
an accountant is gonna record,what's IRL happening out there?
And to your point, we couldthink about premiums being paid
as kind of like a gift card.
So like if I'm selling giftcards, I have the money.
(10:35):
Somebody just gave me 50 bucksfor the gift card, but no one's
picked up their beverage yet.
Now I got 50 bucks that I can dowhat I will with, I'm sure somebody's
got some model that talks about theaverage amount of, you know, like
how long I have to have this money.
But the bottom line that you're makingis premiums function the same way I am
paid a premium and then I'm gonna havethat money and the longer I can delay
(11:00):
paying out the medical costs payable.
The more I have money to do with whatI will before the expenses come due.
The way that this is gonna get recordedon someone's accounting balance sheet,
like the way that the accountants aregonna look at it is they're gonna stick
all of the gift card total amount,you know, like all those premium
(11:20):
dollars over in the liability section.
So despite the fact that I have the money,and if I'm just thinking about this,
like, a normal person, not an accountant,I'd be like, wouldn't that be an asset?
You're basically saying, no, it'snot gonna be on the asset column.
It's actually gonna be in the liabilitycolumn, which might make a balance
sheet look like an insurance company,has a lot of liabilities, but some
(11:41):
of those liabilities are actuallydollars that they have collected.
Which is very counterintuitive, butthat's how it works in accounting land.
Yep.
That's how it works.
I mean, they do owe that money orthey're estimating that they owe
that money, but they're very good atknowing how to use it in the meantime.
So let's talk about that because wewere talking about surprising ways
(12:01):
that carriers make money, and whatI'm inferring is one of these ways,
at least, has to do with how theyare using these dollars they have
collected, that sooner or later they'regonna owe potentially, but do not yet.
So now I've got dollars in my pocketthat I can do with what I will.
So what's the first surprisingway given this backdrop?
(12:24):
Yeah, so, and it's what you, Ithink alluded to earlier and we've
heard a lot about in, um, you know,current news is delaying care.
Think about you have all this moneyin the, your bank account or whatever.
You want to turn it into moremoney, you wanna get a positive
return on any investment, andyou want the business to grow.
In order to do that, it wouldreally benefit you to have
(12:46):
as much time as possible.
So in insurance land and carrierland, that means delaying care.
That means denials with thehope that they're never fought.
That means asking for more information.
That means doing all kinds of differentthings just as a mechanism to delay
paying out that money that theyhave estimated that they're gonna
(13:08):
owe or already really should owe.
And it impacts physiciansand it impacts patients.
And it's certainly, surprisingin some ways, but also probably
the way that people feel it themost is when they're fighting with
insurance to pay for something.
And it's because they have all thismoney that you've already paid, that
they have in markets, in investments.
(13:30):
They're earmarked for acquisitionsand doing all these things because
they're using that float mostly andthe money you've already paid to
make as much profit as possible.
What I'm understanding you say is thatthe first surprising way carriers are
actually making money is, is probably,maybe there's two pieces to this one.
One of them is just by delayingthe need to actually pay the
(13:55):
medical cost payable for as long aspossible vis-a-vis delaying care.
The other one here isactually pharma rebates.
If you start, Ann Lewandowski wastalking about this quite a bit, if
you think about the pharma rebates areonly paid out at the end of the year.
So again, a carrier, verticallyintegrated PBM is keeping this money,
you know, they get the money upfront,they're keeping it for any length of time.
(14:15):
They can use that for, as you said,they could use it for acquisitions.
They could use it for just anyof the number of things that a
carrier might wanna do with thosedollars that they basically have.
And the longer that they can manageto keep those dollars, then obviously
the more they can do with them whilethey have them in their possession.
So that sounds like number one,like just what can you do with
(14:36):
somebody else's money that you happento have for some period of time?
Did I get that right?
Yep.
The float is that moneythat they've gotten and they
will eventually have to pay.
But the key word is eventually.
And so where denials come in andwe're delaying payouts and we're
putting in contracts that youdon't have to pay till later.
Having crazy, timely filing rules,it's can I keep as much money
(14:58):
that you already paid me as I can,even though I owe it back to you?
And they use that cash that you'vepaid that they know they'll have to
pay out eventually for things likeinvestments or things like acquisitions.
Or you know, things they knowthat they can get a return on.
I can make interest off of,again, somebody else's money.
(15:18):
Ann Lewandowski wrote the other day,she said, the payments, like rebates, et
cetera, they're almost like interest freeloans also for faster revenue recognition.
I could definitely see that as a financialinstrument, just thinking about it in,
in that way, like there's companies thatthis is how they make all their money is
by really maximizing the value of dollarsand using money to make more money.
(15:40):
Banks do it, right?
That's the banking model.
You put your money in the bank.
It's not in the bank.
They are lending it out to other peopleand making interest on it and on debt
instruments, insurance companies tooka, maybe like a page out of the bank's
book, except that we expect to get care.
It's a different kind of element.
And then they say, well, we'll just.
You don't really need that, you know,new lung, but it's like, wait, nope.
(16:02):
You definitely need that.
They just wanna wait as long as possiblebecause that money is making 12% in some
private equity hedge fund or something.
Yeah.
It's interesting.
Phil Harrison wrote the otherday, another financial, something
that people forgot about withzero interest rates is the float.
And then he wrote comingback with a vengeance.
And I think that's exactly the pointthat you're making, that as interest
(16:23):
rates go up, the ability to havesomebody else's money for any amount
of time can be very meaningful here.
Yep.
Absolutely.
I think that 0% is a veryinsightful way to, to put it.
What I'm picking up from what you aretalking about, Preston, is that if
someone talks about shared savings,that means that they're collecting
money upfront and then giving a pieceof it back later on, which is kind of
(16:45):
another way to say someone's has a float.
It definitely sounds like there's somevery smart people over at some of these
organizations who are trying to figureout all the various ways that they can
make money off of other people's money.
Okay, so our number one surprising waythat carriers can make money is basically
using other people's money to eitherget interest or make an acquisition.
(17:09):
That acquisition makes money, youknow, we gain more market share.
There's just a number of different,if you start really thinking about
it, ways that other people's moneycould be used to further our own ends.
And again, even if it's just a0% loan, that in and of itself is
pretty meaningful, so I can seehow that could easily top our list.
Our first most surprising way thatcarriers are making money here
(17:31):
that we could easily overlook.
What's our second thing?
The second thing I think aboutis intercompany eliminations.
So this is a probably a newer phenomenon,certainly in the last 15 years or so.
These large carriers, primarilyit's gonna be, the large ones
are buying care delivery andthen basically paying themselves.
(17:53):
So if I'm a carrier and then I go buya medical practice and I inflate the
cost of that medical practices carethat it's delivering, and I've just
inflated my medical loss ratio andmade a higher margin on my business.
The scale of it is actuallypretty wildly high.
(18:14):
So if we look at one example, not toget too bogged down in examples, but
in 2025 United Healthcare made $151billion in intercompany eliminations.
I mean, that's a ton of money.
A 151 billion they made offof intracompany eliminations.
What they were doing there isthe insurance carrier arm bought
(18:40):
care from their other arm thatwas actually delivering the care.
So A, they're sort of negotiating withthemselves, like how exactly do you
figure out what the negotiated rate iswhen you are the buyer and the seller?
But that aside, what you're sayingis, what happened around that table is
that the care could be very high cost,and then the carrier can say they're
(19:02):
paying very high cost for this care.
Therefore, the medicalloss ratio is very high.
You're only allowed to have 15%profit or something like that.
So the underlying costs have to be 80,85, 90% of what they're paying out.
But if the care is very expensive,then you can pay a lot out.
Right?
So in air quotes, your profit is lower,except it's just basically the profit
(19:25):
just moved over to the healthcare wherethere's none of these limits, right?
You're just kind of moving money aroundand you're saying that $151 billion got
shuffled from the insurer, you know,the carrier side of the equation over
to the healthcare side of the equation.
That's right.
So it's sort of just like taking, youknow, money out of one of your pockets
(19:46):
and putting it in the other one.
If you think about it from like justa simple math, like a hundred dollars.
So if a carrier had a hundreddollars in premiums, it's the
tiniest carrier on the planet, onlya hundred dollars in premiums, one
healthcare provider, and they chargethem $70 and they're like, oops.
I didn't spend enough moneyon my medical loss ratio.
(20:07):
Right, because it's only 70%.
So, whoops.
I just made 30% profit.
Oh no.
Let's think about this.
What should we do about it?
Well, let's go buy that practice andthen we'll negotiate with ourselves
and say, cost magically went up to $85.
And so now I own both, I'm thecarrier and I own the practice.
(20:28):
The practice charges me.
I charge myself $85.
I pay it, but then the practicescost, the end of the day was
only, I don't know, say $40.
So realistically, I eliminateall the money in between.
I got the a hundred dollars inpremium and I only spent $40.
So I went from making $30 to making $60.
(20:50):
And that's where you're saying that 151billion came from just in an example
like that, when the care suddenlybecame more expensive, you can pretty
much assume that that's the verticallyintegrated entity making money.
Yeah.
When you see that high of intercompanyeliminations, that's like them paying
all the care providers or all the otherentities or all the PBMs that they own.
(21:13):
They're paying them for a service,but then they're eliminating
that cost on their side.
And so whatever the cost of the downstreamcompany is, that's the ultimate cost.
And this has been brought up numeroustimes relative to plan sponsors and
fiduciary responsibility because asyou know, as we all know, um, fiduciary
(21:34):
responsibility requires that plandollars be spent, prudently reasonable
prices with no conflicts of interest.
And if you're hiring a carrier, an ASO tomanage your plan dollars, and that entity
is buying services from an entity it alsoowns, so it's sitting on both sides of the
(21:58):
table like that's the, like pretty muchthe definition of conflict of interest.
That has been brought up any number oftimes in that context also just these
inner company eliminations so that, sure,they're a surprising way for a carrier
to make money, but that definitely doeshave implications for plan sponsors
who are leaning into like, what doesfiduciary responsibility actually mean?
(22:20):
Yeah, absolutely.
I mean, you know, a conflict of interestand the inflation of cost because
the carrier's interest, if it ownsa company, is to charge itself more.
You know, would always check for fairmarket value and things like that
because they're often paying themselvesfar above fair market value and it
benefits them on both sides of the table.
(22:42):
Yeah, that's a actually a really goodpoint and that has been shown on the
pharmacy side of the house actually,which is also often a part of these
vertically integrated entities.
They not only own an insurance carrier,but they also own a PBM and some of
them own pharmacies, and it's just cometo light so many times where they're
paying their own pharmacies more thanthey're paying an independent pharmacy.
(23:04):
So I think that's just anotherside of that same coin.
Yeah.
Absolutely.
Let's move on.
All right.
What's our number three here?
Medicare and Medicare Advantage.
Said with some ominousness.
So let's talk about that.
As one must.
Yeah.
So yeah, the third way.
The third way I think is, and this isprimarily gonna be for large carriers,
to be fair, is the Medicare, Medicaidand Medicare Advantage markets.
(23:30):
So Medicare Advantage is highly dependenton risk scoring, risk adjustments,
and basically saying how sick is thepopulation that you are managing.
There's all kinds of different waysthat a carrier could suggest that
the population it is covering issicker than they are in actuality.
(23:50):
Because if they are sicker, theyshould be getting more money to help,
you know, manage that person's care.
The problem that we see is that, well,one, there has been some claims made.
Are these patients actually that sick?
And two, this ties back a little bitto the delay of care when we have
large for-profit, publicly tradedentities, and not just them, you
(24:14):
know, but most for-profit entitiesare really managed quarter by quarter.
And so when they're getting upfrontpayments for patients who are much
sicker or maybe aren't that much sicker.
It is in their benefit to hold ononce again to that money for as long
as they can which in a capitatedpayment world means just trying to
(24:34):
get that patient not to come back.
And unfortunately, that will sometimeslead to poor clinical, not from
the clinicians, but I'll call itpoor clinical influence from the
non-clinicians in those organizations.
It might suggest that a patientdoesn't need to come back for four
weeks when they really should comeback in a week's time to check on
(24:57):
some issue that they may have had.
So we see, and you can look insome of the annual 10-Ks of these
companies, really the total amountof dollars coming in from Medicare
and Medicaid are very significant.
Most of the dollars and most ofthe growth that some of these
carriers are realizing comes fromMedicare and Medicare Advantage.
(25:21):
While they may have a much lesssignificant portion of total covered
lives coming from those segments.
So I think a lot of people don'tnecessarily realize how much money the
private carriers make off of these publicprograms and how much they can benefit
(25:41):
from tax dollars going into the system.
So the point that you're makingin our number three surprising way
that carriers or these verticallyintegrated entities can make money
is figuring out Medicare Advantage.
As you said, it's an air quotes,a value-based care program.
It's a capitated program.
So what that means is that based onsome kind of risk adjusted framework.
(26:03):
Some kind of math that somebodydoes, it figures out that this
patient is this amount of sick.
They have diabetes, they have likehow many comorbidities they have and
for a patient of this health status,they should cost this much every year.
And then those dollarsare sent over prepaid.
That they're sent over in advance.
(26:24):
So, as you just said, referencethe first thing that we talked
about, which is these dollars arecollected before they are spent.
So same rules sort of apply.
The longer you can hang onto the money,the more that money can work for you.
So in this particular case, we havethe same financial incentives to
try to, exactly like you just said,delay care, to not have patients
(26:45):
come back to deny care, et cetera.
And because it's a quarter byquarter business in the market, this
is exacerbated by real short termthinking, like somebody doesn't come
back and then therefore, there'sa big expense a year from now,
or six, even six months from now.
That might not be top of mind.
So unless there is a kind of dyadleadership going on where you have a
(27:07):
clinician who's like, whoa, if all we'rethinking about are what the financial
outcomes are, there's certainly someperverse incentives here, I think
is the point that you're making.
And I'll say one other thing about it.
The rates that Medicare will come out withand they, you know, the percentages and
the adjustments and the, all the differentthings that they use to determine how
much they're going to pay per patient.
(27:28):
They base a lot of it for MedicareAdvantage on fee for service costs.
And this came out last year, theconversion factor went way up because
fee for service Medicare went way up.
But so as fee for service goes up, theymake those adjustments, commensurate
with the increases in fee for service.
So in other words, a MedicareAdvantage carrier is gonna come in
(27:50):
and say, look, it now costs thismuch to care for my multi-morbid
patient because they're looking at howmuch the fee for service rates are.
Doing some math there and saying, well,I need more money capitated because
the fee for service is going up.
But meanwhile, they also may ownmedical practices and are contributing
to that rise of fee for service.
Is that what I'm hearing?
(28:11):
Yes, that is what you're hearing.
So in so many ways, in all thedifferent areas, maybe the big takeaway
is that insurance carriers, largecarriers aren't actually incentivized
at all for medical costs to go down.
In fact, and may be quite the opposite.
It benefits them.
The more costs go up.
Just because of the float,the more when premiums go up.
(28:35):
Again, the way Medicare Advantage works,if the underlying costs go up, the
more money that a carrier could wind upbeing able to collect and then sit on
for as long as they can manage to siton it before they have to spend it out.
I can definitely see that that wouldbe the case if they also own practices.
It's pretty logical that if underlyingcosts go up, premiums go up.
(28:59):
The higher the float, then again,just relative to the scale of the
dollars that are able to be collected.
I could also just seewhat you say is true.
Yeah.
I mean, and to be fair, like, Imean, I think we should be fair.
It's not like every carrier andevery plan and every, this is like
a nefarious, trying to not givepeople the care that they need.
We often pick on obviously like the bigand the bad and yeah, the system deserves
(29:23):
a lot of that kind of thing, but it'snot that everybody's out there, even
sophisticated enough, frankly, to takeadvantage of all these different things.
Buying practices and owning the largestsurgery center group in the country,
you know, it's, it's not feasible.
So it is consolidated among a few of thelargest organizations, but it doesn't
(29:43):
detract, I guess, from the fact thatlike those top five command, most of
the premium dollars in all of healthcareand impact all of us and employers and
fully insured plan everybody in between.
If they're using them as TPAs, need tobe aware of these mechanisms because
that's how they're going to be ableto come back to the table and step up
(30:04):
and actually lower healthcare costs.
Knowing that the incentives arequite the opposite for these
large, sophisticated organizations.
Yeah, you're right.
I mean, it, it's definitely one ofthose things where if you're a carrier
at all, like even the most a hundredpercent patient first carrier, like if
the underlying costs are as high as theyare, you have to collect premiums that
(30:26):
are gonna cover those underlying costs.
So it's not like I can just kind ofunilaterally decide to have low premiums.
Right?
Like everyone's kind ofcaught in this cycle.
And also that being said, I wasreading something that Philip Holowka
wrote the other day about captives.
Captives and captive vendorsalso pay interest based on the
premiums that are collected.
(30:46):
They just pay interest directly back toplan sponsors instead of to the carriers.
So it's also, it needs to be said thatthis isn't a completely unknown unknown.
There are some plan sponsors who arerecognizing that there's a lot of
dollars that are afoot here in thisfloat, and they're in a captive so
(31:07):
that they can get the money themselves,as opposed to having the carrier be
the one to take the revenue off ofthe, or the interest payments there.
On the flip side, there'sbeen lots of success.
I would say probably less around reformand policy because one, we know that
all these mega entities have a lot ofinfluence and sway, and two policy's slow.
(31:32):
And as obviously the good fight thatyou know, Ann Lewandowski brings to the
table and what Chris Deacon posts aboutall the time, and a lot of this, uh,
great and important work that happensgets tied up in the judiciary that is
still largely, I mean, based on laws andpolicy and et cetera, but also opinion.
And it's a slow and hard process.
(31:52):
Again, some great things havehappened locally in different states,
the state level, but there's stillbeen success when the employers
step up because they represent atrillion dollars in health spend.
It's hard because there's so manyemployers who offer health plans and not
all of them are self-insured and it'shighly fragmented, but there are things
(32:13):
that are working and bright spots thatare emerging more and more, and the fact
that you have this forum and have builtit and have so many amazing people who
work so tirelessly and fight for thebetterment of the healthcare system.
I mean, we just gotta keep going andI think we will eventually get there.
So it definitely sounds like we havepivoted Preston from talking about
(32:37):
what the ways are that carriers maybe making money that are surprising.
And now we're into your advice.
The advice portion of this episode,one potential way forward that
could offer some positive here,which as you said is, is policy.
And for example, Indiana is doing someinteresting things relative to policy
(32:59):
that are about hospitals, but theycertainly have carrier implications.
But then on the flip side, as youjust said, policy A, it's slow.
B, it can become a quagmire ofregulatory capture and special interest.
Like for example, Kevin Lyons postedon LinkedIn yesterday about a situation
with the carrier in New Jersey who youknow is a major campaign contributor.
(33:22):
Let me ask you something very specific.
We talked about the three surprisingways that carriers make money.
What's your advice to takethat information on board?
Like, okay, so now I know that my carrieris making money off of my money, right?
Like they're making money off of my float.
(33:43):
What do I do?
I think the first thing that you dois honestly this, and I don't mean it
to maybe also sound like lazy advice.
It's not that.
Is go and find the right person orgroup who is skilled at building
health plans for employers andhave a conversation with them.
(34:06):
To me, you could get lost in the daysand weeks and months and years of what
fighting to get your data and tryingto parse things together, and you could
look at your healthcare spend better.
Do you know what you're looking at?
Why are you gonna call your broker?
They're just gonna try to keepyou renewing year after year.
So I think it's good to understand theconcepts and then go find that expert.
(34:31):
Go get a consultant, an expert whobuilds health plans for employers, and
ask them very straight, very forwardquestions about their costs, about the
plans they've built, how much they'vesaved, how they build their plans.
Why they're successful.
All of those, you know, why theyshouldn't work with their broker anymore.
(34:53):
Tell me what a TPA is.
Ask all of the basic pointedquestions, but go find that person
who's done this before and workswith other employers in your area
and has been successful doing it.
I think that's actuallyreally sage advice.
Andreas Mang and John Camire fromBlackstone, were just talking about
this, in fact, a couple of weeks ago.
Find someone who reallyunderstands exactly what's going
(35:17):
on with you, with your plan.
And then to your point, really dig inand, and you know, there's probably
some red flags, which are out of thescope of this conversation, but like
if you're working with a broker who'slike, Nope, nope, you have to stay with
your current carrier, they're probablygetting a retention bonus, right?
Like, this information is outthere when 12% or 22% trend
(35:38):
is something that you hear.
It becomes even more and more importantfor the plan, it becomes absolutely
vital for the plan to find the rightperson to be working with here.
Someone who's unconflicted,who you really know.
What was it, Edward Deming and God wetrust all else, bring data like you.
You have to have someone who'sactually bringing the receipts.
(35:59):
As they say, not just telling you and,and just given the complexity of some
of these games that are being played atthis juncture if it's your exact point,
if someone isn't transparently offeringup data as evidence relative to back up
what they're saying, like be very careful.
(36:19):
It, it's, I think is clear.
Yeah.
Better stated than I made it sound,so I appreciate it and I mean, yeah.
Listen, it's any business oneof their single largest costs
is healthcare these days.
It's wild.
Putting financials together and seeingwhat the cost is, our economy's not
gonna survive healthcare, and one bigway that we change that is employer
(36:41):
groups to go take action because theyare footing the majority of the bill.
They're also foisting costs on theiremployees that they can't afford.
Well said.
So Preston, where can peoplefind the healthcare breakdown?
You can find it on LinkedIn, youcan hang out with me there, or just
head to thehealthcarebreakdown.com.
(37:03):
Preston Alexander.
I have to say I love The HealthcareBreakdown and I would highly
recommend that anyone who hasn'tbeen there visit Preston Alexander's
Substack, The Healthcare Breakdown.
Preston Alexander, is thereanything I neglected to ask you
that you would like to mention here?
I think we pretty muchsolved all the problems in
healthcare, so I think we good.
You know what?
(37:23):
I think we can, or I think we can wrapthis up dot I and cross that team.
Yeah.
High five.
Be like, man, healthcare is fixed.
That's right.
Easy.
Mic drop.
Preston.
Alexander, thank you so much for beingon Relentless Health Value today.
Thank you so much.
It was a real honor.
Pleasure.
Hi, I am Dr. StanSchwartz from Zero Health.
Relentless Health Value has been a realsource of insight and inspiration for me.
(37:44):
Every episode feels like a thoughtful,informed conversation that really gets to
the heart of what matters in healthcare.
If you're committed to moving theneedle in this space like I am, I
strongly recommend subscribing toRelentless Health Value newsletter.
For me, it's the best way to keep upwith new episodes and stay connected.
Thanks for listening.
Episode 482.
" Three Surprising WaysCarriers Make Lots of Money.
What Do Plan Sponsors and ClinicalOrganizations Really Need to Know." Today
I am speaking with Preston Alexander.
(00:23):
American Healthcare Entrepreneurs andExecutives You Want to Know, Talking.
Relentless Seeking Value.
If you want to save the most money,look where the most money is.
You lot listening arelike, no kidding Sherlock.
If you want to figure out how tocut down the GDP being sucked into
(00:44):
healthcare, or the spend for anygiven plan sponsor on healthcare, look
at how much money is being made byFortune 10 companies like carriers.
Or big, huge consolidated providerorganizations their billions and
billions of dollars in marginor profit or quarterly earnings
or Redonkulous C-suite bonuses.
(01:07):
Let me misquote Jeff Bezos right now.
Excess healthcare industry marginis my mission for us to take
back for members and patients.
And there's trillions of dollarson big healthcare company balance
sheets that we can eye up here.
Just pull up these big guysfinancial reports, which is something
that my guest today, PrestonAlexander does on the regular.
(01:30):
And all of what we're talkingabout today is very actionable
if you consider it strategically.
Now.
Before we get into this episode, I'm goingto quote Robert Sundelius and he said on
LinkedIn I will link to it, "Profits arenot evil and for-profit companies are
not evil. Many organizations that createprofits also provide societal benefits.
(01:53):
However, when we exploit establishedinsurance or medical care systems to
maximize problems at the expense ofpublic health, we are treading a fine
line between business and ethics".
If you are interested in more alongthese same lines, I definitely
would recommend going back andlistening to the episode from a few
weeks ago with Dr. Ben Schwartz.
(02:15):
Hi, I am Dr. Vivian Ho.
I'm a health economist at RiceUniversity in Baylor College of Medicine.
I listen to Relentless Health Valuereligiously because this is the
show for those who are part of thetribe that wants to improve the
quality of healthcare, improve accessto care, and make it affordable.
So make sure that you subscribe tothe newsletter and subscribe to the
(02:37):
podcast and keep up with every episode.
Okay, back to the topic at hand,Surprising Ways Carriers Make Money.
Today I am speaking with asaforementioned Preston Alexander.
And we're gonna talk about, as Ijust said, not the normal boring
ways like underwriting profit.
Today we're gonna talk aboutthe surprising ways, and this is
important, these three surprising ways.
(02:59):
They're important if you're a plansponsor or if you're a taxpayer or a
policymaker, because these surprising wayscarriers make money are news you can use.
They drive carrier behavior inways that impact you, the plan,
sponsored member or taxpayer.
There's probably some lessons in therefor some indie physician groups as well.
And if you're a policymaker, these arethe flags on the top of the hill that
(03:23):
carriers are gonna try to protect.
There's a lot of extremelyrelevant details that Preston
Alexander reveals, but, oh wow,I can't stop with the spoilers.
So let me tell you the big kahunaof surprising ways they make money
off of taking taxpayer or plan,sponsor, or member dollars, and
then playing the float, as they say.
(03:45):
As much as 20% of some carrier'srevenue can come from taking member
premium dollars or some kind ofcapitated payment, and then trying to
not pay bills for as long as possible.
Dr. Eric Bricker made a point on avideo the other day that is adjacent
to all of this, so I will link to it.
But Dr. Bricker was talking about someof these rev cycle AI, augmented, tech
(04:08):
the crap out of it promises made to someprovider organizations to like increase
the speed carriers will pay bills.
And Dr. Bricker pointed out slowpaying bills is a feature, not a bug.
The slower the carrier paysbills, the more interest they make
off the money in the meantime.
Like so much in healthcare, gettingpaid faster is not a technical
(04:29):
problem, it's a, they don'tactually want to pay you problem.
A carrier, I just read in 2024made something like $4.8 billion
in investment income, $4.8 billion.
I wish I had that money.
I'd use it for Medicaid patients.
But a carrier with 4.8 billionlying around can use it too
for one thing, buy companies.
(04:50):
And then they get even more verticallyintegrated and consolidated, which
allows them more of the secondsurprising way to make money,
which is intracompany eliminations.
If you don't know what I'm talking aboutwhen I say intracompany eliminations,
well you're in the right place.
Listen to the episode, and you will.
But if you're up on this general conceptalready, consider 48.86% of United
(05:15):
Healthcare premiums went to Optum, UHC.
UnitedHealthcare paid their sister companyalmost half of their premium dollars.
Things that make you go, Hmm.
I will link to an interestingpost written by Joshua Brooker
and referencing something thatChris Deacon had written earlier.
(05:36):
But using these intercompany eliminationsfor the purposes of, I don't know,
potentially obscuring profits, it allowsany so inclined carrier to get even more
saucey with the third surprising way manyconsolidated carriers can make money,
which is upcoding in Medicare advantagefor excessive risk-based payments.
And those capitated paymentsare oh, right, made upfront.
(05:59):
So more float to be had.
Nice little flywheel therewhere the big get bigger.
What's Preston's advice movingforward, especially for plan
sponsors, considering all of this?
Critically evaluate relationshipswith carriers and look for consultants
who can offer unbiased expert advice.
Every guest lately hasbeen saying the same thing.
(06:20):
Andreas Mang, Jon Camire are probablythe latest, but I think it's come up on
the show like 90 times in the past year.
Find an impartial, you can trustthem, expert who understands
the intricacies of all of this.
This is so wildly important becauseyeah, regulations slow to change.
Policy reform is uncertain.
(06:41):
So we all gotta, sadly listen toshows like this one so that we
can competently grab a seat at thetable and advocate for ourselves.
Because you know what they say,If you aren't at the table,
consider yourself on the menu.
Also, unfortunately on the menu, aremembers, and if we're in policy, then
all of the taxpayers in our state ordistrict or country are also on the
(07:01):
menu., If you aren't at the table.
But hey, you know anotherway to stay off of the menu?
Read the Healthcare Breakdown which iswritten by my guest today, as I've said
multiple times already, Preston Alexander.
What Preston does over there atthehealthcarebreakdown.com, is he
pulls back the curtain primarilyfor clinicians, but frankly, I'm
not a clinician and I find thesebreakdowns ridiculously insightful.
(07:24):
But his goal is to use these insightsto help bring back independent practice
for physicians looking for a different,better way to practice medicine.
And he's also got some really greatposts on LinkedIn, so I would certainly
follow Preston over on LinkedIn as well.
My name is Stacey Richter.
This podcast is sponsoredby Aventria Health Group.
Preston Alexander, welcometo Relentless Health Value.
(07:44):
Thank you so much for having me.
It's an honor to be here.
Well, it is an honor to have,the Taylor Swift of LinkedIn
Healthcare writing on the pod today.
Thank you very much.
We are big Swifties in this household.
It helps me aspire to be thebest that I can be by trying
to be as cool as Taylor Swift.
Well, I learn a lot fromThe Healthcare Breakdown.
(08:05):
Just the analysis that you do.
So thank you.
I appreciate it.
It means a lot coming from you.
Let's talk today about the threesurprising ways that carriers make money.
And when we say carriers, this probablymeans all the service lines, meaning
fully insured Medicare Advantage,ASO businesses, Administrative
(08:26):
Services Only for plan sponsorssuch as self-insured employers.
We're not talking about how everybodyknows that carriers make money, i.e.
charging premiums and et cetera.
We're talking about surprisingways that carriers make money.
How would you begin our list here?
I think the first one that'ssurprising is what's called float.
Float is a concept and mechanismWarren Buffet kind of brought
(08:49):
to the mainstream and loves.
He said that I think it's, Compoundinginterest is the eighth wonder of
the world and float is the ninth.
It's something carriers usein leverage to their benefit.
The easiest way to think about float, Ithink is if you think about a gift card.
So if you bought a gift card to sayStarbucks, because we all need our
(09:11):
caffeine to get through the day.
You have bought basically the right tobuy something later on, and so Starbucks
takes the money for the gift card.
You've actually paid them, but they knowthat they're going to have to pay back
that value with a beverage at some point.
And so what happens is they have thecash, but they put it in their balance
(09:32):
sheet as a liability and because they knowthey're going to have to pay it out later.
But they still have the cash thatthey can do whatever they want with.
Insurance carriers work kind of thesame way, so you pay them your premium.
They know that they're goingto have to pay out either a
portion or all of that premium.
So instead of just saying, oh good, apremium, here's a bunch of cash that
(09:54):
we have, they record part or mostof, or all of it as a liability, as
typically you would find it under currentliabilities as medical costs payable.
And so it looks like they havethis huge amount of debt owed
these huge liabilities, but often asignificant portion of their current
(10:15):
liabilities is medical costs payable.
So they already have the money.
This is where the world ofaccounting collides and just how
an accountant is gonna record,what's IRL happening out there?
And to your point, we couldthink about premiums being paid
as kind of like a gift card.
So like if I'm selling giftcards, I have the money.
(10:35):
Somebody just gave me 50 bucksfor the gift card, but no one's
picked up their beverage yet.
Now I got 50 bucks that I can dowhat I will with, I'm sure somebody's
got some model that talks about theaverage amount of, you know, like
how long I have to have this money.
But the bottom line that you're makingis premiums function the same way I am
paid a premium and then I'm gonna havethat money and the longer I can delay
(11:00):
paying out the medical costs payable.
The more I have money to do with whatI will before the expenses come due.
The way that this is gonna get recordedon someone's accounting balance sheet,
like the way that the accountants aregonna look at it is they're gonna stick
all of the gift card total amount,you know, like all those premium
(11:20):
dollars over in the liability section.
So despite the fact that I have the money,and if I'm just thinking about this,
like, a normal person, not an accountant,I'd be like, wouldn't that be an asset?
You're basically saying, no, it'snot gonna be on the asset column.
It's actually gonna be in the liabilitycolumn, which might make a balance
sheet look like an insurance company,has a lot of liabilities, but some
(11:41):
of those liabilities are actuallydollars that they have collected.
Which is very counterintuitive, butthat's how it works in accounting land.
Yep.
That's how it works.
I mean, they do owe that money orthey're estimating that they owe
that money, but they're very good atknowing how to use it in the meantime.
So let's talk about that because wewere talking about surprising ways
(12:01):
that carriers make money, and whatI'm inferring is one of these ways,
at least, has to do with how theyare using these dollars they have
collected, that sooner or later they'regonna owe potentially, but do not yet.
So now I've got dollars in my pocketthat I can do with what I will.
So what's the first surprisingway given this backdrop?
(12:24):
Yeah, so, and it's what you, Ithink alluded to earlier and we've
heard a lot about in, um, you know,current news is delaying care.
Think about you have all this moneyin the, your bank account or whatever.
You want to turn it into moremoney, you wanna get a positive
return on any investment, andyou want the business to grow.
In order to do that, it wouldreally benefit you to have
(12:46):
as much time as possible.
So in insurance land and carrierland, that means delaying care.
That means denials with thehope that they're never fought.
That means asking for more information.
That means doing all kinds of differentthings just as a mechanism to delay
paying out that money that theyhave estimated that they're gonna
(13:08):
owe or already really should owe.
And it impacts physiciansand it impacts patients.
And it's certainly, surprisingin some ways, but also probably
the way that people feel it themost is when they're fighting with
insurance to pay for something.
And it's because they have all thismoney that you've already paid, that
they have in markets, in investments.
(13:30):
They're earmarked for acquisitionsand doing all these things because
they're using that float mostly andthe money you've already paid to
make as much profit as possible.
What I'm understanding you say is thatthe first surprising way carriers are
actually making money is, is probably,maybe there's two pieces to this one.
One of them is just by delayingthe need to actually pay the
(13:55):
medical cost payable for as long aspossible vis-a-vis delaying care.
The other one here isactually pharma rebates.
If you start, Ann Lewandowski wastalking about this quite a bit, if
you think about the pharma rebates areonly paid out at the end of the year.
So again, a carrier, verticallyintegrated PBM is keeping this money,
you know, they get the money upfront,they're keeping it for any length of time.
(14:15):
They can use that for, as you said,they could use it for acquisitions.
They could use it for just anyof the number of things that a
carrier might wanna do with thosedollars that they basically have.
And the longer that they can manageto keep those dollars, then obviously
the more they can do with them whilethey have them in their possession.
So that sounds like number one,like just what can you do with
(14:36):
somebody else's money that you happento have for some period of time?
Did I get that right?
Yep.
The float is that moneythat they've gotten and they
will eventually have to pay.
But the key word is eventually.
And so where denials come in andwe're delaying payouts and we're
putting in contracts that youdon't have to pay till later.
Having crazy, timely filing rules,it's can I keep as much money
(14:58):
that you already paid me as I can,even though I owe it back to you?
And they use that cash that you'vepaid that they know they'll have to
pay out eventually for things likeinvestments or things like acquisitions.
Or you know, things they knowthat they can get a return on.
I can make interest off of,again, somebody else's money.
(15:18):
Ann Lewandowski wrote the other day,she said, the payments, like rebates, et
cetera, they're almost like interest freeloans also for faster revenue recognition.
I could definitely see that as a financialinstrument, just thinking about it in,
in that way, like there's companies thatthis is how they make all their money is
by really maximizing the value of dollarsand using money to make more money.
(15:40):
Banks do it, right?
That's the banking model.
You put your money in the bank.
It's not in the bank.
They are lending it out to other peopleand making interest on it and on debt
instruments, insurance companies tooka, maybe like a page out of the bank's
book, except that we expect to get care.
It's a different kind of element.
And then they say, well, we'll just.
You don't really need that, you know,new lung, but it's like, wait, nope.
(16:02):
You definitely need that.
They just wanna wait as long as possiblebecause that money is making 12% in some
private equity hedge fund or something.
Yeah.
It's interesting.
Phil Harrison wrote the otherday, another financial, something
that people forgot about withzero interest rates is the float.
And then he wrote comingback with a vengeance.
And I think that's exactly the pointthat you're making, that as interest
(16:23):
rates go up, the ability to havesomebody else's money for any amount
of time can be very meaningful here.
Yep.
Absolutely.
I think that 0% is a veryinsightful way to, to put it.
What I'm picking up from what you aretalking about, Preston, is that if
someone talks about shared savings,that means that they're collecting
money upfront and then giving a pieceof it back later on, which is kind of
(16:45):
another way to say someone's has a float.
It definitely sounds like there's somevery smart people over at some of these
organizations who are trying to figureout all the various ways that they can
make money off of other people's money.
Okay, so our number one surprising waythat carriers can make money is basically
using other people's money to eitherget interest or make an acquisition.
(17:09):
That acquisition makes money, youknow, we gain more market share.
There's just a number of different,if you start really thinking about
it, ways that other people's moneycould be used to further our own ends.
And again, even if it's just a0% loan, that in and of itself is
pretty meaningful, so I can seehow that could easily top our list.
Our first most surprising way thatcarriers are making money here
(17:31):
that we could easily overlook.
What's our second thing?
The second thing I think aboutis intercompany eliminations.
So this is a probably a newer phenomenon,certainly in the last 15 years or so.
These large carriers, primarilyit's gonna be, the large ones
are buying care delivery andthen basically paying themselves.
(17:53):
So if I'm a carrier and then I go buya medical practice and I inflate the
cost of that medical practices carethat it's delivering, and I've just
inflated my medical loss ratio andmade a higher margin on my business.
The scale of it is actuallypretty wildly high.
(18:14):
So if we look at one example, not toget too bogged down in examples, but
in 2025 United Healthcare made $151billion in intercompany eliminations.
I mean, that's a ton of money.
A 151 billion they made offof intracompany eliminations.
What they were doing there isthe insurance carrier arm bought
(18:40):
care from their other arm thatwas actually delivering the care.
So A, they're sort of negotiating withthemselves, like how exactly do you
figure out what the negotiated rate iswhen you are the buyer and the seller?
But that aside, what you're sayingis, what happened around that table is
that the care could be very high cost,and then the carrier can say they're
(19:02):
paying very high cost for this care.
Therefore, the medicalloss ratio is very high.
You're only allowed to have 15%profit or something like that.
So the underlying costs have to be 80,85, 90% of what they're paying out.
But if the care is very expensive,then you can pay a lot out.
Right?
So in air quotes, your profit is lower,except it's just basically the profit
(19:25):
just moved over to the healthcare wherethere's none of these limits, right?
You're just kind of moving money aroundand you're saying that $151 billion got
shuffled from the insurer, you know,the carrier side of the equation over
to the healthcare side of the equation.
That's right.
So it's sort of just like taking, youknow, money out of one of your pockets
(19:46):
and putting it in the other one.
If you think about it from like justa simple math, like a hundred dollars.
So if a carrier had a hundreddollars in premiums, it's the
tiniest carrier on the planet, onlya hundred dollars in premiums, one
healthcare provider, and they chargethem $70 and they're like, oops.
I didn't spend enough moneyon my medical loss ratio.
(20:07):
Right, because it's only 70%.
So, whoops.
I just made 30% profit.
Oh no.
Let's think about this.
What should we do about it?
Well, let's go buy that practice andthen we'll negotiate with ourselves
and say, cost magically went up to $85.
And so now I own both, I'm thecarrier and I own the practice.
(20:28):
The practice charges me.
I charge myself $85.
I pay it, but then the practicescost, the end of the day was
only, I don't know, say $40.
So realistically, I eliminateall the money in between.
I got the a hundred dollars inpremium and I only spent $40.
So I went from making $30 to making $60.
(20:50):
And that's where you're saying that 151billion came from just in an example
like that, when the care suddenlybecame more expensive, you can pretty
much assume that that's the verticallyintegrated entity making money.
Yeah.
When you see that high of intercompanyeliminations, that's like them paying
all the care providers or all the otherentities or all the PBMs that they own.
(21:13):
They're paying them for a service,but then they're eliminating
that cost on their side.
And so whatever the cost of the downstreamcompany is, that's the ultimate cost.
And this has been brought up numeroustimes relative to plan sponsors and
fiduciary responsibility because asyou know, as we all know, um, fiduciary
(21:34):
responsibility requires that plandollars be spent, prudently reasonable
prices with no conflicts of interest.
And if you're hiring a carrier, an ASO tomanage your plan dollars, and that entity
is buying services from an entity it alsoowns, so it's sitting on both sides of the
(21:58):
table like that's the, like pretty muchthe definition of conflict of interest.
That has been brought up any number oftimes in that context also just these
inner company eliminations so that, sure,they're a surprising way for a carrier
to make money, but that definitely doeshave implications for plan sponsors
who are leaning into like, what doesfiduciary responsibility actually mean?
(22:20):
Yeah, absolutely.
I mean, you know, a conflict of interestand the inflation of cost because
the carrier's interest, if it ownsa company, is to charge itself more.
You know, would always check for fairmarket value and things like that
because they're often paying themselvesfar above fair market value and it
benefits them on both sides of the table.
(22:42):
Yeah, that's a actually a really goodpoint and that has been shown on the
pharmacy side of the house actually,which is also often a part of these
vertically integrated entities.
They not only own an insurance carrier,but they also own a PBM and some of
them own pharmacies, and it's just cometo light so many times where they're
paying their own pharmacies more thanthey're paying an independent pharmacy.
(23:04):
So I think that's just anotherside of that same coin.
Yeah.
Absolutely.
Let's move on.
All right.
What's our number three here?
Medicare and Medicare Advantage.
Said with some ominousness.
So let's talk about that.
As one must.
Yeah.
So yeah, the third way.
The third way I think is, and this isprimarily gonna be for large carriers,
to be fair, is the Medicare, Medicaidand Medicare Advantage markets.
(23:30):
So Medicare Advantage is highly dependenton risk scoring, risk adjustments,
and basically saying how sick is thepopulation that you are managing.
There's all kinds of different waysthat a carrier could suggest that
the population it is covering issicker than they are in actuality.
(23:50):
Because if they are sicker, theyshould be getting more money to help,
you know, manage that person's care.
The problem that we see is that, well,one, there has been some claims made.
Are these patients actually that sick?
And two, this ties back a little bitto the delay of care when we have
large for-profit, publicly tradedentities, and not just them, you
(24:14):
know, but most for-profit entitiesare really managed quarter by quarter.
And so when they're getting upfrontpayments for patients who are much
sicker or maybe aren't that much sicker.
It is in their benefit to hold ononce again to that money for as long
as they can which in a capitatedpayment world means just trying to
(24:34):
get that patient not to come back.
And unfortunately, that will sometimeslead to poor clinical, not from
the clinicians, but I'll call itpoor clinical influence from the
non-clinicians in those organizations.
It might suggest that a patientdoesn't need to come back for four
weeks when they really should comeback in a week's time to check on
(24:57):
some issue that they may have had.
So we see, and you can look insome of the annual 10-Ks of these
companies, really the total amountof dollars coming in from Medicare
and Medicaid are very significant.
Most of the dollars and most ofthe growth that some of these
carriers are realizing comes fromMedicare and Medicare Advantage.
(25:21):
While they may have a much lesssignificant portion of total covered
lives coming from those segments.
So I think a lot of people don'tnecessarily realize how much money the
private carriers make off of these publicprograms and how much they can benefit
(25:41):
from tax dollars going into the system.
So the point that you're makingin our number three surprising way
that carriers or these verticallyintegrated entities can make money
is figuring out Medicare Advantage.
As you said, it's an air quotes,a value-based care program.
It's a capitated program.
So what that means is that based onsome kind of risk adjusted framework.
(26:03):
Some kind of math that somebodydoes, it figures out that this
patient is this amount of sick.
They have diabetes, they have likehow many comorbidities they have and
for a patient of this health status,they should cost this much every year.
And then those dollarsare sent over prepaid.
That they're sent over in advance.
(26:24):
So, as you just said, referencethe first thing that we talked
about, which is these dollars arecollected before they are spent.
So same rules sort of apply.
The longer you can hang onto the money,the more that money can work for you.
So in this particular case, we havethe same financial incentives to
try to, exactly like you just said,delay care, to not have patients
(26:45):
come back to deny care, et cetera.
And because it's a quarter byquarter business in the market, this
is exacerbated by real short termthinking, like somebody doesn't come
back and then therefore, there'sa big expense a year from now,
or six, even six months from now.
That might not be top of mind.
So unless there is a kind of dyadleadership going on where you have a
(27:07):
clinician who's like, whoa, if all we'rethinking about are what the financial
outcomes are, there's certainly someperverse incentives here, I think
is the point that you're making.
And I'll say one other thing about it.
The rates that Medicare will come out withand they, you know, the percentages and
the adjustments and the, all the differentthings that they use to determine how
much they're going to pay per patient.
(27:28):
They base a lot of it for MedicareAdvantage on fee for service costs.
And this came out last year, theconversion factor went way up because
fee for service Medicare went way up.
But so as fee for service goes up, theymake those adjustments, commensurate
with the increases in fee for service.
So in other words, a MedicareAdvantage carrier is gonna come in
(27:50):
and say, look, it now costs thismuch to care for my multi-morbid
patient because they're looking at howmuch the fee for service rates are.
Doing some math there and saying, well,I need more money capitated because
the fee for service is going up.
But meanwhile, they also may ownmedical practices and are contributing
to that rise of fee for service.
Is that what I'm hearing?
(28:11):
Yes, that is what you're hearing.
So in so many ways, in all thedifferent areas, maybe the big takeaway
is that insurance carriers, largecarriers aren't actually incentivized
at all for medical costs to go down.
In fact, and may be quite the opposite.
It benefits them.
The more costs go up.
Just because of the float,the more when premiums go up.
(28:35):
Again, the way Medicare Advantage works,if the underlying costs go up, the
more money that a carrier could wind upbeing able to collect and then sit on
for as long as they can manage to siton it before they have to spend it out.
I can definitely see that that wouldbe the case if they also own practices.
It's pretty logical that if underlyingcosts go up, premiums go up.
(28:59):
The higher the float, then again,just relative to the scale of the
dollars that are able to be collected.
I could also just seewhat you say is true.
Yeah.
I mean, and to be fair, like, Imean, I think we should be fair.
It's not like every carrier andevery plan and every, this is like
a nefarious, trying to not givepeople the care that they need.
We often pick on obviously like the bigand the bad and yeah, the system deserves
(29:23):
a lot of that kind of thing, but it'snot that everybody's out there, even
sophisticated enough, frankly, to takeadvantage of all these different things.
Buying practices and owning the largestsurgery center group in the country,
you know, it's, it's not feasible.
So it is consolidated among a few of thelargest organizations, but it doesn't
(29:43):
detract, I guess, from the fact thatlike those top five command, most of
the premium dollars in all of healthcareand impact all of us and employers and
fully insured plan everybody in between.
If they're using them as TPAs, need tobe aware of these mechanisms because
that's how they're going to be ableto come back to the table and step up
(30:04):
and actually lower healthcare costs.
Knowing that the incentives arequite the opposite for these
large, sophisticated organizations.
Yeah, you're right.
I mean, it, it's definitely one ofthose things where if you're a carrier
at all, like even the most a hundredpercent patient first carrier, like if
the underlying costs are as high as theyare, you have to collect premiums that
(30:26):
are gonna cover those underlying costs.
So it's not like I can just kind ofunilaterally decide to have low premiums.
Right?
Like everyone's kind ofcaught in this cycle.
And also that being said, I wasreading something that Philip Holowka
wrote the other day about captives.
Captives and captive vendorsalso pay interest based on the
premiums that are collected.
(30:46):
They just pay interest directly back toplan sponsors instead of to the carriers.
So it's also, it needs to be said thatthis isn't a completely unknown unknown.
There are some plan sponsors who arerecognizing that there's a lot of
dollars that are afoot here in thisfloat, and they're in a captive so
(31:07):
that they can get the money themselves,as opposed to having the carrier be
the one to take the revenue off ofthe, or the interest payments there.
On the flip side, there'sbeen lots of success.
I would say probably less around reformand policy because one, we know that
all these mega entities have a lot ofinfluence and sway, and two policy's slow.
(31:32):
And as obviously the good fight thatyou know, Ann Lewandowski brings to the
table and what Chris Deacon posts aboutall the time, and a lot of this, uh,
great and important work that happensgets tied up in the judiciary that is
still largely, I mean, based on laws andpolicy and et cetera, but also opinion.
And it's a slow and hard process.
(31:52):
Again, some great things havehappened locally in different states,
the state level, but there's stillbeen success when the employers
step up because they represent atrillion dollars in health spend.
It's hard because there's so manyemployers who offer health plans and not
all of them are self-insured and it'shighly fragmented, but there are things
(32:13):
that are working and bright spots thatare emerging more and more, and the fact
that you have this forum and have builtit and have so many amazing people who
work so tirelessly and fight for thebetterment of the healthcare system.
I mean, we just gotta keep going andI think we will eventually get there.
So it definitely sounds like we havepivoted Preston from talking about
(32:37):
what the ways are that carriers maybe making money that are surprising.
And now we're into your advice.
The advice portion of this episode,one potential way forward that
could offer some positive here,which as you said is, is policy.
And for example, Indiana is doing someinteresting things relative to policy
(32:59):
that are about hospitals, but theycertainly have carrier implications.
But then on the flip side, as youjust said, policy A, it's slow.
B, it can become a quagmire ofregulatory capture and special interest.
Like for example, Kevin Lyons postedon LinkedIn yesterday about a situation
with the carrier in New Jersey who youknow is a major campaign contributor.
(33:22):
Let me ask you something very specific.
We talked about the three surprisingways that carriers make money.
What's your advice to takethat information on board?
Like, okay, so now I know that my carrieris making money off of my money, right?
Like they're making money off of my float.
(33:43):
What do I do?
I think the first thing that you dois honestly this, and I don't mean it
to maybe also sound like lazy advice.
It's not that.
Is go and find the right person orgroup who is skilled at building
health plans for employers andhave a conversation with them.
(34:06):
To me, you could get lost in the daysand weeks and months and years of what
fighting to get your data and tryingto parse things together, and you could
look at your healthcare spend better.
Do you know what you're looking at?
Why are you gonna call your broker?
They're just gonna try to keepyou renewing year after year.
So I think it's good to understand theconcepts and then go find that expert.
(34:31):
Go get a consultant, an expert whobuilds health plans for employers, and
ask them very straight, very forwardquestions about their costs, about the
plans they've built, how much they'vesaved, how they build their plans.
Why they're successful.
All of those, you know, why theyshouldn't work with their broker anymore.
(34:53):
Tell me what a TPA is.
Ask all of the basic pointedquestions, but go find that person
who's done this before and workswith other employers in your area
and has been successful doing it.
I think that's actuallyreally sage advice.
Andreas Mang and John Camire fromBlackstone, were just talking about
this, in fact, a couple of weeks ago.
Find someone who reallyunderstands exactly what's going
(35:17):
on with you, with your plan.
And then to your point, really dig inand, and you know, there's probably
some red flags, which are out of thescope of this conversation, but like
if you're working with a broker who'slike, Nope, nope, you have to stay with
your current carrier, they're probablygetting a retention bonus, right?
Like, this information is outthere when 12% or 22% trend
(35:38):
is something that you hear.
It becomes even more and more importantfor the plan, it becomes absolutely
vital for the plan to find the rightperson to be working with here.
Someone who's unconflicted,who you really know.
What was it, Edward Deming and God wetrust all else, bring data like you.
You have to have someone who'sactually bringing the receipts.
(35:59):
As they say, not just telling you and,and just given the complexity of some
of these games that are being played atthis juncture if it's your exact point,
if someone isn't transparently offeringup data as evidence relative to back up
what they're saying, like be very careful.
(36:19):
It, it's, I think is clear.
Yeah.
Better stated than I made it sound,so I appreciate it and I mean, yeah.
Listen, it's any business oneof their single largest costs
is healthcare these days.
It's wild.
Putting financials together and seeingwhat the cost is, our economy's not
gonna survive healthcare, and one bigway that we change that is employer
(36:41):
groups to go take action because theyare footing the majority of the bill.
They're also foisting costs on theiremployees that they can't afford.
Well said.
So Preston, where can peoplefind the healthcare breakdown?
You can find it on LinkedIn, youcan hang out with me there, or just
head to thehealthcarebreakdown.com.
(37:03):
Preston Alexander.
I have to say I love The HealthcareBreakdown and I would highly
recommend that anyone who hasn'tbeen there visit Preston Alexander's
Substack, The Healthcare Breakdown.
Preston Alexander, is thereanything I neglected to ask you
that you would like to mention here?
I think we pretty muchsolved all the problems in
healthcare, so I think we good.
You know what?
(37:23):
I think we can, or I think we can wrapthis up dot I and cross that team.
Yeah.
High five.
Be like, man, healthcare is fixed.
That's right.
Easy.
Mic drop.
Preston.
Alexander, thank you so much for beingon Relentless Health Value today.
Thank you so much.
It was a real honor.
Pleasure.
Hi, I am Dr. StanSchwartz from Zero Health.
Relentless Health Value has been a realsource of insight and inspiration for me.
(37:44):
Every episode feels like a thoughtful,informed conversation that really gets to
the heart of what matters in healthcare.
If you're committed to moving theneedle in this space like I am, I
strongly recommend subscribing toRelentless Health Value newsletter.
For me, it's the best way to keep upwith new episodes and stay connected.
Thanks for listening.
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