Deadly Misalignment Kills United Healthcare Boss

Killing of the US Health Insurance Company CEO shows the structural misalignment between insurance and healthcare

Incentive misalignment kills health insurance CEO

The US Fed cut its policy rate by 25 basis points, and, more significantly, voiced concern at lingering inflation risks. Fed chairman Jerome Powell’s statement that there would be fewer rate cuts ahead sent the dollar soaring and foreign currencies tumbled. The Japanese central bank decided to hold rates steady, and the yen fell after the US Fed cut its policy rate. The rupee has slid past Rs 85 to the dollar, and it would not be surprising, if it continues to depreciate. Stocks are playing Jill to the rupee’s Jack. Even as oil prices weaken, alternate assets such as cryptocurrencies are likely to rise further, along with gold.

India’s market for initial public offerings got a boost, with three stocks -- Mobiquick, Vishal Megamart and Sai Life -- listing with significant gains over the issue price.

Ola is joining the food delivery business, and Quick Commerce is just a step away. Ola will use the government-supported Open Network for Digital Commerce for its food delivery venture. Presumably, Ola will use the new venture to deploy large numbers of Ola electric scooters, possibly hoping that other delivery businesses would also be encouraged to put their delivery agents astride another army of Ola e-scooters.

This move would be a boost for ONDC as well, and could, probably, help precipitate a latent pro-competitive potential among users of ONDC. By design, ONDC is an open network, and those who have food to deliver should be visible to multiple delivery aspirants on the network, all of whom could vie to deliver the food. Unless Ola is the most efficient, there is no reason for the food supplier to make use of Ola. Regulation would probably be needed to prevent a race to the bottom that would put the delivery riders’ lives and earnings at risk, in the race to achieve the fastest delivery at the lowest cost.

A proposal for Japanese auto majors Honda and Nissan to merge is generating some excitement in Japan’s corporate world, and among car companies. Nissan and Renault have cross-holdings in each other, and Renault’s concurrence is required for this form of Nissan’s overhaul. It is open to the idea, reportedly. However, the world’s auto majors face an existential challenge that cannot be overcome by consolidation. Chinese electric vehicles’ emergence as superior alternatives to climate-damaging automobiles that burn fossil fuels in internal combustion engines threatens the world’s incumbent car majors, all of whom have to lobby their national governments for increasing levels of protection against the advanced e-mobility machines that China is spewing out in massive numbers and at low cost. Chinese companies’ superiority in battery technology is a major factor in the competitive edge Chinese e-vehicles have over others.

The global market for space launches is heating up. India hopes to play a major role in this market, with both state-owned ISRO and private rocket companies in the making playing a role. Japanese space startup Kairos suffered a setback earlier this week, its launch failing soon after liftoff. Amazon owner Jeff Bezos-promoted Blue Origin is unable to get past prolonged teething troubles, even as Elon Musk’s SpaceX finds itself in a conflict of interest battle, thanks to the expected recommendation of Musk-led Department of Government Efficiency, mandated to slash US government spending, to cut the National Aeronautic and Space Administration’s budget, including for new launch programmes via its own expensive launch vehicles. Such a budget cut would raise NASA’s dependence on SpaceX launch vehicles. Brazil has decided, this week, to create a commercial arm for satellite launches, for which Brazil has established capability.

Luigi Mangione, the Ivy League graduate who had been arrested for shooting dead United Healthcare CEO Brian Thompson a fortnight ago in New York City, was charged with murder this week. One more man being shot dead should cause more than passing horror in the US, the land of school shootings, where the National Rifles Association triumphs over reason. But widespread empathy on social media, indeed, outright praise from many, for the health insurance boss’s killer has forced people to do a double take.

Are Americans at large turning enthusiasts of vigilante justice? Or is this a manifestation of popular disgust with the way insurance companies work in the US? On the bullet casings found at the site of the shooting were inscribed the words, deny, defend, and depose, the terms assumed to be a play on the title of a book on the profiteering proclivity of the American insurance industry, now mainstreamed into popular culture uses to describe insurance companies’ attitude towards claimants.

Rather than see Brian Thompson as the victim merely of a vigilante, it might be useful to recognize the role of a structural problem with the health insurance industry. The healthcare provider’s incentive is to maximise the payout from the insurance company, for which it might carry out investigations that strictly speaking might not be needed, follow superfluous treatment procedures and avail of the services of experts whose contribution to the treatment is minimal. So, the insurance company is incentivized to pare the claim as much as possible. The worst victim is, of course, the insured patient, in whose well-being neither insurance nor hospital is particularly invested, and who might end up having to shoulder large bills that insurance refused to pay for.

Is it possible to create a different system of healthcare and risk assumption by a payer, who collects a premium for that service? The US has a chain of care providers called Kaiser Permanente, who offer what is called managed care or accountable care. It assumes the responsibility for the care of a patient population, charging a per capita premium for that assurance. Thereafter, it is its job to proactively keep its charges healthy, so as to minimize the outgo on treatment. When treatment does become necessary, since the care provider and payer roles are rolled into one, there is no incentive whatsoever to inflate bills via redundant investigations or treatment protocols. The larger the bill run up by the care wing, the larger the payout by the insurance avatar.

The risk in the system is the temptation to let a seriously ill patient go quiet into the silent night, skipping altogether the last-ditch desperate measures that might save the patient. The risk needs to be recognized and mitigated via regulation and adequate competition in the same market of managed care, so that the fear of reputational damage would be an effective deterrent.

The caregiver would need to have tie-ups with a wide variety of specialist treatment centres, to take care of most eventualities. It must also have the expertise to calculate the probability of different kinds of treatment being required and to price these into the per capita premium it charges. These actuarial functions normally reside in insurance companies, rather than with care providers. But that expertise is eminently portable.

In an accountable care system, the care provider’s incentive is to keep the patient healthy and in minimal need of treatment, and if treatment becomes necessary, to provide it with cost-effective means. And the probability would be virtually nil of patients being provoked by the conduct of the care provider to resort to terminal solutions.