I don't know any CEO who can afford not to read this.

October 24, 2023

A Note From the Desk of Keith Lemer,
CEO of WellNet Healthcare

Stay with me // 3-minute read.

Growth at your expense.

Stock increases comparable to Apple.

Why have they made so much money and how does this impact you?

  • Inside WSJ this week – charts highlighted ‘Group Health Insurances’ Biggest Increase in More Than a Decade’
  • We all know that stocks and publicly traded health insurance carriers have been one of the best performing asset classes in financial markets in recent years.
  • But is all this growth coming at the expense of companies that provide and pay for most of the health insurance expenses for their people?

Think about this:

  • If you have been invested in health insurance company stocks over the past decade or so, lucky you.
  • You’ve probably made a nice return – considering United Health Group’s stock price has risen from $32 to over $500 per share.
  • That’s a 26 % growth rate – same as Apple (the most valuable company in the world) & more than twice the rate of the overall market.

  • Anthem’s stock price? Rose from $51-$520 at the same time.

Which brings us to our first question above: what is driving all this growth and why have they made so much money?

$4.3M & The Network Effect

  • One of the main reasons is that health insurance companies are really nothing more than financial intermediaries. Similar to Visa and Mastercard, ▪ in health care, the ultimate holders of the money and the risk are the government and employers.

  • The providers of care are doctors and hospitals and other health care providers. The insurance companies are simply the middlemen facilitating the transaction between those who have the money and those providing the care and being a middleman is highly profitable.
  • Health insurance companies don’t even call themselves insurance companies. They call themselves healthcare services companies. The service they provide is that of facilitating the financial transactions for the $4.3 trillion dollars that is spent on health care every year in America.But let’s take a look and see what’s really going on here.
  • Health insurance companies are able to leverage their position as the financial middlemen because of something called the network effect.
  • You may have heard of it in other industries like social media, fintech, or online marketplaces. The underlying power of the network effect is that the value of a given network, in this case the insurance company network becomes more powerful, the more people use it. Insurance companies have tremendous power because so many doctors and hospitals and governments and employers participate in the network.

  • Historically, networks have held tremendous power in other industries as well and have resulted in high prices and exploitation. The railways and railway robber barrons had tremendous network power in the 19th century.

  • Cable Television had tremendous network power and had high prices and terrible service in the 1980s, 1990s and early 2000s.

  • Health insurance networks today operate in a very similar manner. Charging exorbitant fees while providing generally awful service. Have you ever been on hold and spoken with customer service at an insurance company?
  • But all networks have an achilles heel, a weakness, and that’s when they become too expensive, or the service gets so bad that people start looking around for a better way to do things, and this eventually leads to disintermediation, or disruption.

All Roads Lead to Disruption – What does this mean for you?

  • It’s why streaming services like Netflix, Hulu, and Apple+ are enabling millions of Americans to cut the cord and stop paying for basic cable.

  • Disintermediation is possible because of: Innovation. It might be regulatory or technological innovation or something else, but innovation is what enables people to do an end around on an incumbent network.
  • A long time ago, people in businesses started using planes, cars, and trucks to go around the railroads, just like they are using streaming to go around cable TV. And this is exactly what is beginning to happen in healthcare.

  • ‘Health Services Companies’ have gotten far too expensive and are far too often providing poor quality services, and now there are lots of smart minds out there looking for ways to disintermediate health insurance networks.
  • And this is what WellNet has done.
  • As one of the leading Independent Third-Party Administrator’s (TPA) in the nation, we’ve used the existing framework to rebuild the most efficient health plans providing the same access to the hospitals, doctors, and drugstores you know and trust. Offering the most innovative self-funded health plans, at a pace unique to your culture and desire for savings that are running at 30% below the carriers we mentioned above.
  • Today, this is how the nation’s most successful companies are saving money, improving the member experience and doing away with the escalated increases you see in The Wall Street Journal charts.
  • WHERE DOES THIS LEAVE YOU: Everyone is facing economic headwinds & needs to consider stepping away from the network effect, and with renewal season upon us- I implore you to have your broker or consultant call us for a proposal – or call us directly and we’re happy to arrange a joint 15-minute meeting with you and and discuss alternative.
  • Schedule directly using this link: https://calendly.com/keithlemer