Sam Robinson
The value of privatized healthcare is a contentious topic in the medical world. Supporters of a privatized healthcare system cite it as one of the main drivers of healthcare innovation, while its opponents argue that it pushes costs higher, restricts access to care from those who need it most, and leads to worse outcomes and resource allocation.
Regardless of which argument has more merit, one thing is for certain: privatized health plans fall short in providing preventive care and are therefore incompatible with a sustainable healthcare system. This is a key concern, as nearly two-thirds of all Americans were covered by private health insurance in 2023.
What is it about privatized insurance and preventive care that don’t mix? The problem stems from a prolonged return on investment period. Although preventative care is effective at reducing risk factors that decrease healthcare spending, the savings generated from such initiatives can take years, even decades, to be realized. For payers, investing in long-term outcomes loses appeal once they consider how often individuals switch health plans—one in five members disenroll from their health insurance annually. Given this high switch rate, payers that choose to promote preventive care measures for their claimants may never see a return from their investment. A similar phenomenon exists with employer-sponsored health insurance—the median employee tenure was just under four years in 2024.
Despite these challenges, preventive initiatives haven’t been completely abandoned. Since the passage of the ACA, all marketplace health plans are required to cover some preventive benefits without cost-sharing, such as immunizations and certain counseling services. However, most covered services are largely limited to screenings and detection of disease instead of actual care. Insurers would be unmotivated to promote anticipatory health services beyond this threshold due to the lack of financial return associated with these added costs.
Instead of pursuing proactive treatment, insurers typically rely on burdensome utilization management tools like prior authorization to reduce costs by withholding services. A recent AMA physician survey found that physicians see prior authorization as leading to delays in care, treatment abandonment, worse outcomes, and serious adverse events, among other drawbacks. Physician sentiment about utilization management reflects its nature as a band-aid-style solution, emphasizing short-term prospects without regard for sustainability, quality, and efficiency.
This preventive care conundrum is not one-dimensional—hospitals and providers operating under a fee-for-service model also lack incentives to invest in preventive care. They typically rely upon intensive, hands-on departments like general surgery to make up for losses generated from primary care specialties like behavioral health and pulmonology. Even for hospitals that operate under managed care organizations (MCOs), the risk of high enrollee turnover still applies. Changing insurance means changing network hospitals, so providers won’t see returns on investing in their patients long-term.
Within the context of our fragmented healthcare landscape, preventive care is a futile objective. Both independent health insurers and providers lack the patient retention that makes it a worthwhile investment.
What’s the solution?
Preemptive care as a means of controlling healthcare costs has been at the forefront of healthcare discussion throughout the 21st century. Despite these discussions, substantial change has yet to take root at a systematic or policy level.
Healthcare delivery models can be reoriented so that long-term retention, cost-effective care, and prevention are emphasized instead of ignored. This can be achieved by integrating insurers and large health systems to form a singular business model—integrated providers, whose success is tied to the health its members.
Integrated providers are responsible for both collecting premiums and providing care. By combining these two healthcare branches into a single entity, the organization is forced to operate under a capitated reimbursement model, where they receive a set amount fund the care of all plan members. In relying on fixed monthly premiums, the integrated system must focus on providing high-quality, cost-effective care in order to generate sustainable profits.
Removing the volume-based incentives associated with traditional fee-for-service unlocks a space where preventive care can be utilized as a profit driver. When health systems treat proactively, patients stay healthier, are admitted to the hospital less often, utilize less resources, and therefore demand less expenditure. By compressing the morbidity (see below) of their patient population, the integrated provider is able to chronically save instead of spend.
(In this example, the first patient smokes cigarettes regularly while the second smokes less following preventive lifestyle intervention for tobacco use. As a result, the second patient has healthier habits that delay the onset of several catastrophic diseases, “compressing their morbidity” towards the end of their lifetime. This allows the patient to live a longer functional lifespan while reducing needed treatment in the process.)
The concept of an integrated provider is especially appealing because of the lack of need for policy reform—an integrated healthcare system with a focus on prevention could exist seamlessly within today’s healthcare ecosystem. It could offer private capitated contracts to employers and individuals and Part C plans to Medicare beneficiaries. Even with the integrated plan in place, the health system’s hospitals could still treat non-members under the traditional fee-for-service or managed care contract model.
While the hospital could continue to see, treat, and generate income from treating non-members, it is the subset of patients enrolled in the integrated caregiver’s health plan who will benefit from preventive interventions and, in turn, generate profits for the health system. By bringing more patients from the surrounding area into its integrated model, the organization would progressively reduce spending and increase profits, all while alleviating its community’s burden of illness.
Having insurance and caregiving under one capitation-based roof means that the greatest returns are made by increasing and retaining the number of covered lives. Under a per member per month format, overhead and administrative costs decrease relative to the number of members on the plan. This means that a effective integrated health system would need to continuously acquire and retain new members.
But how can patient acquisition and retention be achieved when individual switch health plans so frequently? To combat this, the integrated provider must invest heavily in increasing and retaining their patient population, which can be achieved through several means. The most important is geographic coverage—while it’s common to switch health plans and jobs, people tend to relocate less frequently. Older individuals, a population for which health interventions can be especially impactful, move less often as they age, and don’t go far when they do. Health plans should focus on extending their geographic reach, particularly by contracting with large regional employers. Those that do so can expect to collect from and care for individuals throughout their lifetime, generating the retention needed to unlock the value of preventive medicine.
The second key to increasing the number of covered lives is client satisfaction—by making sure that both individuals and employers are content with the quality of care they receive, integrated providers can achieve higher rates of retention.
To promote satisfaction, integrated providers will have to demonstrate to employers that they share a common interest in keeping employees healthy. Employers already recognize that wellness programs lead to a healthier workforce and decreased healthcare spending, and have taken successful initiative in providing health promotion programs to reduce costs.
Health systems should capitalize on this sentiment by incorporating health outreach initiatives, accessible (possibly on-site) health screenings, and lifestyle improvement resources into the benefits they offer. More broadly, integrated providers need to show employers and individuals alike that they share the same goals in promoting health and decreasing cost. They must demonstrate how their prevention-focused business model produces better health outcomes at a lower cost compared to the traditional reactive approach.
To foster patient satisfaction, integrated providers should invest in and emphasize the primary care provider (PCP) relationship. Most patients are happy with their PCP and want to stay with them. Integrated providers should create an environment where PCPs can spend adequate time with their patients and build personal relationships. This personal connection is a strong incentive for individuals to want to stick with their current coverage, which motivates employers to partner with the integrated system in the process. Another advantage of a consistent patient-PCP relationship is that it promotes better outcomes. A physician who knows their patient well understands their health holistically and can provide more precise and effective treatment as a result.
Finally, patient education will be critical to the success of integrated providers. Patients need to understand how an integrated system differs from a traditional healthcare model—how it is built to invest in their well-being. Patients who recognize that their hospital wants them to stay healthy, leading to a more functional and happier life, are more likely to stick around.
While other solutions may exist, the integration of payers and providers into one business model is the type of realignment that is needed for the sustainable healthcare environment of tomorrow. Payers and providers alike should explore how they can partner with each other to build better health for their communities.
The paragon of integrated healthcare is Kaiser Permanente, one the largest nonprofit healthcare providers in the United States. Founded in 1945 by Henry J. Kaiser to provide healthcare to employees at his industrial facilities, it has since grown to serve patients in eight states through 40 hospitals and over 600 medical offices across the US.
Kaiser Permanente’s central business model is made up of three components:
Kaiser’s integrated, capitation payment system means that it is most profitable when the least amount of spending makes the greatest improvements in health. Therefore, Kaiser focuses on keeping patients healthy and out of the hospital, favoring preventive and value-based tools when caring for its patients.
It is often said that patients are their own biggest advocate—Kaiser takes full advantage of this idea by inviting individuals on their health plans to actively participate in managing their care. A great example of this is Kaiser’s electronic health record (EHR) system, Kaiser Permanente HealthConnect. Kaiser launched this $4 billion health information tool in 2003, and it is now accessible to all patients who receive care at its clinics and hospitals. This 2009 report from The Commonwealth Fund highlights how this integrative EHR system allows both providers and patients to stay up to date on recommended screenings, needed preemptive treatment, and other health-related updates.
By leveraging this comprehensive EHR system, Kaiser Permanente’s Northern California Region stands at the forefront of preventive medicine. Its size and geographic coverage has allowed it to take a population-level approach in allocating healthcare resources. Their system classifies patients into one of three categories based on their specific healthcare needs: primary care with self-care support (the majority of patients, whose conditions can be controlled by changes in lifestyle and medication), assistive care management (for patients with treatment adherence issues, complicated medication regimens, or need higher levels of care), and intensive case management with specialty care (for the minority of patients with advanced disease and complex comorbidities).
Patients are classified into one of these three categories with the hopes of eventually returning to the primary care with self-care support level, where diseases can be managed through value-driven proactive care. By stratifying patients in this way, Kaiser Permanente can also appropriately target interventions like education, case management, and treatment adherence initiatives to the patients who need it most, making the most of each healthcare dollar they spend.
A second successful preventive care intervention from the Northern California Region is the Prevent Heart Attacks and Strokes Everyday (PHASE) initiative. This program was created with the goal of promoting proven therapies for controlling blood pressure, blood lipids, and glucose levels among at-risk populations.
Those who were classified as being able to benefit from support received appropriate preventive medication (aspirin, statins, ACE inhibitors, or beta-blockers) as well as educational interventions (smoking cessation, physical activity, healthy eating, and weight management).
This broad preventive initiative reduced adult smoking from 12.2% to 9.2% over three years, doubled blood pressure control over seven years, and improved blood glucose control among diabetics from 66% to 73%. It also reduced hospitalization rates by 30% for coronary artery disease, by 56% for myocardial infarction, and by 20% for strokes over a nine-year period.
It is Kaiser’s integrated nature that allows them to turn humanitarian initiatives like these into financial gain—by investing in population health and playing the long game, Kaiser sees increased profits from decreased catastrophic spending, allowing KFHP to offer lower, more attractive premiums for individual and employer health plans. Its focus on preventive medicine, supported by its integrated structure, has made Kaiser Permanente one of the highest rated health plans in the United States—one that sets the standard of sustainability and success for the healthcare environment of tomorrow.
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