With Marshall Allen, Reporter for ProPublica
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In this segment, Steve focuses on high healthcare costs in the U.S. He speaks with Marshall Allen, an award-winning reporter for ProPublica, an independent non-profit newsroom that produces investigative journalism.
Insurers Are Vacuuming Up Details About You
Steve was particularly attracted to Marshall’s article titled, “Health Insurers Are Vacuuming Up Details About You – And It Could Raise Your Rates.” Marshall notes that without any scrutiny, insurers and data brokers are predicting our health costs based on non-health data about us. They glean this data from social media feeds and other sources to identify our race and ethnicity, marital status, how much TV we watch, whether we pay our bills on time, etc.
Your Profile Could Lead To Higher Insurance Premiums
Insurers have been building profiles for years so they can predict insurance expenses down the road and remain profitable. What’s new this time around is that they’re working with data brokers to gather a lot of non-health information about us and make inferences about our healthcare risks. They then use this information to raise rates, discriminate against patients, or structure plans to pass high healthcare costs onto patients.
Big Data Brokers: LexisNexis And Optum
One of the biggest data brokers is LexisNexis, which gathers information from public records, lawsuits, land records, financial records, credit scores, liens, etc. It tracks your race, education level, crime in your neighborhood, and more, with up to 400 profiling parameters. LexisNexis then uses this information to develop your risk score for healthcare costs, based on this non-health information, and markets this data to health insurers.
Another big data broker, Optum, similarly builds health risk profiles on hundreds of millions of Americans.
Garbage In, Garbage Gospel Out??
A lot of this profiling is quite disturbing. For instance, if you buy plus-size clothing, you may be pegged as someone who is at risk for depression. Or if a woman recently changed her name, data scientists may infer that you’re either married and likely to become pregnant or divorced and stressed. And that could increase your healthcare costs and risks.
Steve notes that a recent guest, Gary Smith, said that our belief in artificial intelligence is overblown. Earlier, it used to be, garbage in, garbage out, with computers. Now, it’s garbage in, gospel out, with people sincerely, and incorrectly, believing information from AI models.
But data correlations don’t always prove causation. As the website Spurious Correlations likes to point out, the number of lawyers may be correlated to how many people cut themselves from peanut butter and jelly, but the existence of the former does not lead to the latter.
Europe Has Tougher Data Privacy Laws
Europe has more stringent privacy requirements under its General Data Protection Law. Your data there is private and can’t be used or trafficked by data brokers. By contrast, in the U.S., all your information is public and can be tracked, monetized, and traded.
What Drives The Insurance Industry
Marshall reminds us that the insurance company’s real motive is to make money off of subscribers.
Make no mistake—insurance companies aren’t actually the ones paying our bills. It’s the patients who pay for each other’s care. Insurers are merely middle men who collect premiums, try and predict risk, and minimize payments towards patient care.
Insurers typically make about 3% to 4% profit, which isn’t a lot in percentage terms. So they constantly focus on expanding the pool of money, with higher premiums as healthcare costs rise.
There’s a lot more behind America’s high healthcare costs and the games insurance companies play. To learn more, check out Marshall Allen’s articles on ProPublica, and listen to his interview on The Steve Pomeranz Show.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: My next guest asks a great question. He asks: why do we pay so much for healthcare in the United States and get so little in return? His name is Marshall Allen, and he is an award-winning reporter for ProPublica, which is an independent nonprofit newsroom that produces investigative journalism. And I was particularly attracted to his writings with a particular article. It was entitled, “Health Insurers are Vacuuming Up Details About You and It Could Raise Your Rates.” Hey, Marshall, welcome to the show.
Marshall Allen: Hi, thank you for having me here.
Steve Pomeranz: So without any public scrutiny, insurers and data brokers are predicting our health costs based upon data about us. Social media data and other things, they’re looking at our race. Our marital status, how much TV we watch and whether we pay our bills on time or even if we buy plus-sized clothing. Is this something brand new or have they been doing this for years? But it’s been accelerated by the growth of algorithms and big data.
Marshall Allen: Well, they’ve definitely been building profiles on us for years, and they’ve been trying to predict our costs for years. That’s kind of what they’re in the business of doing. They want to make sure they can bring in enough money to cover any potential costs. And they want to make sure that they understand any risk that any of us pose. I think with this story, what’s different about this story, and what’s new here is that they’re working with data brokers to gather a lot of non-health information about us and then make inferences about our health care costs, and then possibly—I mean, I wasn’t able to determine if it’s happening yet—but possibly, that information could be used to raise our rates and what we pay, or it could be used to discriminate against patients. Or it could be used to structure plans in ways that could pass costs on to patients.
Steve Pomeranz: Well, let’s think about this. So who are these data brokers? There’s a business for everything if you see a niche and you can fill it. What kind of companies have this data and are able then to package it and sell it to insurers?
Marshall Allen: Well, so the biggest one that I featured in my story is LexisNexis. And LexisNexis is very well known for the research they do, legal research. I mean, we use their research here as investigative reporters; they gather information from public records. And so it could be gathered from lawsuits, from land records, from financial records, credit scores, liens. Your race, your education level, the amount of crime that’s in your neighborhood; they said that they have more than 400 variables that they have used to correlate to someone’s healthcare costs. And then they put together risk scores for healthcare costs based on this non-health information.
Steve Pomeranz: Yeah.
Marshall Allen: And so, that’s information that they’re marketing to the health insurance industry to help predict the cost of patients.
Steve Pomeranz: When I think of big data, I don’t think of someone’s name and life being associated with it as an identity. I see it as just kind of a sea or an ocean of data that comes together mathematically to derive at certain conclusions. Is this different?
Marshall Allen: Well, yeah, it’s very personal, actually. I mean, this has been done for a long time in the marketing and sales world, right? And we all sense that when we’re searching for something on Google. And then we start seeing ads pop up for it to try and sell us based on our search habits. So we all know that we’re being tracked more and more, and it is incredibly personal, so they’re building individual profiles for us. Another company I featured is called Optum. Optum is owned by United Healthcare, which is the largest health and insurance company in the country. And one of the largest companies in the country.
Optum said they are building profiles on hundreds of millions of individual Americans. And they recently filed for a patent that will gather people’s social media posts, so Facebook posts or Twitter posts. Other things we put on social media, they have text mining programs. And they would then somehow, they didn’t say exactly how, but they would somehow use this to link to our healthcare costs.
Steve Pomeranz: Yeah, so, I mean, that sounds incredibly disturbing. If some of the things I mentioned, they’re watching our TV, our TV habits in some way. I guess they know our shopping habits, so they can tell if we’re buying plus size-clothing, that’s kind of understandable. But I don’t really understand how they’re getting all of this other information. It’s not public information how much TV I watch.
Marshall Allen: Well, so, for instance, with shopping habits, right? So if you use a rewards card for your grocery store.
Steve Pomeranz: Okay.
Marshall Allen: They can take that information and sell it. So they’re giving you a discount to buy items so that they can take that data that they’re tracking on you and sell it on the back end. I talked to one vendor, I went to a health insurance conference, and really, it was more like a tech conference in the vendor hall.
But I talked to one vendor who said they can see if you have an Amazon Prime membership. If you have an Amazon Prime membership, it tells them a lot about the type of purchasing habits and the types of things that you buy. And I think one of the most, sort of, disturbing aspects of this is the inferences that they’re making. And so, for instance, you mentioned the plus-size clothing, if you’re a woman who’s purchased plus size clothing. What they say in their marketing materials is that they would say that you’re considered at risk of depression. And mental health is something that can be expensive. Or if you’re low income and a minority, then the data brokers would say you’re more likely to live in a dilapidated and dangerous neighborhood.
Steve Pomeranz: Yeah.
Marshall Allen: And that can increase your health risks. Or even think about a woman who’s recently changed her name, so she could be newly married, or maybe she is recently divorced. So maybe she’s about to get pregnant if she’s a newlywed, or maybe she’s stressed out and anxious from the divorce. And so the computer models then would predict that you’re going to have higher medical bills.
Steve Pomeranz: A few weeks ago, I interviewed Gary Smith, he’s a professor of economics at Pomona College. And he wrote a wonderful book called The AI Delusion, and he said that the belief in our artificial intelligence is overblown. He said it used to be with computers, garbage in, garbage out, you’ve heard that, right?
Marshall Allen: Yeah, I have, yeah.
Steve Pomeranz: And now it’s garbage in, gospel out, so we’re believing this information that’s coming out. And there’s also this idea that correlations of data don’t prove causation. And as a matter of fact, there’s a wonderful website I always reference on this show, it’s called Spurious Correlations. I don’t know if you’ve seen that. But it measures, Erica helped me here, how many lawyers there are and how many people cut themselves from peanut butter and jelly.
Marshall Allen: Yeah, right.
Steve Pomeranz: Sort of ridiculous, unrelated events that show correlation somehow in this great, massive data. So is the worry here-
Marshall Allen: Well, I think that’s probably the most offensive thing about this practice, is that just because a woman purchases plus-size clothing. Does not mean that every woman who falls in that category would be depressed.
Steve Pomeranz: Of course.
Marshall Allen: And so that’s exactly why using non-health information is even more troubling than using health information which they also get very invasive with health information as well.
Steve Pomeranz: Well, doesn’t HIPAA govern this? That form that we sign that protects our medical information?
Marshall Allen: Well, this is not medical information, so it’s not governed by HIPAA at all.
Steve Pomeranz: Mm-hm, so is it a question of whether the government has not yet kept up with the changing technology? Because I know in Europe, this is now outlawed, right?
Marshall Allen: Right, so, Europe passed a law that created much more stringent privacy requirements for data. And one expert I talked to about the European law, which I think they call the General Data Protection Law, they have the presumption that your data would be private. So this personal information about you would not be able to be used and then trafficked by data brokers.
Steve Pomeranz: Mm-hm.
Marshall Allen: Whereas in the United States, we haven’t really had these conversations. And so the presumption is that all this information is public.
Steve Pomeranz: Right.
Marshall Allen: It can be gathered, it can be tracked, it can be monetized, and then it can be traded by these data-brokers. And in this case, I’m looking at how the insurance industry is using it and all the troubling implications there.
Steve Pomeranz: Well, let’s talk about what drives the insurance industry. You’d think that they would be very interested in lowering costs for procedures and reducing the amount of surgeries, let’s say. Or visits to the emergency room, they’re kind of acting on our behalf as insurance providers to whom we are paying our premiums. But it actually, from another article that I read that you posted, that’s really not their incentive, their incentive is not to save costs. Tell us a little bit about how insurance companies really get paid.
Marshall Allen: Well, this is sort of stating the obvious, but their real incentive is to make money, right? And we sort of think, and this is what’s been so interesting, as I’ve learned more about the industry. We think because we are their members that they are supposed to be acting on our behalf. But what I’ve been trying to show through the series of stories is that the industry is actually aligning itself with other industry players with a lot of side deals. A lot of behind the scenes type of contracts and agreements that are not visible to the patient, so that they can make more money off of us. And I think one of the first misconceptions is that insurance companies are actually the ones paying our bills. It’s actually the patients are the ones who pay the bills. The insurance companies are the middlemen and what they want to do is pool the risk and try and predict the risk.
And once they can hopefully, accurately predict the risk, then they know how much to charge all the people who are paying into that pool of risk. And hopefully, then, they can manage those costs, so that the costs don’t exceed the amount of money they’ve brought in. But it’s kind of like they just take a cut, they take an administrative fee, and a fee for profit off of the total. And they would tell you that their profits are actually relatively modest, like 3 or 4% a year. Which is actually relatively true when you look at their financial statements. But the difference is is that if they can make that overall pool of money bigger, if the healthcare costs can go up then their 3 to 4% of relatively modest sounding profit every year can continue to grow every year. And so, they do continue to bring in better value for their shareholders because they keep bringing in more money.
Steve Pomeranz: All right, so let me kind of summarize what you’ve said. If this was a true member organization, they would be interested in keeping costs down and keeping premiums at a certain level. Let’s say that they were themselves paying the premiums and they were watching out after their own financial interests. They weren’t kind of a third-party broker that was just making commission off of doing administrative.
They actually had skin in the game, then they would want to keep their premiums down. And therefore, they’d want to keep their costs down, so they could earn the difference between the two. But what I’m understanding now is that that’s not how it works, they are really making a percentage of the revenue.
So their only interest is in making sure that they are able to price our premium correctly by saying, well, heck, the costs have risen by so and so, we don’t really care, we didn’t care what we paid. So costs have gone up, and that means that there’s more revenues coming in. And they’ll increase their revenues by pricing it at their costs plus an administration fee. And so with rising revenues at a 3% commission, they will earn more. And so their only incentive is to increase their revenues, not to decrease their expenses. Did I get that right?
Marshall Allen: Yes, that’s correct, and the Affordable Care Act actually kind of codified this through what’s called the medical loss ratio. And in the law, it got put in place that they have to spend anywhere from like 80 to 85% of the money they bring in on medical care itself. So their administration and profit can only total, say, 15 to 20%. And so the real way they have to make money is by raising the overall amount of revenue that they bring in. And that’s why they’ll sometimes accept extremely high prices.
And so I got into this by writing about the story of Michael Frank, which you mentioned. And Michael Frank went to a hospital in New York City, NYU Langone Hospital which is one of the marquee named hospitals in New York City for a hip replacement. And he ended up getting charged about $70,000 for a hip replacement, that at other hospitals in New York City would cost anywhere from, say, from $20,000 to $30,000. And Michael Frank happens to be an actuary, and he works in the health insurance industry, and so he knows how it works. And he was flabbergasted to see, why are they accepting this extremely high price? Why is Aetna, my insurance company, paying $70,000? He thought it had to be fraud. And so, he complained to everyone he could complain to, and the insurance company was happy to pay that amount. They just said, this is the rate that we have agreed to with the hospital. And what patients don’t realize is that insurance companies also make money by creating these networks of providers, hospitals, and doctors. And so, an insurance company needs a hospital like NYU Langone in their network.
Steve Pomeranz: Yeah, looks good.
Marshall Allen: And so they’re going to pay them more, and they’re going to accept that, but then the patient ends up bearing the brunt of that cost.
Steve Pomeranz: Yeah, it’s very, very complicated. There is a lot of themes and devices that are being used to fuel this industry that we have so little control over. And we think things operate a certain way, but in fact, they don’t. My guest is Marshall Allen, and he’s a reporter for ProPublica, I really recommend that you go up on that site, P-R-O-P-U-B-L-I-C-A. It’s a nonprofit newsroom for investigative journalism.
And of course, to hear this or any other interview again, and if you have a question about what we’ve discussed, write to us. We’d love to hear from you, and go to our website at stevepomeranz.com to join the conversation. While you’re there, sign up for our weekly update for a brief rundown on the important topics that we’ve covered that week. Go straight into your inbox, that’s stevepomeranz.com. Marshall, thank you so much for joining me.
Marshall Allen: Thank you for inviting me.
