Be A (Healthcare) Advocate, with Kristen Rivers

This video provides an in-depth exploration of the broken incentives and lack of transparency within the U.S. employer-sponsored health insurance system, framed through the personal and professional journey of healthcare advocate Kristen Rivers. The conversation, hosted by Spencer on the Self-Funded podcast, details Rivers' transition from a decade-long career at the largest U.S. health insurer to her current role at ParetoHealth, where she advocates for employers utilizing self-funded captive models. A central theme is the systemic complexity and misaligned incentives that drive up healthcare costs, particularly for small to mid-sized employers who are often forced to manage healthcare as a top-three balance sheet expense without adequate data or control.

Rivers emphasizes that the current system is designed to benefit shareholders of large, publicly traded insurance carriers, not the employers or the plan participants they serve. This is illustrated by the concept of the Medical Loss Ratio (MLR), where higher healthcare costs lead to higher absolute dollar profits for carriers, despite regulatory limits on profit percentages. Furthermore, the vertical integration of major carriers—who often own or are owned by Pharmacy Benefit Managers (PBMs) and clinical assets—creates a self-dealing ecosystem where costs can be managed and revenue driven internally, often without transparency to the employer. Rivers, leveraging her legal background (J.D. degree) and experience reading complex Administrative Services Agreements (ASAs), highlights how contractual fine print often obscures markups and rebate flows, preventing employers from achieving true cost containment.

The discussion pivots to the challenges of market disruption, particularly in heavily regulated and fully insured markets like California. Rivers notes that many employers are trained to accept 5-10% annual premium increases as "good news," while carriers often employ a "no-bid strategy" to determine the highest renewal increase a client will tolerate, rather than what is actuarially deserved. The recent substantial renewal increases (22% up to 70%) seen in the 1/1/2024 cycle, coupled with Medicare cuts that carriers are seeking to offset through commercial increases, are forcing a "Dammit moment" for employers, compelling them to finally explore self-funding and unbundled solutions, even at group sizes as low as 50 enrolled lives.

A critical component of the solution discussed is the ability to unbundle the plan, particularly carving out the PBM. Rivers points out that carriers often impose arbitrary size restrictions (e.g., 300+ enrolled lives) to prevent PBM carve-outs, precisely because the PBM arm is a major revenue driver through opaque rebate and discount arrangements. The ultimate vision for the future of healthcare financing involves dismantling the single-entity control model, ensuring complete data transparency, and providing employers and consultants with the choice to assemble benefit plans using high-quality, transparent vendors, thereby shifting the industry from a "sick care system" to one focused on prevention and value.

Detailed Key Takeaways

• Misaligned Financial Incentives Drive Costs: Large, publicly traded health insurers benefit financially when the cost of healthcare rises. Due to Medical Loss Ratio (MLR) requirements, higher overall claims (the expense side) allow carriers to collect higher premiums and generate higher absolute dollar profits, aligning their interests with cost escalation rather than cost containment.
• Vertical Integration Obscures True Costs: The acquisition of PBMs and clinical assets by major insurance carriers creates a closed-loop system where the carrier controls both the financing of risk and the delivery of care/drugs, often steering patients to owned facilities and generating internal revenue that is not transparently reported to employers.
• PBM Carve-Outs are Critical for Savings: Pharmacy Benefit Management (PBM) costs represent a significant and growing portion of healthcare spend (25% and rising). Carriers often restrict employers' ability to carve out PBM services based on arbitrary size thresholds (e.g., under 300 lives) to protect their highly profitable, opaque PBM revenue streams.
• The "Highest They Will Take" Renewal Strategy: Insurance carriers often approach renewal negotiations by asking consultants, "What is the highest increase your client is willing to take?" rather than calculating a renewal based on what the client actuarially "deserved," illustrating a focus on maximizing profit over fair pricing.
• Data Transparency is Non-Existent in Bundled Plans: Employers in fully insured or bundled self-funded plans often lack actionable data and transparency regarding their claims experience, PBM contracts, and administrative fees, making it impossible for them to effectively manage or drive down costs.
• Legal Acumen is Essential for Contract Analysis: Rivers' legal training (specifically in contracts and federal income taxation) allowed her to analyze 200-page Administrative Services Agreements (ASAs) to find "where all the fat was buried," demonstrating the necessity of deep contractual scrutiny to uncover hidden fees and misaligned terms.
• Market Disruption is Reaching a Tipping Point: Recent substantial renewal increases (20%+), particularly in historically stable markets like California (including unprecedented increases from Kaiser), are creating the necessary financial pain to compel employers to abandon the status quo and explore self-funded and captive alternatives.
• Network Overlap Undermines Value: In many markets, large carrier networks have 98-99% overlap in providers, suggesting that the primary value proposition of a "large network" is convenience and market share, not quality control or superior negotiation leverage, making network choice less critical than contractual freedom.
• The CAA and Fiduciary Responsibility: The Consolidated Appropriations Act (CAA) is beginning to compel employers to act as fiduciaries and scrutinize their contracts more closely, though widespread education is still needed for employers to fully understand and execute their contractual obligations.
• Advocacy Requires Challenging the Status Quo: Employers must actively challenge the options presented by carriers and consultants, asking "Why?" and refusing to be confined by artificial constraints or limited choices, particularly regarding PBM carve-outs and network access.

Key Concepts

Administrative Services Agreement (ASA): The core contract between a self-funded employer and the Third-Party Administrator (TPA) or carrier, detailing services, fees, and data access. Rivers emphasizes that scrutinizing the fine print of the ASA is crucial for uncovering hidden costs and understanding the true pass-through nature of PBM contracts.

Medical Loss Ratio (MLR): A provision of the ACA requiring insurers to spend a minimum percentage of premium revenue on medical claims and quality improvements. While intended to limit profit, it incentivizes carriers to allow overall healthcare costs (and thus premiums) to rise, as their profit percentage is applied to a larger revenue base.

PBM Carve-Out: The practice of an employer separating the management of their prescription drug benefits from their medical claims administrator (TPA/carrier) to contract directly with a transparent PBM, often leading to significant savings by eliminating hidden markups and gaining access to rebates.

Vertical Integration: The strategy where a health insurer owns multiple entities across the supply chain, such as PBMs (e.g., CVS/Aetna) and clinical facilities. This model allows the insurer to control costs and revenue flows internally, often at the expense of transparency for the employer client.

Self-Funded Captive: A risk management strategy where multiple small to mid-sized employers pool their stop-loss risk (the insurance against catastrophic claims) into a shared group captive, allowing them to gain the contractual leverage, data transparency, and control typically reserved for very large employers.