I’m going to go a little bit outside my normal insurance domain to address a topic that has received a lot of attention of late – corporate health insurance.
Most people I speak to have a fundamental misunderstanding about how their health insurance works.
If you have employer provided healthcare, it is more likely than not your “healthcare provider” is not the company whose card you carry in your wallet. It’s actually your employer.
That’s right, most US companies above 100 employees self insure the healthcare benefits they provide. The “healthcare company” you use is only administering the insurance captive. They receive no benefit if claims are less than expected (unless there is a profit share component).
According to its 10-K, 70% of United Healthcare’s insureds from corporate clients are under self-insured plans. They are only taking underwriting risk themselves on 30%.

Health Insurance MGAs
You can think of large health insurers similar to a MGA. They interface with the customer, do all the administration for enrollment and managing claims, work with the risk bearing entity to set pricing, and get paid a percent of premium (and, in some cases, take a small participation in the underwriting through a profit share).
But the underwriting decisions regarding breadth of coverage are made by the employer, just as Lloyd’s or AIG will decide how broad or narrow a form they are willing to accept when choosing to provide capacity to a MGA.
So when your claim gets denied, it is not because your health insurer wanted to make more money from you! They get no benefit from doing so.
They are rejecting your claim because that is what your employer wants them to do. After all, it is your employer deciding how much coverage to buy for you.
While the insurer will give them options, they do not choose. The employer does.
Do you know why your employer likes having the insurance company manage claims? Sure, they have expertise at it your employer doesn’t have, but do you know the real reason?
Blame shifting! The greatest trick corporate America played on the average worker is convincing them the health insurer is the villain rather than their boss.
That’s right, the real reason health insurers get paid is to play the role of the villain so HR can convince you they’re on your side when you get sick.
Health Insurance Captives
If your employer wanted a very low incidence of coverage denials, they could easily accomplish this by buying richer coverage. Why don’t they?
Because, as noted above, they are taking the risk. If healthcare benefits are too rich, it lowers profits for the corporate captive.
If profits are too low, your employer will need to contribute more money to ensure it has adequate reserves. That is not something they like to do.
Therefore, they ask the insurer for ways they can bring costs down. The two easiest ways to do that are higher co-pays or more restrictions on approved providers and procedures.
But note, this conversation emanates from your employer. The insurer has no incentive to push down the employer’s premium.
You may be wondering what happens if the captive has lower claims than expected. In that case, they have excess profit.
They have three options if that happens:
– retain it in the captive for extra cushion against adverse claims in the future
– lower the employee contribution to the healthcare premium in the following year (meaning the captive’s premiums go down)
– have the captive dividend money back to the corporation.
I don’t have any statistics on how companies respond to better results, but my guess is most leave it in the captive, knowing that results will be lumpy.
The Impact of Overconsumption
One important thing to note is the biggest driver of your employer’s decision over how much coverage to order is your healthcare consumption.
In other words, the more you seek unnecessary testing or go to the ER for a sprained ankle, the more the insurance captive has to pay in return for a marginal benefit.
When employees overconsume healthcare services, the employer’s rational response is to look for ways to decrease utilization so that the captive doesn’t become underfunded.
This is why we get things like reductions in or denials of coverage. So, while my main focus here is to shift your enmity from the health insurer to your employer, it would be naïve to overlook that you, me, and all of our co-workers deserve some of the blame too.
For example, where I live in Illinois, there were two recent news events related to health insurance. Both will raise costs.
First, the school district asked for more money to pay for “higher than expected healthcare premiums”. However, buried in the story was the insurance broker’s explanation for why premiums were rising.
The school district had seen a surge in prescriptions for GLP-1s (e.g. Ozempic). Now, I’m sure there are some diabetic teachers in the school system, but I’ve yet to meet a likely one at a parent-teacher conference.
So, the most likely explanation is teachers were using GLP-1s cosmetically because “insurance paid for it”. No, I paid for it through my property taxes!
What else? During the recent statewide elections, there was a ballot referendum asking if voters supported the state mandating health insurers cover IVF. Not surprisingly, it passed.
Why? Because the ballot language didn’t tell people their insurance premium would go up if their health plan had to cover a new benefit. Instead, people thought they were being empathetic by voting yes.
Seeking Free Riders
Personally, I have no strong opinion on whether health insurers should or shouldn’t cover IVF. I do have a strong opinion though on whether taxpayers being asked to mandate it should be told what the cost is first.
What do these two examples show? The majority of people want benefits for themselves paid for by others.
That is not how insurance works! Because we use health insurance to pay for routine care (in contrast to property insurance which does not cover maintenance), you can’t have a lot of people pool their premiums together to cover the one unlucky person who has a major claim.
Instead, we ask people who don’t use a lot of routine care or lifestyle drugs to pay for those who do use a lot of routine care and lifestyle drugs.
That isn’t insurance. That’s wealth transfer. People are looking to free ride off the premium paid by others.
That isn’t your health insurer’s fault. They are no more than the middleman trying to make a bad system less bad.
End Corporate Health Insurance
So how do we fix this? I don’t have all the answers, by any means, and I’m not about to write a full white paper, but I do have a few brief suggestions.
First, your employer shouldn’t be providing you insurance. It makes as much sense as universities running large football programs.
It’s an anachronism that adds an extra layer of cost. It creates a third party who wants to deny you coverage (maybe when people were corporate lifers, your employer cared about your long term health, but they don’t anymore).
It also creates a two tier system between corporate employees and part-timers or freelancers. This two tier system limits the growth of a robust market for individual buyers (which is mainly what Obamacare attempted to address).
There is no good reason health insurance shouldn’t be sold like auto insurance. People complain a lot less about GEICO than United Healthcare.
There are a lot more competitors which brings down prices and incents corporate efficiency as opposed to the giant overhead we presently have in health insurance.
Think how much more auto insurance used to cost in states that were highly regulated (NJ, MA, etc.) and how much less it costs in those states since they introduced competitive markets.
Why would health insurance be any different?
What is the most competitive area of health insurance today? Medicare Advantage.
Why? Because it has more competition than corporate health plans. It’s still not great (far more regulated than auto and home), but it’s a step in the right direction.
We have a template. Move health insurance to the individual market! Create incentives for companies to enter the market and watch premiums (and coverage denials) drop.
We still have one more reform needed. Most plans should be high deductible and people should expect to pay for routine bills out of pocket.
This will drive down prices as customers will seek out more value for their money than they do today (just as with auto insurance).
I understand the argument for an annual wellness visit being a cost effective tool in the long run. If the data supports that, insurers will choose to provide this benefit on their own, in the same way as home insurers will give away water sensors. But it shouldn’t be mandated as a loss leader.
What Have We Learned?
I covered a lot of ground here, so it’s probably worth doing a quick recap.
– your employer should not provide health insurance as there is a conflict between what is good for them (lower utilization) and good for you (the ability to choose how much more/less you are willing to pay for extra/reduced coverage).
– your health insurer is likely a MGA and acts like a referee. They enforce the rules, but they don’t benefit from who wins the game.
– encouraging overconsumption of a scarce resource is a dumb idea. This is what happens when there is no price mechanism to allocate supply efficiently.
– insurance works best when people pool premiums to cover unexpected, adverse events. Nobody wants to have a car accident. Nobody wants a major illness. Insurance isn’t for shifting voluntary costs to free riders.
Finally, to state the obvious, am I suggesting the health insurers act wonderfully and don’t deserve any criticism? Of course, not. I like blaming the referees too!
But what do the players usually say? If we played better, the game wouldn’t have been close enough for the referees to decide the outcome.
Similarly, if we design a better healthcare system, we wouldn’t be asking the health insurer to make so many calls on who gets covered and who doesn’t, because you could buy a plan that lets you pay more to get more coverage and insurers would start competing on how much they covered, not how little.
Yes, yes, yes
This is an inverse form of logic that puts the cart before the horse. The major topic not discussed is “the why?” Why are corporate buyers pursuing self-insured models? Whose designing, marketing and coaching their implementation? Unfortunately, the answer arrives back at the front door of the carriers. The carriers are clearly attempting to transform their corporate buyers into carriers themselves as much as possible within regulatory guardrails.
To imply otherwise is to indicate it’s the corporate buyers creativity creating the self-insured marketplace. The carriers are clearly avoiding their fundamental responsibility of underwriting and instead are attempting to become “bank-like” fee-based businesses. No matter how it’s spun, the carriers operate in an industry with a fundamental connection to social morality. To try and decouple this and argue from a purely market based standpoint misses the mark.
Further, these carriers lobby both the federal and state government for major subsidies with the goal of privatizing gains and socializing losses onto the very taxpayers whose claims they deny at their worst moments (see below links) = “What do these two examples show? The majority of people want benefits for themselves paid for by others.” = Sounds ironic.
Proposed solution = compare health to auto insurance and beta test two non-comparable forms of insurance via shifting more cost onto the individual consumer who is already drowning based on a theory of eventual price decreases..
That said, these carriers deserve all the negative public scrutiny they receive and should be held accountable. They’re rightly not trusted and disliked by the public and to try and blame a corporate buyer for their behaviors is a bait and switch tactic. I don’t see any of your posts detailing the state of corporate welfare.
“Do you know why your employer likes having the insurance company manage claims? Blame shifting!
The greatest trick corporate America played on the average worker is convincing them the health insurer is the villain rather than their boss.
That’s right, the real reason health insurers get paid is to play the role of the villain so HR can convince you they’re on your side when you get sick.”
This excerpt is an interesting one since its in conflict with your other position. Namely implying corporate buyers have ability to be efficient in non-core businesses. I.e. Claims management. It’s ironic since you’ve previously stated OEMs won’t nor have ever successfully sold auto insurance since it’s not their core business expertise. I’d be interested to understand the delineation in your positions here.
One is also inclined to think the carriers prefer to manage claims themselves and not the other way around since it’s the carrier paper/license that is fronting to the regulators for these self-insured captive carrier fronted programs.
As anyone in the industry likely knows, bad claims management practices are typically the major driver behind DOI enforcement actions, penalties, fines, suspensions, etc..
Therefore it’s in carriers best interest to not jeopardize the risk taking via “carrierization” of corporate buyers by way of these self-insured programs by outsourcing said claims management to their corporate buyers.
Very well said. My understanding is that self-insured plans are regulated by the Feds, under ERISA. When self-insured, employers are able to customize their coverages, and are not subject to state mandates (maybe even including the IVF coverage mentioned). There are other related “Hide the Blame” layers in this system. For example, employers & health insurers have medical providers collect deductibles and co-pays. Patients blame the provider for these costs, and don’t recognize that the costs are policy design choices that the employer has made.
Ian appears to prevent certain comments from being seen. Quite an interesting behavior for a blogger subjecting their opinions to public discourse.
I looked into this and the spam filter (correctly) flagged a number of your comments for being repetitive. You also appear to be posting under different names and again repeating yourself.
If you want to add a valid comment, go ahead but if you’re going to keep spamming, I will remove comments in the future.