Report: Health insurance industry will be ‘flipped on its head.’

The world of health insurance is about to be turned on its head. Even with the well-known shifts brought on by the ACA, the fundamental business model for health insurers will change dramatically, shifting largely from serving employers and group business to serving individuals who demand a level of customer service not previously offered by […]

The world of health insurance is about to be turned on its head.

Even with the well-known shifts brought on by the ACA, the fundamental business model for health insurers will change dramatically, shifting largely from serving employers and group business to serving individuals who demand a level of customer service not previously offered by many of the nation’s top insurers, according to a new report.

The report, 2014 Healthcare Outlook from New York-based Psilos Group, anticipates that many of the top carriers and HMOs will not be accustomed “to address a fast-growing wave of consumerism” and are therefore at significant risk if they don’t adapt quickly.

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With the proliferation of the state-based and federal insurance exchanges, coupled with an increasingly heightened employer interest in private health exchanges, the proportion of group business for insurers is “on the edge of irrelevance,” according to the report.

“The bottom line is that the industry has set up its entire value chain – from product development to customer service to provider management to claims processing – all around the employer,” said Steve Krupa, managing member of Psilos Group, a healthcare investment firm. “What will happen at almost an unprecedented rate is the business is going to be flipped on its head.”

To that end, the historic balance of employer-sponsored plans to individual plans has been about 90 percent to 10 percent, according to the report. However, individual plans in the coming years will likely account for as much as 40 percent of their books of business, meaning that insurers will have to become far more consumer friendly then they have been if they want to remain relevant.

Even within the remaining business that includes employer health plans, much of it is likely to shift from employer-sponsored plans to directing employees into private health exchanges, where they will have more choice and thus expect better service from health insurers, Krupa said.

“You’re really going to end up with this individual consumer as the primary focus of how insurance companies are going to compete, and they’ve never done that,” he said. “The reality is they’re just beginning to come to grips with this. Some have done a good job at this, branding themselves toward the consumer, but you can run into problems if you brand yourself and the customer services aren’t very good.”

It’s particularly different, and thus challenging, for insurers because the ideal consumer is one that never uses the product for which they’re paying.

“The best consumer for an insurance company is someone who never accesses their insurance,” Krupa said. “When [consumers] do have an interaction, it’s almost always with an overlay of stress – they’re sick, it might be an acute healthcare event. There’s a lot of data that shows people would fire their heath plan if they could, and now they can.”

That makes it especially important to improve the consumer experience, but it’s just as vital for insurers to now have positive relationships with providers, Krupa said.

“The larger plans and companies are saying they want to go to these high-quality provider networks with the recognition that it’s a good way to win them business. If I’m UnitedHealth, and I have a great relations with UBM, that may be 100,000 members, but now with the world shifting, I’ve got to have a relation with all of [the employees].”

Yet at the same time, the shift for insurers also represents significant investment opportunities, particularly as they relate to digital health and new technologies that are coinciding with the consumer-driven movement in healthcare, according to the report.

Several areas, Psilos says, are “ripe for investment including payer and provider clinical workflow and communication tools, mobile and telehealth strategies, and new software and services to help insurers operate in this new consumer-driven market.”

“The good news is that technological innovations are addressing the full spectrum of needs … all aimed at better aligning insurers, providers, and patients in the reshaping of America’s healthcare system,” said Al Waxman, CEO and senior managing member of Psilos. “If approached correctly, we’re predicting the result will be a more outcomes-focused healthcare system in which the patient is the most important aspect of the business.”

As such, insurers should focus on six key areas to improve upon, among them:

— Research, meaning insurers must understand their new individual consumer base
— Product development, with “value-added” products and services “beyond mandated baseline care.”
— Outsourcing and supply chain management
— Provider network management, which should include price transparency, quality metrics and general consumer-driven trends in healthcare
— Customer relations and operations that meet consumer expectations, including real-time, 24-7 platforms such as mobile and online
— Marketing and sales, meaning insurers need to get better at articulating their value to a number of different consumer segments. They should also seek to leverage exchanges as a means of distribution – “in stark contrast to their experience selling group plans direct to employers.”

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