The fallacy of “skin in the game”

At the moment this is being written, there are over 1.2 million confirmed COVID-19 cases in the United States alone. Most insurance carriers have stepped up to the responsibility of waiving COVID-19 related costs; however, stories of financially devastating expenses for COVID-19 victims abound. The Kaiser Family Foundation estimates that for a person with employer-sponsored health insurance to access care for coronavirus—without any major medical complications—the cost would be nearly $10,000.

This crisis has not only served as a shock to the system for the American health care industry itself, it has become a call to action for organizations and the health benefits brokers who represent them to seek out alternative solutions to the status quo that will protect their employees’ health and the well-being of their organization.

Although it’s undeniable that the COVID-19 pandemic of 2020 has thrown into sharp relief the failures of the health care industry, the evidence that healthcare is broken is nothing new. In 2018, the Commonwealth Fund estimated that nearly 29% of all Americans are what we would consider underinsured—having health insurance coverage in name only that’s too expensive to access. Health care consumers in the United States have been sold a false bill of goods in the form of skin in the game.

Skin in the game grew in popularity as an approach to plan design because it was supposed to be a compromise to an employer-sponsored health benefits market that was already becoming unaffordable.

Cash-strapped organizations could offer high-deductible health plans (HDHPs) and so-called “consumer-driven” health plans (CDHPs) instead of stripping out employer-sponsored health, financial, or other benefits to keep up with rising costs. To the consumer, they presented an argument that patients would make better, more resource-conscious choices in their overall health. CDHPs allow you to access a tax-advantaged account (usually a health savings plan) to set aside money for your qualified medical costs. However, for many Americans with emergency or regular access to necessary medical care, even maximum contributions to their tax-advantaged accounts leave them exposed for thousands of dollars.

HDHPs are the most common health plan design option you see that reflects skin in the game tactics. But as we’ve seen from the recent strain on emergency rooms and urgent care clinics, the potential disadvantage of HDHPs is consumers avoiding necessary care because of expense.

Skin in the game rhetoric was always faulty and hazardous to those accessing care, but it didn’t become the status quo of health care by accident. In the context of the health care industry, skin in the game was first attributed to John Hammergren, the then-CEO of powerful pharmaceutical distributor, McKesson Corporation. In 2008, he authored “Skin in the Game: How Putting Yourself First Today Will Revolutionize Health Care Tomorrow.”³ In this corporate manifesto, Hammergren suggests that lack of skin in the game and frivolous health care access was the cause of our current health care crisis, and the culprits were a hypochondriacal American public. The crisis caused by the recent pandemic proves this ideology is not only inaccurate, it is dangerous to the consumer and unsustainable for a healthy economy and a healthy society.

Whether consciously or not, you’ve been feeling the consequences of this fractured laissez-faire perspective for years: aggressively high costs for even basic preventive medical care and high deductibles that demand you contribute thousands—in addition to already-high premium contributions—before your health benefits will help pay for your medical care. This has created barriers to accessing essential, life-saving care, and now unfortunately, those already untenable practices are collapsing.

Research has shown that skin in the game results in avoidance of care, rather than careful preventive care. A Commonwealth study from 2015 found that “Forty percent of adults with deductibles that amounted to five percent or more of income reported that they had not gone to the doctor when sick.” Skin in the game also exacerbates the problem of care avoidance because it fails to acknowledge the challenges of navigating a labyrinthine health care industry. For instance, doctors and hospitals continue to make cost difficult for patients to understand prior to billing, according to consumer advocates, independent research, and the Kaiser Family Foundation Annual Survey.

Related: HDHP enrollees are better-informed, but they’re still skipping care

Most consumers aren’t properly educated about their health plans, often forgoing preventative measures because of a misunderstanding of what is and what isn’t covered. This places the onus on the consumer to navigate an already convoluted landscape, resulting in care avoidance, even for preventable conditions. Add in the complexity and unpredictability of something like a pandemic, and you have a recipe for chaos. The amount of health care literacy and time commitment that is required to research any given procedure, shop around for prices, etc. is far more than the average person possesses. The burden of the time commitment and additional costs is ultimately a deterrent to care.

If you use something like car production as an example, you can see flawed logic. If you had a design flaw in your latest line of cars, when would be the most inexpensive time to discover the flaw? Before you started production of the vehicle or after it has reached the market and requires a large-scale recall? Early discovery of design problems will always save money down the line. The same concept is true of health; the earlier you discover a health problem, the easier it is to treat. Everyone would prefer to discover that lump before it metastasizes. It’s not only worse for your health, but more expensive.

So what are the alternatives to these potentially problematic options, especially in a market where the skin in the game model is so pervasive? A recently expanded and growing category is the health reimbursement account (HRA). Even an health savings account (HSA), which can be deficient when paired with a traditional HDHP, can be a practical option with a lower deductible that closes a gap that creates barriers to care.

This crisis has shown us that the most important aspect of employer-sponsored plan design should reduce financial barriers to care for the employee using it. Unfortunately, there are a dearth of options right now that emphasize access to care. That’s why it’s imperative that the organizations they work for and the health insurance industry itself step up to the challenge. Brokers and forward-thinking organizations should be working collaboratively and searching proactively for alternative solutions to skin in the game toxicity.

The answer is a rise in innovative health plan design that focuses on lowering out-of-pocket costs and reducing or removing deductibles completely. The current crisis has taught us that employer-sponsored healthcare isn’t just about total rewards, employee retention, or organizational growth. Radically rethinking employer-sponsored health benefits in the coming months and years will be essential to economic stability, individual financial wellness—and indeed—human lives.

David Sloves is the CEO of Nonstop Administration and Insurance Services, Inc. David can be reached at dsloves@nonstopwellness.com.