Why Are There Middlemen for Health Insurance?

How Sustainability and Corporate Social Responsibility Became Intertwined

By Daniel Butcher

As scientists’ warnings about climate change have become increasingly urgent, environmental issues and sustainable business practices have become more central to corporate social responsibility (CSR). Now, there is much more pressure on companies to track environmental, social, and governance (ESG) metrics, including their carbon footprint, and consider other environmental factors affecting the climate and ecosystems as part of their CSR commitment.

That’s according to Academy of Management Scholar Herman Aguinis of the George Washington University School of Business, who noted that 99% of companies in the S&P 500 report ESG information to some degree, most annually, including:

• 452 that align with the Sustainability Accounting Standards Board (SASB);
• 395 with the Taskforce for Climate-related Financial Disclosures (TCFD); and
• 346 with the Global Reporting Initiative (GRI), with some following more than one set of standards.

“That dimension has become so, so critical that CSR-ESG and sustainability are key aspects of it,” Aguinis said. “In the 1980s, there was a big emphasis on making the business case for CSR, and now, things have changed a little bit, because many companies are saying, ‘This is the right thing to do—if we make money, great, but if we don’t, that’s not that critical—we need to do the right thing.’

“But CSR and sustainability work best when you do good and do well simultaneously,” he said. “For example, by embracing sustainable practices, you can actually save money and make money, and at the same time, you can look good in the eyes of the community, consumers, and very importantly, your own employees, who are your best ambassadors.

“In fact, if you do CSR and sustainability right, you can use that as a recruitment and retention tool.”

Leaders who want to embrace CSR and sustainability as an honest, genuine, strategic core aspect of the business need to embed them throughout the organization, Aguinis stressed.

“If you do not measure these things at all, and if you don’t reward them, then all employees are not likely to take them seriously,” Aguinis said. “They can’t be evaluated as something you do on this side, as a nice-to-have, so it is critical to embed CSR and ESG within the strategic goals and the organization’s operations.”

CSR, ESG, and sustainability becoming intertwined strategically also relates to reimagining the purpose of the corporation. For example, in 2019, Business Roundtable issued a Statement on the Purpose of a Corporation signed by 181 CEOs who committed to leading their companies to benefit all stakeholders, including customers, employees, suppliers, communities, and shareholders.

“The goal of the business in a publicly traded company is to make money and create value for shareholders, but even if you’re not publicly traded, you have a responsibility to serve your customers,” Aguinis said.

“We have expanded the concept from shareholders to stakeholders more generally—not only the customers you serve but also the communities within which you’re embedded. So, to what extent are you adding value—both financial and otherwise—to all of these stakeholders?”

How to Make Hybrid Models Work Well

By Daniel Butcher

Should organizations be flexible and enable work from home or demand that employees come into the office? Post-pandemic, some organizations gave their employees the option to continue working remotely, but most moved to a hybrid model of two or three days per week in the office and two or three days per week working remotely.

That said, more CEOs have decided to mandate that their organization’s personnel come into the office five days a week again, especially in industries such as financial services and technology, with Amazon, X, AT&T, Boeing, Dell Technologies, Goldman Sachs, Morgan Stanley, Citigroup, and J.P. Morgan Chase being the latest Fortune 500 companies to do so. However, that may hurt morale and increase turnover, not to mention impede innovation.

Each of the three options has positives and negatives, complicating leaders’ choices.

Academy of Management Scholar Wendy Smith of the University of Delaware said that leaders need a different way to think about this issue. She noted that most organizations are trying to split the time—some time at home and some time in an office. Yet that approach occasionally ends up with the worst of both worlds.

“Key tensions between autonomy and collaboration, independence and interdependence, well-being and productivity underlie this decision,” Smith said.

Rather than frame these tensions as an either/or, Smith argued that effective leaders see these as a both/and. They explore how to create an approach that values the benefits of both at-home and in-office time and understand how they can benefit one another.

For example, rather than split the number of work days into some sort of a hybrid schedule, leaders can strive to create valuable in-office experiences that contribute to a positive, cohesive organizational culture while being willing to be flexible when it makes sense or is necessary.

“If you expect your employees to be in the office, then make sure that they come for a reason—staff meetings, in-person events, networking opportunities,” Smith said. “Moreover, if they are home, give them the skills, technology, and opportunity to truly have autonomy over their time to the best extent possible so that they can navigate when and how they get their work done.

“The main insight from our research is: If you shift from thinking you’ve got to pick one or the other—an either/or approach—and instead you value and hold these competing demands in your mind simultaneously—a paradoxical both/and approach—that’s when you get to a better solution,” she said.

An Overlooked Factor Increasing Health Insurance Denials

By Daniel Butcher

U.S. law governing health insurance and benefits administration has had an unintended consequence of encouraging insurers and third-party administrators (TPAs) to deny more claims and authorizations.

Academy of Management Scholar Jeffrey Pfeffer of Stanford University said that the remedies for harms caused by improper denials of doctor-recommended medical procedures or medication under the Employee Retirement Income Security Act (ERISA) are limited to recovering money.

“If an insurer denies you access to care and you die or are permanently injured by this denial, its only recourse is to recover for the actual money that it should have paid,” Pfeffer said. “Because of the limited remedies, the base case is denial, and so many prior authorizations and many claims are denied by health insurers or TPAs.

“It turns out that if you appeal, in about 60% of the cases, the appeal is actually going to be successful; the problem is, only about 10% or, depending upon the study that you look at, 20% but not very many people ever appeal,” he said. “When you get a notice that says, ‘This medicine has been denied’ or ‘This procedure has been denied,’ it’s required by law to send you a long form in several languages that tells you what you can do to appeal.

“Only about 10% of people appeal,” he said, “but if you do appeal, you will, in fact, have a good chance to be successful.”

The appeals process is complicated, discouraging many people with legitimate claims that were denied from appealing. In addition, poor and working-class people may be less likely to have the time to appeal.

“Health insurance executives say to themselves, ‘Who’s likely to appeal? ’Who’s likely to appeal are people who have time and who have the social capital and resources to appeal, so this mass denial of claims and denial of authorization adversely affects less educated, less wealthy people and underrepresented minorities,” Pfeffer said.

“This is one of the reasons why the U.S. healthcare system has such enormously unequal outcomes, because your access depends upon your social capital and your time and willingness to fight with these insurance companies,” he said.

Executives Need to Oversee Employee Benefits

By Daniel Butcher

The buck for healthcare benefits administration should not stop with human resources (HR). In fact, top executives need to help ensure that their employees are getting the healthcare benefits and services that they’re paying for. If they don’t, their organization may get sued.

Academy of Management Scholar Jeffrey Pfeffer of Stanford University said that most large organizations have a head of benefits who reports to the head of HR, but the CEO and CFO ought to get involved.

“If you do not clean up how you’re doing your benefits administration and all this stuff continues to go on, you’re going to be liable for suit,” Pfeffer said. “Under ERISA [the Employee Retirement Income Security Act of 1974], employers have a fiduciary duty. “I think I pay $250 twice a month at the moment for health insurance, and my employer contributes some money as well to go to paying Anthem for paying medical claims.

“A university or U.S. Steel or American Airlines or whoever your employer is holds that money in trust for the employees, and under ERISA, they have a fiduciary duty to manage those resources prudently, but most do not do so,” he said.

The same issues facing the healthcare industry can be found in the history of third-party administrators of retirement benefits.

“Retirement benefit administrators were charging too much money and not doing a very good job, and then there were a bunch of class-action cases filed against companies that said, ‘You are not exercising your fiduciary duty,” Pfeffer said. “In about a 12-year period, $6 billion was paid out, and then everybody cleaned up their administration of retirement benefits.

“I can tell you with almost 100% certainty, the same firms that file those class-action cases are going to be filing class-action cases against employers for health benefits under the same claim that the employers have done a poor job exercising their fiduciary duty to manage these benefits for employees effectively,” he said.

Companies Can Reverse Americans’ Declining Life Expectancy

By Daniel Butcher

A handwritten note by Luigi Mangione, the suspect in the murder of UnitedHealthcare CEO Brian Thompson, has called attention to the declining life expectancy of U.S. citizens. The note highlighted the jarring gap between the soaring costs of the U.S. healthcare system and the country’s relatively low life expectancy, as reported by the Associated Press.

The U.S. Center for Disease Control estimated Americans’ life expectancy at 77.5 years, which is similar to that of Ecuadorians and Croatians, while Dr. Steven Woolf of Virginia Commonwealth University said that at least 10% to 20% of health outcomes are directly tied to the U.S.’s privatized healthcare system. Employer-subsidized healthcare insurance plans and third-party administrators raise the cost of care and often deny doctor-recommended medical procedures.

AOM Scholar Jeffrey Pfeffer of Stanford University said that he’s skeptical that the United States will move to a single-payer healthcare system such as Medicare for All or any other national solution such as the public health-insurance option that was removed from the Affordable Care Act before it passed in 2010. That places the onus on employers to help ensure that their employees are getting decent healthcare, which benefits organizations by increasing retention and productivity.

“The idea of us getting to a single-payer healthcare system given the politics of all of this is close to zero, but the interesting thing is, employers do not have to wait,” Pfeffer said. “Large universities, U.S. Steel, J.P. Morgan Chase, and all these organizations could fix their problems themselves—they don’t have to wait for Congress to pass something.

“Employers could save a lot of money and reduce their legal exposure and risk of getting sued under ERISA [Employee Retirement Income Security Act] for not doing their fiduciary duty,” he said. “They could have employees who are happier, more satisfied, and more engaged, because in a paper I did with three colleagues, what we found is that employees who spent time having to deal with their benefits administrators were more burned out and less satisfied and less engaged than the employees who did not have to do so.

“Ironically, employers are paying for benefits that burden the employees rather than benefit them, and if you fix the administration of health benefits, they would have more engaged, more satisfied, less prone to turnover, less burned-out employees.”

What Employees Can Do to Deal with a Broken Healthcare System

By Daniel Butcher

In the wake of the killing of UnitedHealthcare CEO Brian Thompson last year, frustration with the costs, paperwork, and denial rates of U.S. heath insurers and third-party administrators (TPAs) has boiled over. In the absence of legal reform, often employees trying to get the healthcare services they need feel powerless, but employers can do much more to hold their health insurance and administration vendors accountable.

Academy of Management Scholar Jeffrey Pfeffer of Stanford University said that rank-and-file employees who are struggling with denials of doctor-recommended healthcare procedures or labyrinthine administrative tasks should request a meeting with or write to their CEO, CFO, and the head of human resources (HR) and demand that they better manage the organization’s health insurance and TPAs.

“These are vendors, and just as you would manage, vet, and scrutinize a vendor or supplier of any raw material or electricity or software or computing power or whatever your vendors are, you ought to do a better job of overseeing your vendors and making sure that they are delivering what you want them to deliver in a cost-efficient manner,” Pfeffer said. “Stop putting up with all of this administrative complexity and overhead and the idea that you have to accept whatever pricing and administrative processes that the insurer or TPA offers and agree to live with denials.

“I interviewed a health insurance executive for one of my books, and he said, ‘Healthcare is not like any other service; it’s more complicated,’ but I don’t believe that at all,” he said. “You can find metrics of the percentage of our employees able to access care.”

Pfeffer urged executives and HR personnel to ask themselves:

• Are employees able to access care in a way that’s consistent with our diversity initiatives so that we’re not discriminating?
• Are employees able to get the care they need?
• Are they able to access mental-health benefits?

“‘What’s the health of your workforce?’ is a key question that’s interrelated with the success of your organization,” Pfeffer said. “This is not complicated, but we made it complicated.

“This is about delivering a service in a cost-efficient manner,” he said.

Employers Don’t Scrutinize Health Benefits

By Daniel Butcher

Most employers in the U.S. manage almost nothing about benefits administration, leading to significant employee frustration.

Academy of Management Scholar Jeffrey Pfeffer of Stanford University said that third-party administrators are vendors and, as such, must be subject to oversight of the employers who hire them, just as companies vet and monitor, for example, a steel vendor or software service provider.

“If I were paying for services from you and you were providing a crappy service, I would figure out a way to either get a different vendor or do it myself,” Pfeffer said, noting that some large organizations are self-insured. “In this case, the responsibility lies with the employers.

“Approximately 80% of working-age people in the U.S. get their healthcare paid for through insurance provided by their employer—the employers are paying for these benefits that are not actually being delivered in a very efficient way, if at all,” he said. “If the employer said to United Healthcare and Anthem and the Blues and everybody else, ‘You need to do a better job, or we are going to basically get rid of you,’ they would do a better job.

“These are vendors, and the anger directed at health insurers needs to be redirected, if you are an employee getting your healthcare through benefits provided by your employer, to the people overseeing benefits and human resources.”

Pfeffer said that when employers begin to hold their vendors accountable for things other than spending—such as denied claims and services—the health insurance industry will respond accordingly. Meanwhile, he predicts that employers will increasingly confront class-action lawsuits based on their failure to fulfill their responsibilities under the Employee Retirement Income Security Act (ERISA).

“In few cases are they doing their duty to their employees,” Pfeffer said.

Companies Negotiating Lower Healthcare Prices Works

By Daniel Butcher

Americans pay the highest healthcare costs in the world. With renewed scrutiny on the U.S. health insurance industry and third-party administrators (TPAs) of health benefits in the wake of UnitedHealthcare CEO Brian Thompson’s murder, many people are looking for fixes to a broken private healthcare system. Given that healthcare reform is unlikely to come from Washington, employers are arguably the only ones with leverage to reduce costs and minimize denials.

AOM Scholar Jeffrey Pfeffer of Stanford University cited the example of a former insurance insider whom Montana hired to save the state’s benefit plan for its 30,000 employees and their families. She pushed back against TPAs and health-insurance executives who were keeping healthcare costs high, proving that bargaining to lower healthcare prices works.

“In Montana, a woman named Marilyn Bartlett, who’s literally a grandmother, was hired by the state of Montana to fix the healthcare benefits situation for the main Montana government employees and retirees, and she held their vendors accountable for spending, denied claims, and denied services,” Pfeffer said. “She basically saved a fortune and provided better service by holding the vendors accountable.”

A 2018 article published by ProPublica and NPR revealed that “Bartlett understood something the state officials didn’t: the side deals, kickbacks and lucrative clauses that industry players secretly build into medical costs. Everyone, she’d observed, was profiting except the employers and workers paying the tab.

“In her view, employers should be pushing back against the industry and demanding that it justify its costs. They should ask for itemized bills to determine how prices are set. And they should read the fine print in their contracts to weed out secret deals that work against them.

“The way health care works in America, most employers cede control of health care costs to their health insurers, to the hospitals that treat their employees and to the companies they pay to manage their benefits. The costs are a dense thicket that few employers feel equipped to hack through. So, they don’t.”

Pfeffer said he’d like to see more organizations leverage such insights to improve healthcare services and outcomes for their employees.

“What is going on at the moment is that most employers are not measuring the delivery of healthcare services, and most employers are not holding their vendors accountable,” he said.

“The Blues and Anthem and UnitedHealthcare are just doing what the employers are permitting them to do, and the employers should take much more proactive steps to clean this up.”

What HR Departments Should Be Doing about Healthcare

By Daniel Butcher

As dissatisfaction with the U.S. healthcare system grows, the responsibility to ensure that workers are getting services falls to employers by default.

Ensuring that healthcare insurers and third-party administrators (TPAs) are delivering what they’ve promised and aren’t denying doctor-recommended procedures shouldn’t require hiring anyone new; it should be a core element of the responsibilities of the human resources (HR) department, according to Academy of Management Scholar Jeffrey Pfeffer of Stanford University. He said HR personnel should be able to fulfill this important duty without it becoming an onerous task.

“I don’t actually think that’s too much to ask, doing a survey of your employees and collecting data from your benefits administrator to find out what percentage of claims are denied, how much coverage costs, how much prior authorization there is, all this stuff,” Pfeffer said. “I don’t think this requires advanced analytical skills.

“This requires a relatively simple employee survey and then holding people at health insurers and TPAs accountable,” he said.

As an example of what’s possible, Pfeffer cited the example of Marilyn Bartlett, a CPA and former insurance executive who negotiated with health insurers, TPAs, and hospitals on behalf of Montana’s employee healthcare plan, proving that bargaining to reduce healthcare prices can work well.

“This is a very smart woman who had worked for years for a health-benefits company, but you do not need enormous amounts of expertise to hold benefits administrators accountable,” Pfeffer said. “You would just need to define what some standards are: How much time should people be waiting on hold? What percentage of claims have been denied? How many claims should be denied? How much prior authorization should we do? Are we following the recommendations of the American Medical Association?

“Ask yourself, ‘Are we doing this benefits administration oversight in any in an efficient and effective manner, as you would measure anything else?’ and the answer to that is, in almost every case, ‘No,’” he said. “Specialization for this role may be necessary, but I don’t actually think so—this is pretty straightforward.”

Leaders Don’t Need to Be Liked

By Daniel Butcher

Becoming a respected, powerful leader often requires a fundamental mindset shift of letting go of a need to be seen as likeable and authentic. In fact, effective leaders don’t dwell on how their management style and decisions will affect their popularity but rather focus on what’s best for the organization and what will inspire employees to perform well, according to Academy of Management Scholar Jeffrey Pfeffer of Stanford University.

Pfeffer, one of today’s most influential management professors and researchers, offers some takeaways on that subject from his book 7 Rules of Power. Leadership isn’t a popularity contest; rather, it’s about levering influence to achieve strategic objectives for the good of the organization’s shareholders.

“You need to learn how to interact with other people across your organization in ways that build your influence and permit you to get the things done that you want to get done,” Pfeffer says.

One of Pfeffer’s tips for current and aspiring leaders is to “lose the self-descriptions and inhibitions that hold you back, for example, the idea that you have to be liked, because, as an executive, you’re hired to get things done, not necessarily to win a popularity contest. Lose this currently popular idea that you need to be quote-unquote authentic, which is, of course, incorrect.”

The best leaders know the optimal course of action may involve breaking the rules, including policies and procedures that fall into the “but we’ve always done things this way” category. Effective leaders embrace innovation and encourage everyone at the organization to do so.

Another key insight is that once professionals have acquired power, what they did to get it will be forgiven, forgotten, or both. Most personnel will fall in line and get on board or eventually leave the organization.

“Once you have power and status and success, no one will care how you got it, and people will people will accommodate themselves, because people like to be close to power,” Pfeffer says.

Once they’re in a leadership position, high-ranking executives shouldn’t be shy about using their power, he stresses, even if they step on a few toes or ruffle some feathers. Leaders who let go of the idea that they need to be liked or loved and instead act decisively may face resistance or even spark anger but will likely earn employees’ respect.