Social Responsibility, and especially Corporate Social Responsibility has seen a surge of popularity and media attention in recent years, riding on the back of a larger trend of increasing awareness of social justice movements and dissatisfaction with the status quo, and the power wielded by corporations. Historically, finance (as an industry) has been viewed with suspicion when it comes to Corporate Social Responsibility; many millions (if not billions) of marketing and advertising dollars have been spent by banks and large financial institutions to project an image of human-centered and caring companies. Some of this cynicism is deserved, but there is also hope in the future. In this article, we explore these trends and how they’re influencing industries further afield, such as healthcare, with the example of health insurance being explored in depth.
In 2021, the beginning of the Black Lives Matter movement has left a wake behind it, stirring up many different issues, all directly and indirectly related to systemic racism, such as wealth inequality, and healthcare inequality. The advent of the COVID19 global pandemic has of course sharpened the focus on such issues, especially by shining a light on extreme differences in the ability of Americans to have easy access to affordable healthcare. Not to mention huge disparities in measurable health outcomes, for those receiving care from healthcare companies.
Along these lines, let’s dive into the health insurance industry, as an example of healthcare companies in general. To give some brief background, the basic premise behind any insurance business is to collect small fees from members, amass a huge amount of capital, and then when a member makes a claim against their insurance policy, the business uses a portion of that huge amount of funds to pay out the claim. Only a small number of people make claims, and the business doesn’t run out of money. For people who have insurance and who do claim, their lives are promptly put back on track, instead of facing certain financial ruin. The members are better off, because they only have to pay a small fee to access certainty and a safety net, and the insurance company only has to foot the bill for the small minority of members who actually claim, thus having access to a huge amount of money which they can then invest for future profits, or claim a portion directly as profit (in certain circumstances). The member is able to afford the fee because it is quite small, compared to the catastrophic cost avoided by not having insurance when a claim would arise. A win for everyone, right? Wrong.
Unfortunately, the structure of these incentives means that the insurance company is highly motivated to not take care of their members. The motive of the company is to make a profit. The CEO and the members of the board are often incentivized with bonuses, based on the profitability of the company. So, naturally, they will make decisions based on which choice (or choices) are going to make the most money. Let’s look at the two levers that the company has to pull: a) they can get more customers, charge more, offer new products, and so on, or b) They can reduce costs. It’s fair to say that the insurance industry (especially the healthcare industry) has become commoditized: There are not stark and shining differences between the providers, they all offer similar services for similar price points. As such, it’s very difficult to stand out, so charging more is not really an option. With the “get more money” option thrown out, our hypothetical board is left with only one hypothetical lever left to pull: reduce costs. And the single most effective way to reduce costs is to reject, dispute, deflect, lose, cancel and otherwise avoid paying out claiming members. There are many documented cases of insurance companies knowingly and willfully disputing the claim of a member, when all of the evidence clearly demonstrates that the claim is valid. They do this, taking a bet that the member will be unwilling or unable to fight the claim: the insurance company has lots of funds available along with highly experienced lawyers who constantly fight the same cases. Whereas, the poor member is out of their depth, inexperienced, and (often) unable to risk their savings (if any) to fight the case in court.
This dark game, played out by hundreds of health insurance companies around the world does have a silver lining. There’s an opportunity to turn this trend around and crown a group of kings among the health insurance industry. With the rise of the internet and easier access to information, case history, other’s experiences, and with the recent emergence of self-organized, unofficial communities, accountability is being brought to bear against immoral and fraudulent behavior on the part of health insurance companies. Take, for example, the disheveled group of stock traders that organized themselves on the popular website, Reddit (see r/wallstreetbets for further information): this group of (more and less) financially savvy individuals managed to take on some of the largest hedge funds and trading app companies in the world, and, arguably, to win. While it’s early days for unprecedented events such as this, signs are good that power is moving into the hands of the people, rather than the select few who have been immune to scrutiny for so long.
If a few new health insurance companies were to throw open their doors, and provide full transparency, full accountability, and focus on building and maintaining their reputation out on the internet, it would be the death knell for the older and more corrupt health insurers. It might not happen in a year, but it won’t take 10: in a short time, the demand for socially responsible behavior will weigh down on the industry, and customers will flock to the new and socially responsible health insurance companies. Without new fees flowing in, with outdated and inefficient business processes, the old companies’ operating costs will outstrip their revenue. Coupling that further, with the fact that more claims are likely to be made as a cohort of members ages over the years, and you have a very tight pinch emerging, indeed. When word gets out that a particular health insurance company is in financial trouble (or even that it may possibly be in the future), then all consumer trust evaporates. Who would pay for an insurer who may not have the funds to pay out a claim? It’s a downward spiral towards closure. In a just society, rewards flow to those who deserve it.
The internet has arrived, if you haven’t noticed, and people are sharing information with each other on how they’re treated. The mandate for all health companies (Not just health insurance companies) is clear: social responsibility is coming, whether you like it, or not. Better to do good, and be in business, than not at all.