When a stock price rises or has a better P/E ratio, this is generally considered a measure of success. Is this true for health insurance stocks? Stockholders certainly are happy, but what about the purchasers of the carriers’ policies? Are patients smiling when the stock price goes up?

The primary function of any healthcare system is not to save money or to insure people. It is to facilitate timely access to needed care. Having an insurance policy, whether private or government-supplied, is considered the key to a doctor’s office. One might surmise that when an insurance seller does well, so does the insurance buyer. 

Is there a relationship between the financial condition of companies that sell health insurance and the people who buy their policies?  

Financial Data

The ten-year period of 2007-2017 was chosen as it spans a time before the Affordable Care Act was passed in 2010 and three years after the ACA was implemented. Some market changes could be at least in part attributable to the ACA.

The seven companies listed in Table I represent major sellers of health insurance. Together, they cover more than 128 million Americans (Table I), including more than 4 million with Medicare supplemental policies.

Over the ten years, stock prices rose 157 percent to 635 percent (Table I). During the same period, the S&P 50 increased 82 percent. The one-year forward price/earnings (P/E) in 2007 ranged from 8.27x to 16.44x. By 2017, the P/E ratio has increased in every case, from 17.45x to 23.3x. The one-year relative P/E ratio also increased in five out of seven stocks and decreased slightly in two.

Access to Care

Two useful metrics of access to healthcare are wait time to see a primary physician and the percentage of physicians willing to accept Medicaid patients. In 2018, 74.8 million Americans were enrolled in Medicaid.  People with no identified primary doctor, whether Medicaid or uninsured, tend to forego routine or preventative care and use emergency rooms for care.  

In 2007, 74 percent of U.S. physicians accepted new Medicaid patients into their practices. That percentage decreased to 55 percent ten years later.  From 2007 to 2017, due largely to Medicaid expansion under the Affordable Care Act, the number of uninsured Americans declined from 47.5 million to 39.9 million.

The maximum wait time to see a primary care physician was chosen rather than the average wait time because medicine is practiced on individuals, not on populations. The patient who waits the longest is most likely to suffer harm from the delay. The maximum wait time in 2007 was 99.6 days. It has increased to 175.7 days.   

The change in stock prices and decline in access to care are not merely coincidental. They are statistically related. Pearson’s chi square test (c²=24.5582) indicates a strong correlation, p<0.0001.

Solution

A host of factors influence the price of a stock including general economic conditions, competition, leadership and capitalization of companies, and the regulatory environment. However, all factors culminate in the public perception of future earnings, which affects the price people are willing to pay for a stock.

Evidence suggests a link between a rise in prices of insurance stocks and a decline in patients’ access to care. Health insurance sellers increase profits by (a) not paying for patient care, and/or (b) delaying payments, so the retained earnings can be invested. This “three D” strategy -- delay, defer, or deny care -- generates profits and drives the stock price upward while closing the door to the doctor’s office.

Reduction in availability of care is an adverse impact -- a symptom of healthcare dysfunction. To reverse it, one must identify and treat the root cause, which is the system, not the individuals.

Third-party payment structure is the root cause -- it misaligns the incentives by rewarding the outcome consumers don’t want, less care, instead of incentivizing the desired outcome, access to medical care.

To realign the incentives requires reconnecting buyer (patient) with seller (provider) so the buyer pays the seller directly rather than the third party, government or insurance. When buyers spend their own money instead of OPM (other people’s money), they automatically align the incentives to get what they want: care. When the third party pays, it gets what it wants: profit for insurance carriers and power for the federal government.

Reconnection of buyer and seller is a market-based approach and the antithesis of government-controlled single-payer or Medicare-for-All. For those who would claim that Americans cannot afford to pay for their care, the facts suggest otherwise. In 2018, the average American family spent $28,166 on healthcare costs, representing more than 45 percent of median gross income.

Market-based financing of healthcare would be less expensive and could provide timelier care than the system we currently have or changes in healthcare being planned by Washington.

Deane Waldman, MD MBA is Professor Emeritus of Pediatrics, Pathology, and Decision Science at University of New Mexico; and author of “Curing the Cancer in U.S. Healthcare: StatesCare and Market-Based Medicine.”