Why health insurance is failing - and how brokers can fix It | Mark Bertolini & Sam Melamed

Yeah, I'll give you the nickel version. My son was diagnosed with a terminal cancer at the age of 16, T-cell gamma delta lymphoma. Nobody had ever survived it. He's the only survivor today. He's 41 and he has two children and a wonderful wife. He's a theoretical physicist. But anyway, Eric, we were told he wasn't going to make it, and so I quit my job. So lesson number one: work-life balance. There is no such thing. It's all just life. And so you know where you need to be when you need to be there, particularly in the work you do. So I left my job, lived with Eric in his hospital room for over a year and a half. Got two drugs approved for him. Gave him my left kidney, which I told him is raised on Bud Longnecks and he should keep drinking Bud Longnecks. And today he's 41 years old. He has two children. Just after he got out of the hospital, I broke my neck extreme skiing, C2, C3, C5, C6, T1. They put me on an EEG machine, gave me last rites, were waiting for me to flatline, but I fell in the river after I fell 60 feet down into a river and laid there for two hours before they found me. And my spinal cord was frozen and prevented from rupturing. So I woke up seven days later when a nurse was giving a sponge bath and said, 'What are you doing?' And she went running from the room going, 'He's alive. He's alive.' And she meant he's awake. And the doctors came and said, 'What do you need to know?' I said, 'Well, I think I had a skiing accident. How do I get out of here because if I stay here, you people will kill me.' And as soon as I was able to walk on a walker five days later, I got some medical advice and resumed at home. The two morals of that story relate to the fact that the health care system, Eric's cure was a very unusual cure. There was no magic drug for him that cured him. We did a mismatch bone marrow transplant to kill the T-cells and he had to survive graft versus host disease. So it was a really good doctor doing a great job understanding all the mechanics of the human body in a deep way. But when he left the hospital and when I left the hospital, we had made it through the break-fix part of the operation, and what happened to us afterward was no concern to the system. What we wanted to do with our lives, who we were before we came in, what we wanted to be when we grew up or got older, none of that mattered. It was just, you're done. Time to go home. Here are your meds. Check in with your doctor. And what I'm here to tell you today is that we have an opportunity to create a lifestyle process in health care with all of your help in getting people into plan designs that matter for their life, not based on what their employer thinks is the right thing, by creating an individual market for every American. And that's what Lucy is all about.

Health insurance does two very bad things economically. So if you're a macroeconomist, and I did a lot of that work when I was CEO of Bridgewater Associates, co-CEO of Bridgewater, the world's largest hedge fund, we conflate financing with investment in health care. They're one and the same. And if you were to buy, I grew up in Detroit. If you were to buy a car in Detroit by going to a dealership and say, 'I have $350 a month to buy a car. What kind of car can I have?' You're going to get cheated. What you need to do is, I want this car. It's the way people buy cars today. Want this car with these kind of attributes. You shop online. You find the cheapest price and you buy it. You don't tell them how you're going to pay for it. That's the best way to buy a car. In health care, we start with the financing. You get an ID card, although it's a warranty card, and when you get broken, you present yourself to the dealership and after paying some out-of-pocket costs which are undetermined when you start, you can then get fixed but only to the extent you fit the definition of a metabolizing, living, breathing human being. So the idea is that health care is broken in that way. The second way is that we have multiple economic models. We have 760,000 physicians who operate on a cash basis. We have 6,500, depending on how you count them, hospitals that work on a revenue basis. I used to do strategic planning for a hospital early in my career. We only talked about market share and revenue. We never talked about P&L or costs. And then you have all these other players like 1,300 insurance companies and all DME and pharmaceutical companies that run on a margin basis. Collapse all of those economic models into one system. It's a wonder any of us are alive because the economic models do not work well together. We need to get on one economic model. Now, you're known as probably the most public leader of the ICRA movement, so to speak. For the people in the room who may not even know what that is, maybe share for a minute what is an ICRA. An ICRA is just like defined contribution for pensions. Back in the day, you used to get a pension that had a defined benefit and then employers went to defined contribution. You get this much money. You invest it anyway you want inside the portfolios we offer you. And quite frankly, at that time, because there was not a whole lot of guidance, there weren't people like you in the system helping people make good decisions, everybody picked the average fund, the mixed fund, the market-based fund. They didn't take any risks. And younger people probably should be taking risks and older people probably not based on their financial planning. In health care, we can do the same thing with ICRA. It's a terrible name, by the way. We call it Choice inside our company. But you can take a defined contribution from your employer and use it to buy your health care services, including buying a health plan. So, along with the many brokers and plan executives in this room, there's a lot of CEOs who actually buy benefits for their company. And what would you say to them? Why should they consider ICRA if they've been scared about it or their brokers told them to shy away? There are two things that you should consider as an employer. Number one, what is your cost trend? And it's been double digit. Even large employers today are running near 9-10%. In trend, the ACA, by the way, has been running at 43% trend until this year, 18 to 24. Employers were at 4.2%, Medicare at 4.7%, and Medicaid at 5.2%. So if you look at the costs, were 9% for large employers, double digits near 30% for small group employers. If that's a concern, then you need to think about how you buy. And the second is whether or not your employees will have the access to the coverage they need. And so you build these big networks as an employer, even as a small group, so you cover all the employees. In the ACA, 80% of all the providers in America are in a network. They're narrow networks. And in a narrow network, you get better pricing. So what Lucy does is it gives you access to all the narrow networks in America for your employee to buy. And when I'm buying as an individual, I'm looking for my network, not my fellow employees' network. And so if Lucy were to offer all the health plans, which it does, that people could have access in the individual market and they can find their health plan, they get the best PO in America at the lowest possible price in narrow network pricing to spend their money. That's two problems solved. The ACA allows sick employees to get the pricing of the same product that a healthy employee gets because we don't underwrite the members. We actually underwrite the network. The successful plans in this marketplace underwrite the networks that provide services to the people we serve. So the model's completely different than the model that employers are buying on. And I would argue you don't have a big enough TAM, a big enough risk pool in order to get the economics that we get out of the Affordable Care Act today, the network model.

The most expensive line item in every household in America today is their health care costs, for the first time. Second is housing. Third is transportation. Fourth is education. Fifth is groceries. In the other four items, you actually get to shop as a consumer. You go out and look for what you want. You decide what you're going to buy. You decide what you can afford. You make tradeoffs. You negotiate. And you get the best deal for you. In health care, you take what your employer offers. You pay 15%. You go into a system that has no pricing and you don't know what you can do to control costs. So we need to put the consumer in the middle of what happens in health care and make the choices they need to make for their lives, my network, my plan design depending on where I am in my lifestyle at my cost. And I would argue if we divorce the financing, and I would suggest we create, this is, we've got this in front of the White House and in DC and around a number of states in the country. If we divorce the financing from the investment and create a Roth IRA-like HSA account, and we allow whatever funder of your health care to put the money in there, yourself, ACA, your employer, Medicaid, Medicare, and I now can go into the marketplace and buy my network and I can buy a plan design that fits my current station in life. I can keep my health plan forever as long as I stay in that community using that network. And when you have somebody keeping their network forever and changing their plan design, all of a sudden the investment horizon for insurers and society becomes very different because now the lifetime value of a member matters and how you invest in lifetime value is fundamentally different if you're investing in them for one or two years. So this year at Oscar we launched Hello Menow, a product for men and women going through menopause, bone density scans, behavioral therapy, and hormone replacement therapy, all toward meeting their needs. So think of a lifestyle product for every stage of your life: young and single, married, having a family, teenage children, empty nesters, and aging gracefully. My partner and I, Katherine and I, we're on the longevity institute protocol. We do hormone replacement. We do human growth hormone injections every evening. We take supplements. We eat certain diets because what we want to do is we want to square out the morbidity curve. 1972, James Fries, physician, he wrote an article that said, 'You got two options. You grow old, you lose function, you end up in a nursing home, maybe diapers, and you die.' Or the alternative, you wake up on the morning of your dying day, perfectly functional, capable, livelihood, engaged in everything you want to be engaged in, you have a big breakfast, you're dead by noon, and in the ground by 5. Which lifestyle would you rather have? The last one, right? And so we can do that now if we invest in people in keeping them capable, sentient, lively. All of those things can happen if we build a lifestyle program for every American. So let's call it Airbnb for health care. And that's what Lucy is all about. Creating that marketplace to not only where I can get connected with my broker and a health plan and a network, but I also can buy drugs like Eliquis for $120 from Mark Cuban versus $495 at your local pharmacy. We're going to create a shopping experience and we're just starting. We have Kroger, Integrity, Hy-Vee Supermarkets, we have Allstate on the platform. Everybody wants to contribute. Allstate develops a product called critical illness. You get a cash sum when you get out of the hospital after a critical illness. Why? So you can do all the things that I needed to do out of my own pocket to get my life back or to create the new life that I needed to create.

There's supplemental benefits, there's dental, vision. You're going to be part of the program. So Sam and his team's going to be on the agenda. And it's just starting. So, think about how Amazon Prime started with two-day delivery for $79. What we want to do is we want to add more services on a continual basis. And I have the team working on the next 10 services that we offer while we're fielding all the people that want to come into the program and engage in it. We have an ED that will be very, very, very low cost. We have a vault for our brokers that want to use it to collect information on their members before the enrollment. And if they can't get access to things like social security numbers, we're building the capability for you to get it. The whole idea is to have you maximally productive and capable of moving forward with your clients and grow your base instead of having to constantly react to regulatory things that come forward and try and figure out how you can make it all work and maintain your income. That's what we did in this last enrollment. That's why we grew by almost a million and a half lives enrollment over enrollment. What we did is we created product alternatives to members who would be impacted by enhanced subsidies going away because we believe they would and we provided alternatives and you brought us the business and saved the business we had on our books. So you're an important role and then when it comes to ICRA, your opportunity, if we want to make it work for employers, they're worried about defined contribution and how does it change. The best way to get defined contribution stable is to have the member with money out of their own pocket that they can pay for services but also get the person into the right plan using good plan selection tools because most people in a small group fully insured product are overinsured. What you want to do is get them into the right plan. And if you don't have help doing that, you end up where I do every year with my assistant, my executive assistant, Bev. Bev says, 'What do you want for your health plan?' So, give me what I had last year. If you do that moving into ICRA, you've made a big mistake because you're paying too much money for more than you need. You're overinsured. So if everybody gets into the right level of risk based on their lifestyle and needs, starting a new family, getting a hip replacement, whatever it may be, then you have an opportunity to stabilize a defined contribution for the employer. They can stay out of the business and trying to figure out the health plan and all of you can be successful in getting commissions from the plans you place people into. And we're offering all the plans on Lucy so you can pick who you want to get your commission from and where it's best for your member to go.

If you add up the numbers, there's 115 million people in small group and middle market, generating 6% margins for the big carriers. You have 30 million gig workers. Sam and I were laughing earlier today because we're probably the only, maybe some of you know our banks. How many people in here know about hour banks? I used to be a union organizer. Sam used to work with unions. And what an hour bank is is when somebody works for more than one employer. You ask that employer to contribute so much per hour into an hour bank for them to get their benefits. And what we used to do is as funds, we used to have our members buy the benefits from us. I was SEIU, he was ABC. And so the whole idea is that if we can get gig workers and 115 million small group and middle market, we have large employers are interested, particularly hospitals and some of the part-time employers. You have a TAM that approaches 200 million lives that all become available to you to put into the right plans. So when you think about changes like Lucy, when you think about changes like AI, if you limit your life to the box you're in and preserving the little box you got, you're missing opportunity to open the aperture, look right and left and build a bigger marketplace for yourself and be valuable at more than one place.

I think it only gets bigger. There's more opportunity. There's more lives to go after. Right now, you've got what, 30-some million in Medicare. You've got 20-some million in ACA. 200 million seems like a lot more fun to me and a lot more opportunity because everybody has to use you. I think it's essential. The big mistake in defined contribution in pensions was people didn't know what to do. They just got the money and they go, 'Okay, I'll just put it in this middle fund that looks safe instead of picking something that works for them and their lifestyle.' They're going to need your help using that tool.