Ezekiel Emanuel boldly proclaims that insurance companies will be extinct by 2020 in last week's New York Times article. He believes that Accountable Care Organizations (ACO) will push them out of the market. It will be interesting to follow his prediction over the next 8 years to see if he is correct.
Emanuel explains that ACOs will eventually bear all the financial risk for patient care when they are implemented which will eliminate the need for insurance companies. ACOs, which will be composed of groups of doctors, other providers, and hospitals, will work together to provide the full range of patient care. Eventually, he sees patients paying a flat rate directly to ACOs, who, in turn, will provide all services needed. The advantage of the ACO model is that it incentivizes providers to keep the patient healthy and focus on prevention, rather than provide care only at the point of illness. Additionally, it will integrate care for the patient, creating better collaboration between different providers.
At the moment, 60% of insured citizens under age 65 in the U.S. are insured through their employer. In these cases, the financial risk falls on the employer, not the insurance company. This leaves the insurers there to help with processing claims and to provide negotiating power with hospitals and doctors. However, ACOs will charge a flat premium, which should reduce the amount of administrative work required to process and file insurance claims on a case by case basis. In situations where insurance companies take on financial risk for patients’ health – such as small businesses and individuals – they have enough market power to cherry pick healthy patients, charge high premiums, and deny patients’ claims. When ACOs start being implemented, insurance companies will be competing with ACOs for these patients. This will infuse better competition and should reduce the need for patients to hassle with insurance companies over coverage.
Emanuel also breaks down the difference between ACOs and HMOs in a very concise manner. First, ACOs and HMOs are similar such that patients are members of the organization and members pay a flat fee. In other words, payment is not done on a fee for service manner in either of these models of care. However, Emanuel emphasizes that ACOs will be local groups of providers, not large national corporations like many HMOs, so ACOs will be able to better respond to local patient needs. Also, ACOs will be financially incentivized to keep patients healthy rather than only getting paid to treat the sick. Lastly, he points to the advancements in electronic medical records as well as the science of care integration as improvements since the HMOs’ day.
Personally, I am not fully convinced that insurance companies will be extinct by 2020. It may be that I do not understand ACOs to the depth that Emanuel does. But, maybe in the end, ACOs will become large enough that they will just take over coverage responsibilities as well. Time will only tell.