In 2019, ESG Means New Innovations in Healthcare

The debate over healthcare delivery, access and cost in the U.S. is a tortured one and will not end anytime soon. Healthcare costs are a constant cause of angst in C-suites and conference rooms as companies grapple with rising prices. For individuals who lose their healthcare coverage and must buy it on their own, the stress at the thought of paying premiums out-of-pocket can be overwhelming.

The healthcare sector evolves at a glacial pace compared to other industries, but change is imminent. Last year, Amazon, Berkshire Hathaway and JPMorgan Chase launched a partnership to drive out the middlemen and rein in wasteful spending in the healthcare industry. Meanwhile, more consolidation across the sector is occurring: witness the CVS acquisition of Aetna, which could transform how many consumers can access treatment as more patients are diverted from far more expensive hospital care.

Furthermore, advances in technology will revolutionize healthcare. A recent PwC survey suggested we will see more digital therapies that can help deliver health services, avoiding more expensive office visits. Consumers that spoke with PwC indicated they were open to healthcare options powered by digital technologies if such options were more affordable—which in part explains why venture capital funding for such companies could reach almost $7 billion once the 2018 numbers settle in.

All of these innovations sound fantastic for these big companies’ bottom line. But what about those workers who comprise the growing “gig economy?” There is also the question about lower-wage workers who are pushed into higher-deductible healthcare programs, although they are the ones who can least afford such plans.

California may just become the laboratory in which we will observe how these technological shifts in healthcare will pan out.

Yesterday, in his first act as California’s governor, Gavin Newsom announced a flurry of executive actions and budget proposals that seek to lower healthcare costs while expanding access. The initiatives include providing Affordable Care Act financial assistance to middle-income families who were previously unable to benefit from such subsidies. In addition, Newsom is pushing for a statewide, scaled-up program that will allow the state government to join forces with private employers to negotiate the price of pharmaceuticals. The governor also sent a letter to the White House and Congress asking the federal government to rescind laws that allow for states to develop their own healthcare programs—think: single-payer.

The knee-jerk reaction is to attack these proposals as runaway tax-and-spend policies without any ability to slam on the breaks. But like all U.S. states, budget realities will kick in—federal and state mandates together limit California’s discretionary spending. Newsom would also be wise to remember that California’s “rainy day” fund—built up by his predecessor, Jerry Brown—now stands at $13 billion but could dissipate quickly if the state hits an economic downturn.

Therefore, if small- and medium-sized businesses can participate in a statewide consortium that allows for access to healthcare, the outcome could mean lower premiums for companies and their employees. Technological innovation and new ways of providing services can further push down costs, allowing more freelancers and middle-income families to access affordable healthcare. In addition, Newsom’s directive to establish a statewide surgeon general's office could help address the root causes of the most intractable health problems while taking on the social determinants of health.

From how citizens are taxed (as in Prop 13) to how their future electricity is produced, California has long been a state from which trends launch, before the other U.S. states follow. And now, Newsom’s directives are more than a push for “Medicare for all.” If more citizens are scoring healthcare services at places other than pricey medical clinics, while benefitting from cheaper prescription drugs—assisted by healthcare technology startups that can modernize and cheapen healthcare—many businesses and their customers could benefit in the long term. As they always say, the definition of insanity is doing the same thing over and over and expecting different results. So give Newsom some credit, with the caveat that the private sector will have a critical role in transforming how Californians receive their healthcare.

The upshot for companies this year is that healthcare will be a big part of the "S" and "G" in ESG (environment, social and governance). Access to healthcare is a huge but difficult part of having a vibrant society; and keeping companies economically sustainable depends on keeping healthcare costs in check. Hence the opportunity to work with California should be viewed not as an obstacle to business, but as an opportunity.

Image credit: Office of Governor Gavin Newsom