Podcast

Matt Stoll (00:00)
Welcome back to episode 13 of On Background, our, Jesus, our podcast about the intersectionality of health policy and our, Jesus H, our podcast about the intersection. All right, I’m a, Jesus Christ, you know what? Welcome to On Background. This is episode 13. This is officially the fifth take.

On Background (00:14)
Let me do it Matt.

Kenneth White (00:14)
This is my kind of podcast.

Matt Stoll (00:23)
My name is Matt Stoll. We’ll leave it at that. This is a podcast about health policy and economics and where we talk to smart people who worked in government and now they’re outside and now they can tell us all the dirty secrets. Our host today, Steve Parente, health economist extraordinaire, Breanna Mayer, pharmaceutical maven. Man, I’m having a rough day. Thomas Gunderson.

On Background (00:44)
You

Matt Stoll (00:45)
Former healthcare analyst with Piper Jaffrey, now Piper Sandler. I’m Matt, I’m a Med Device guy and I can’t talk today. We are joined, thankfully, by Kenny White. Kenny is the director of the Managed Care Industry Group at Aligned Insurance Services. Kenny, thanks for coming on.

Kenneth White (01:00)
Thank you for having me.

On Background (01:01)
So Kenny, you met Matt. ⁓ We’ve been at this so long. It’s just such a familiar space. But Kenny, thanks for doing this. I don’t remember how far back we met. I think it’s close to 10 years. And you almost had me put on a mask. I forget whether we wanted me to put that Hillary mask on at your meetings or something like that. anyone that does a health policy meeting with a bunch of insurance

Matt Stoll (01:04)
You

Kenneth White (01:25)
you

On Background (01:27)
benefits people that says, a mask on a stage in front of strangers. That’s a great person to get to know for a career.

Kenneth White (01:34)
It was the 2016 election with Hillary and what’s his name?

On Background (01:39)
DJT.

So Kenny, what we want to talk to you today about is some things I know you’ve been either talking about, podcasting about, thinking about, writing about. Basically the state of the health insurance industry. you know, it’s just a time stamp this. is mid February, 2026. A bunch of insurance executives have come before Congress.

Shall we say wasn’t, it didn’t improve their trust scores too much, but then again, outside of Congress, Congress’s score isn’t that great either. I guess this is sort of a question to start this all off in a way, because I teach a course in all these markets and I try to always emphasize, what’s insurance done that’s a market success and what’s a market failure? I’m going to be the positive guy for a second, just so you know.

It’s a complicated system that we live in. What do you think health insurance has done well, at least over the last few years?

Kenneth White (02:28)
Health insurance or as the majority of coverage these days is managed care health plans as opposed to traditional insurance has allowed for employers for government beneficiaries and individuals to maintain the cost of the care that they receive related to their health. Otherwise,

There wouldn’t have been a way of anyone doing it. Secondly, it has ⁓ enabled a large number of us, myself included, even though I’ve been in this industry as a lawyer or as a consultant for 40 years now, the opportunity to receive healthcare without having to be an expert in the industry. The industry is extraordinarily complicated.

The concept of quote unquote consumerism in healthcare is a misnomer at best and a bad joke at worst because most people would spend hours trying to figure out whether to buy the piece of furniture at Rooms2go or El Dorado furniture or wherever, but when it comes to their healthcare, they just do whatever they’re told.

And without the managed care industry, a lot of that would have been left to the whims of the provider side of the industry. The industry is, like I said, very complex. has a lot of different moving parts. Those in medical devices, those in pharma, know, those in physician outpatient, those in diagnostic laboratory, and then of course, hospitals and health systems.

Without having someone minding the store, we would most of all be on an ice flow somewhere.

On Background (04:15)
Hmm. Tom, over to you.

Thomas Gunderson (04:17)
Sure. ⁓ Kenny, the end of this question will be about AI, but to get there, I’m going to start pick up with what you said about providers and how it’s extraordinarily complicated. I work with a couple of hospitals and a lot of different doctors in the Twin Cities. And one of the things that keeps coming up is that

there aren’t going to be enough doctors to handle the longer living boomers and the generations behind them and that other professionals, the nurse practitioners, the RNs, et cetera. So one of the things that I try to present unsuccessfully to the provider group is that AI is going to be able to take a lot of the load off of the supply problem.

That’s on the provider side. From a managed care standpoint, from what I read in your background, a lot of what you talk about is the risk side. And I’m wondering if you could compare and contrast the opportunities and benefits to those risks.

Kenneth White (05:18)
Sure, insurance is risk. Whether or not it’s managed care, you call it health insurance, auto insurance, homeowners insurance, DNO insurance, cyber insurance, it’s all risk-based ⁓ analytics, actuarial science to determine how much money you have to put into a pool in order to cover anticipated loss over time and not go bankrupt. On the other side, from an economic perspective,

If you’re a hospital system, you’re trying to make sure that you keep the lights on. You have to cover all of the costs associated with it. So that you have to have a sufficient revenue in order to cover the cost of doing business. If you’re a for-profit company, then obviously your stock price matters. If you’re a not-for-profit, then you still have to keep the lights on. Labor is one of the largest expenses in healthcare. We don’t have enough.

practitioners. There’s a lot of reasons for that. Some of it is the way the medical education community has been done here. A lot of it is lobbying. There has been sufficient activity by medical societies and medical boards across the country to limit scope of practice for ARNPs, CRNAs, physicians assistants, et cetera, because that’s protecting their turf. It’s not a

bad thing or a terrible thing, it’s just a thing. And in that thing, it raises the cost, it’s supply and demand, it’s pure economics as far as you need a lot of physicians to cover a lot of us that are getting old. I’m Medicare eligible now, so there’s a lot of us out there that need healthcare, and there are fewer and fewer doctors around to take care of it. And therefore those people can request and

get higher and higher costs or revenue for what they do, which raises the cost of everything, which then turns around and raises the cost of health insurance or managed care because the primary driver of the cost of insurance is the cost of the benefits that are provided. So if you have an AI thing and the Trump administration has made a goal, I call it the field of dreams version, which is

If you build it, they will come, which is a very legitimate government policy to eliminate the onerous regulations that might slow down the development of AI technology with the idea that we’ll regulate it later. We’re not going to get a whole lot of AI stuff coming out of the EU. Why? They’ve already regulated it a lot.

Israel will be a driver. China, of course, but we’re never going to know because they won’t have any regulations that we’ll ever hear about. And then there are some state regulations, but most of those are privacy related, not too much. The real question is what can we use it for? In the clinical setting, we’re still years away. For things like AI scribes,

that can help limit the amount of time that somebody needs to take notes. I don’t know how many people have ever been in a doctor’s office or a visit and the doctor spends most of his time staring at the computer rather than talking to you or staring at you, which is why you’re there. You know, that helps a lot with that kind of thing. The secondary part of that is billing and coding. If you’re using AI, AI Scribes, then it can streamline the billing and coding.

piece of the puzzle, but ultimately you get the mutual assured destruction between the managed care industry and the provider industry, one side using AI to maximize revenue in the billing and coding or revenue cycle management side of things and the managed care people using AI to fair out fraud and overbilling. So can it reduce the costs associated with the operation of a hospital?

Everything from buying toilet paper for the hospital all the way to clinical management, yes, it can. Should it reduce the cost associated with that? Yes, it should, whether or not it will or not. I mean, we had the same thing with telemedicine. Telemedicine was supposed to make things cheaper because it was a 10 or 15 minute thing. You didn’t have to drive there. The doctor didn’t have to actually see you. It could be done after hours. And then the

converse of that was that it was cheaper. know, the in-person visit was 150 bucks, the telemedicine visit was $75, but those numbers have faded and through lobbying efforts and other things, telemedicine visits are now reimbursed at almost the same level as in-person visits are, which sort of defeats the purpose. you know.

Can we use AI to do that? Yes. I think we’re a ways away from using AI in a clinical setting beyond, diagnostics. And of course, there’s a whole host of things legally involved in that. mean, who do you sue for malpractice if the computer is making the determination? The computer doesn’t have a medical license, so you can’t sue them for malpractice.

You can take it all the way to Skynet if you want to. You you, you know, you don’t have to scare anybody on that part, but I mean, it should reduce the costs.

On Background (10:14)
.

Brianna, question in.

Bryana Mayer (10:21)
Yeah, kind of building on the AI topic around a lot of what you said, underwriting fraud detection, as kind of in your work managing risk and regulatory issues, how are false claims act settlements and more compliance trends shaping the insurance product design?

Kenneth White (10:41)
⁓ A great deal. Regulatory coverage can be obtained in three different ways typically, either in a DNO, directors and officers type policy or an ENO type policy for errors and omissions, or it’s a standalone product for regulatory coverage. The vast majority of those are either limited by sub limits on the policy so that if you had a $10 million policy, there’s only

five million of that that’s available for regulatory coverage and in most cases that’s defense costs only. It doesn’t you you can get fines and penalties covered but say false act claims a large portion of those settlements is what you have to repay the government that they paid you for already. You know that isn’t insurable. So

You’re getting the benefit of insurance for the defense against it. Unfortunately, with KETAM claims, with other sealed types of investigations or DOJ CIDs, sorry, Department of Justice certificate, the informal discovery.

The FTC and the SEC both have subpoena power. The Department of Justice does not have subpoena power. unless they go to the court to get a subpoena, they issue what’s called a CID, which is basically a, we really, really, really think that you ought to comply with this discovery request, and you’re kind of an idiot if you don’t. But they’re voluntary, and they oftentimes don’t meet the definition of claim.

under an insurance policy. And so you have to structure the insurance so that the time and effort that you put into responding to those things is actually covered under the policy. But civil enforcement and criminal enforcement of False Claims Act, Stark Law, NI Kickback Law, mental health parity stuff, ACA violations, all of that.

drives a significant amount of insurance cost because unlike your normal everyday benefit claim against an insurance company that didn’t pay, the defense costs on that’s normally not very high. The defense cost on an FCA claim can be millions and millions and millions of dollars. you’re protecting against

the house burning to the ground, not the kitchen catching on fire.

On Background (13:10)
So, Matt to you.

Matt Stoll (13:11)
Okay, so I want to take a left turn from AI and talk about overall US health economics.

Healthcare costs keep going up. Benefit costs keep going up. We push more of the costs to the insured rather than to the insurer.

how do we bend the cost curve? Mix some more analogies.

Kenneth White (13:30)
Well, the only way to bend that cost curve is to lower the cost of the care that’s being provided. If we looked at an auto insurance policy, just for a metaphor, you don’t insure Hyundai for the same amount of money you would insure Bentley for. But on the liability side,

injuries that you can cause to yourself or to others by hitting someone or driving, having a car wreck are essentially substantially the same. So one part of it, the part that fixes the cars is much more expensive on the Bentley piece than it is the Hyundai piece. But the piece that goes to the healthcare is the same. So if you look at a ACA policy

or a Medicare policy or a Medicaid policy or an employer ERISA plan, the cost of the care basically is the same. Now, Stephen would tell you, there’s a difference between cost from a how much I have to come out of my pocket version versus what does it really actually cost to provide this service.

the revenue and where it’s coming from may be different, but the actual cost of providing the service isn’t any different. So the only way to reduce the cost of insurance is to reduce the cost of the care that’s provided. With the MLR, I mean, you have a very small portion of revenue that’s attributable to non-quality, non-benefit, you know,

cost the administration of the plan. So there’s not a whole lot you can work with. You could add AI or everything else in you want to. You can eliminate jobs. You can have better computer, better tech, but it’s not going to move the needle much because 80 or 85 % of that dollar is the cost of the benefit. So unless you reduce that somehow, and the only two ways of doing that is reduce utilization.

or reduce the cost of the utilization. That’s the only way you can do it. mean, either don’t go to the doctor or don’t go to that doctor, you know, or, you know, have when you go to the doctor be cheaper. You know, there’s lots of ways of doing that wellness programs. That was the whole concept of having preventive care in the ACA, which is it’s cheaper to keep people healthy than it is to treat them once they’re sick. But, you know,

We’re Americans. We invented the advertisement for sit on your couch, eat potato chips, put on an electronic device that basically tased your abdomen every few seconds so that you could look great and not actually exercise or reduce calorie content. Hey, we’re Americans. We don’t have to actually be healthy. We’ll just go to the doctor and take GLP-1 injection.

On Background (16:28)
So, that’s very cheery. ⁓ So in some respects, even when we look at the American version of the future, one could argue it’s Star Trek, right? But even there, everyone’s sort of sitting there watching a really big screen. Kirk has a great chair. Everyone’s seated. They had it beamed down from place to place, but they’re mostly in that chair. So I want to…

Matt Stoll (16:30)
Hahaha

Kenneth White (16:43)
Yes, you do.

Just don’t wear the red shirt.

On Background (16:51)
Yeah, yeah,

we learned that. We learned that fairly effectively. So I want to go back to the question that Matt sort of talked about, put my econ hat on for a little bit. mean, basically, all these things that we talk about in terms of price reductions or utilization reductions, I mean, they’re effectively, it’s either price rationing or non-price rationing, right? So the price rationing is simply…

You know, and you see it in different places. know, Medicaid programs are notorious for this. It’s like, you know, we’re going to pay for this, but we’re going to pay for it in a fraction of what, you know, maybe Medicare is going to pay for it. And so you provider decide, do you want to stay in there or not? Non-prices, you know, managed care from the get-go, gatekeeper systems, you know, the preferred provider organizations, narrow panels, you name it. I mean, at least, and I guess,

I want to ask you about high deductible health plans in a way because I mean I’m sort of a fan because not because I think it’s you know it’s a nice thing but because it’s honest. It’s the simplest form of insurance in a way that sort of says like if you go back to the principles of insurance and risk it’s like we are we put insurance in place rather than a cash economy because here’s something to make you better that you know won’t happen very often but when it does boy it’s going to be expensive.

And granted that does go against preventive care, which if we tried to put the same preventive care contracts that we have in health insurance, on auto insurance, that would mean like pay for the oil, pay for the tires, pay for the windshield wipers. mean actually pay for the defroster because if that goes bad you’re gonna crash. I just, talk a little bit what your thoughts are about the high deductible market.

Is that, we see it growing though it’s sort of stabilized. know employers sometimes do it as a moment of last resort. Do you think it’s sustainable? Do you think it’s, what are your thoughts on it, Connie? I’ll just, I’ll stop putting words in your mouth.

Kenneth White (18:36)
Well, I mean, we, and I don’t know if this is a beepable word, but we bastardize everything with government policy in this country. Insurance has been around since the 1400s, but health insurance has been around basically since post-World War II. And in that period of time, it’s basically radically changed from an indemnity style insurance where you went to the doctor, the doctor charged you an amount.

you submitted a claim to an insurance company and they paid what they contractually agreed to pay out of your cost of whatever it was that you did. You basically just made the determination of what care you were going to receive. And then you submitted the complaint claim to the insurance company and they paid their part. Under managed care, just as you were saying, Stephen, it’s the other way around. We start paying for everything upfront.

with the, with the hope of reducing the cost in the end. which makes sense. you know, it all has a, a part when the, when the hepatitis C drugs came out and they were 250 or $300,000 a dose, made absolutely no economic sense whatsoever to pay for that drug because you were never going to make enough money on the revenue side.

to pay for the costs of the drug because most people who have hepatitis C didn’t get hepatitis C because of a drug blood transfusion or something like that. was lifestyle decisions. Now you could get cured from hepatitis C, but four months later you’d probably have it again if you didn’t change your lifestyle. So now it’s another $250,000. But it didn’t, when the drug got down to where it was $40,000 for a dose, you know, a round of

of drugs, it made economic sense to pay for it. So everything sort of falls into that same kind of ⁓ a range. What can we provide to do that? And can we get people to make better decisions by putting quote unquote skin in the game on their head? And that’s high deductible health plans. So take into their logical but unsustainable and quite frankly,

non-understandable basis, the ICHERAs, you know, out there, which is the model where you combine high deductible health plans and HSA or, you know, health savings account and an ACA individual or family plan to make the member, beneficiary, patient, whatever you want to call them, more responsible for their own decisions. Those work.

great for very healthy people. But like all insurance, it’s a risk pool. So if you start taking the healthy people out of the risk pool, the risk pool for everybody else gets more expensive because you’re no longer spreading the cost around people for everybody. ⁓ I saw something the other day that of the

24 million people under the ACA in 2024. Almost half of them had no claims submitted in their name. So you got 24 million people who were being covered, a lot of them by subsidies and extended subsidies at the time, who never saw a doctor. Well, all that money.

going to an insurance company or a managed care company because that’s where the revenue was going, goes to defray the cost of everybody else who was going to the doctor. And if you take all those healthy people out of the mix, then the cost on a per person basis for all the rest of us gets higher. So high deductible health plans.

are defrayed by HSAs and flexible spending plans to some degree. You have subsidies that go into defraying the cost because nothing’s free. Everybody, tell you it’s free. You can get a health plan for $10 a month. No, you can’t. You can get a health plan that you only have to pay $10 for, but somebody else is playing $600 for it.

you know, because they’re covering the other part of it for you because there ain’t no such thing as a free lunch. So in that case, you shift the burden to the member, to the patient, you hope they’re making better decisions. But that has a limit because most of us don’t make good decisions either because we don’t want to or because

We don’t have the knowledge or, you there’s a difference between stupidity and ignorance. mean, there are not that many stupid people out there, but there’s a lot of ignorant people out there, particularly of complex things like healthcare. And we just don’t have the knowledge base to make those kinds of decisions. We basically do what our doctors tell us.

On Background (23:27)
Tom, why don’t you round us all for our conversation here with Kenny, if you can.

Thomas Gunderson (23:31)
Well, just a quick question comment and then maybe a question that I’ll follow. But the comment question goes from Steve’s and yours.

Discussion on high deductible and what I thought you were going to say Kenny not knowing you I was just guessing was that it was Based on income. So if there’s a ten thousand dollar a year Deductible that impacts somebody making forty thousand dollars a year versus somebody making four hundred thousand dollars a year So could you comment on that?

And the bigger sort of end question is where are we 10 years from now in the United States with managed care? If on one hand you’ve got government paying on one side and on the other hand you’ve got businesses that are buying up these managed care plans and then providing them to their workers, does that continue going forward 10 years from now or do we come up with a different plan?

Kenneth White (24:25)
So on the retrograde version of the high deductible, it certainly has a bigger impact on you, the lower your income. But I mean, look at the bronze level plans for the ACA, they have the highest deductibles. It’s basically catastrophic coverage, except for the 10, know, functions of the insurance that are required. You know, that was being asked by CMS not too long ago with regard to fertility.

you know, whether or not that should be added as a basic benefit. I’m like going, no, no, no, please, please don’t do that. But I mean, it’s it certainly impacts those on the lower end of the income scale than it would somebody who makes a lot of money. Jeff Bezos doesn’t need health insurance. ⁓ know, so in that way, the high deductible plans do have sort of a

Thomas Gunderson (25:07)
Ha

Kenneth White (25:13)
adverse impact on lower income people.

Medicaid coverage, Medicare dual eligible coverage, all of those go to ameliorate those discrepancies, but not so much in the 20 to 50 or 60 year olds. On 10 years from now, government policy is still going to drive what we do.

cannot afford $5 or $6 or $7 trillion a year. CMS spins, and this is unrelated to anything, TRICARE, no VA, no FIBA, no none of that, just Medicare, Medicaid, ACA, subsidies, and Medicare Advantage. It’s what, $1.5, $1.6 trillion a year.

It’s like $250 million an hour, every hour of every day of the year. And there’s no way to add more to that without a radical overhaul of government revenue, which means massive tax increases, which I don’t see anybody other than Mondami, if he ever became president, trying to do that.

You know, and unlike some politicians that, know, CMS does not have a large building with 100,000 employees that runs Medicare and Medicaid. That’s run by the very system that they want to throw rocks at all day long. The managed care industry runs Medicare and Medicaid. Because otherwise, there wouldn’t, there’s nobody else out there to do it. So, you can’t shift.

everything to the private sector, but then you can’t, I don’t think that a single payer system, which has come up over and over and over again since the sixties. mean, this was, you know, debated in Congress for years before Medicare and Medicaid was paid, was passed, you know, and then with the, the HMO act of 73 and then the ERISA and then the ACA and everything else.

It gets re-litigated in Congress over and over again and, know, pundits and economists and policy wonks and everybody else argues over this cyclically. It’s just not something that’s ever looked like it was, you know, doable. Now, and then people point to Canada or they point to the UK or they point to other countries where they have socialized medicine or universal healthcare. However, you wish to spin that phrase.

It just, it doesn’t seem to work here and it doesn’t seem to work here because we don’t want it to work that way. Because I’m very, very willing for all of you to pay for me to get all of the healthcare that I would like to have. And that’s what we have. You know, I don’t necessarily want to pay for yours, but I certainly want you to pay for mine.

On Background (27:52)
Mm.

Kenneth White (28:15)
And if you do it in a different way and everybody has that same opinion, I think one thing is really going to have to happen. Something is going to have to happen to make us, the consumers, do more for our own health.

On Background (28:29)
Well, Kenny, we’re going to let that be the final word and we’re going to maybe we’ll check back in five years or maybe five months depending upon where things are going. I will say that right now I’m in the midst of teaching my overall healthcare marketplace class and one of my fun lectures actually just last night was insurance and I actually have the students basically make a market. I basically give them choices of different types of health plans, HMO, PPO, high deductible health plan and a specialty insurance plan.

And then they all vote and High-Deductible Health Plan, which they’re younger, that kind of dominates. But then I say, like, okay, so if we wait out how much you’re all willing to pay for this, and there’s a few of you out here that want a PPO, you’re going to be disappointed. Actually, even the HMO folks are going to be disappointed. And all you can all really afford as a society that’s called this class is High-Deductible Health Plan for all. Or really financially, Medicaid for all. And ⁓ I agree.

Kenneth White (29:17)
Well that’s why my cup says welcome to the island of misfit toys.

That’s the managed care and the health insurance system. It is the island of misfit toys.

On Background (29:29)
That will close us out. Thank you so much Kenny and our panelists here for presenting here on All Background. my guess is this conversation will continue. Take care.