The Consumerization of Health Insurance: Adapting to Private Exchanges

findcustomersThe new Affordable Care Act (ACA or ObamaCare) is introducing new opportunities and challenges for health insurance companies. The complex set of regulation, exchanges and integrations needed is still a political and technical mess but one thing is clear: health insurance companies will have to embrace their consumers.

It’s no secret that currently most health insurance companies’ customers who make buying decisions are not the actual consumers but employers or benefit brokers. This is about to change.

The process started even before the latest reforms and is modeled to a large part after the successful pension / retirement benefits model where companies moved from a company provided pension into a marketplace. The employer is putting in a defined contribution, and the employee is choosing investment vehicles from various providers.

The model works very similarly for health benefits with private exchanges giving employees more choices. Walgreen has recently moved its 160,000 employees to a private exchange and estimates are that by 2017, 18% of the American public will buy their insurance at private exchanges.

So what do health insurers need to do to better compete in an open marketplace? Mostly, steal the best practices established by other competitive markets such as the aforementioned retirement benefits and P&C insurance providers:

  1. Enable consumers to make an informed buying decision. While prices and coverage may be negotiated with employers, additional tools and content written for consumers is essential. For example, a “find a doctor” tool that lets you see if your physician is part of the plan, and detailed coverage comparison between plans.
  2. Give consumers full access to their information and personalize the experience. Web portals, mobile applications, email and text messages all tailored to consumer preferences and health interests. The self-service aspect will both give consumers control and save call center costs.
  3. Know your customers. Since until now most group members were not customers, the interaction was very transactional and focused on claims. A huge part of the consumerization of healthcare and of health insurance is starting to use ecommerce style tools – CRM systems that help track and manage all interactions; improving data collection, tracking and analytics to help segment and personalize user experience and wellness communications and offerings.
  4. Establish a clear measurement and analytics framework. New measures and metrics need to be put in place to judge the effects of this transition on the business and the determine best ways to react. The new measurement framework has to look at metrics such as:
    • Customer acquisition cost
    • Customer retention rates 
    • Customer profitability by source and segment
    • Customer lifetime value
    • Impact of wellness activities and user engagement with them on costs
    • Impact of self-service portal and mobile applications on call center volume and costs.
  5. Adapt and optimize marketing. The direct approach requires multichannel direct marketing.  Analytics can help guide the best mix of marketing options to achieve the different acquisition and retention costs.

A lot of people question whether going after the direct channel is even worth it. Some have had bad experiences in the past with individual members that tended to consume more healthcare since they were not always in a good enough health to hold a full time job.

The transition we are seeing to private exchanges and defined contributions seems much more substantial and can dominate the market in 5-10 years. A good toolset, marketing approach and measurement framework will be invaluable to compete for the right segment.

Claims as a customer touch point opportunity

We hear on a daily basis that an increasing focus for our insurance clients is to improve their customer relationships through impactful, value add touch points.  The need to increase customer satisfaction and retention has become top of mind and organizations are looking for visibility into how to reach their customers throughout the lifecycle from pre-sales to policy administration through to claims processing. 

As one would anticipate, successful achievement of this objective is dependent upon a combination of two things:  (1) customer focused value added processing, and (2) efficient, integrated systems to support customer visibility.  While striving to support these goals, legacy policy administration systems face obstacles in providing easy access to relevant customer information, and more importantly, prevent rich customer interactions due to functional inefficiencies.  Organizations continue to work towards streamlining operations across their enterprise to provide accuracy and efficiency through integration. 

We’ll focus today on the frequently under-emphasized claims processing function – a functional area that offers significant customer perception opportunities if the supporting platform can hold up its end of the bargain.  As customers’ expectations are increasingly influenced by sophisticated web experiences providing “all in one” touch points, carriers’ focus on customer relationships need to incorporate visibility into policy, billing, and claim information.  Even further, customers should be able to perform key transaction activities, though legacy systems inherently struggle to support these demands. 

The catch is in your systems’ ability to position you for success.  The good news is that a number of current or emerging Policy Administration Systems are available who readily support this customer focused perspective to allow for visibility through the full customer lifecycle, across all polices / products they’re related to.  Some of these systems offer workflow capabilities to complete the new business underwriting process, even allowing for integration into back processing for customer support. 

Claims processing on these systems can inherently follow a similar new business underwriting workflow process, to route and facilitate processing of claims medical reviews, receipt of supporting documentation, aging alerts, and overflow capacity support.  (A residual benefit includes visibility on these claims for subsequent new business to automatically search on client record for pending or processed claims to be considered during the underwriting decisioning process.)   The critical consideration is the increasing importance of efficient claims processing through the policy lifecycle, to achieve both a more streamlined and “standardized” method of claims processing.  The AMA National Health Insurer Report Card noted that a one percent reduction in error rates would drive substantial cost savings to the industry.  Flexible workflow automation for claims processing inherently reduces potential error rates, and allows for support of the “unique” instances that surface in claims processing on a regular basis. 

What does this mean to carriers?  The “bar” has been set higher around the need for efficiency, integration, flexibility, and visibility into their claims process.  Carriers should be working towards all of the following improvements in claims processing:

  • Streamlining operations and gaining efficiencies by reducing manual operations
  • Improving the customer experience
  • Reducing errors
  • Leveraging a flexible workflow to achieve process agility

According to the recent AMA 2010 “National Health Insurer Report Card,” one in five medical claims is processed inaccurately by health insurers.  This is clearly not caused by a lack of effort on the part of carriers, but is a significant outcome of inconsistencies in claims processing.  (The report reemphasizes the need for standardized administrative processes and requirements throughout the industry.) 

At the end of the day, this increasing streamlined and integrated claims processing will be one of the key touch points that carriers can leverage to provide value added services to their customers.  According to a recent Gartner survey, “Gartner estimates that by the end of 2010, 1.2 billion people will carry handsets capable of rich, mobile commerce providing an ideal environment for the convergence of mobility and the Web.”  While the ability to support mobile applications may still be a future consideration for many carriers, we can guarantee that claims information will be one of the key elements that customers will demand to see.

Is it Healthcare Reform or Healthcare Payer Reform?

Most people believe that “Healthcare Reform” means reform of the providers, but if you look at the system in total, is the problem with the providers or payers?   Some employers are seeing 20-50% increases in their annual rates; these increases are being passed along to employees in higher rates, decreased coverage, and higher co-pays and deductibles.  The providers claim they are being squeezed with increasing costs and decreasing reimbursements, so this begs the question, “what is happening to the dollars from the increased rates?”  The healthcare payers are realizing increased profits while covering fewer lives, a great business model in these economic times.

In a recent article by John D. Atlas on, he indicates that the five (5) largest health insurance companies scored record profits of $12.2 billion an increase of 56% over 2008.  The article further explains that while profits have increased, payers are covering 2.7 million less lives.  According the Center for Responsive Politics, the insurance industry has spent $77M lobbying to defeat the healthcare reform bill.  Ms. Kathleen Sebelius, the secretary of health and human services, recently took a shot at Anthem Blue Cross for the 39% increase in health care costs when the company made $2.7 billion in the 4th quarter of 2009.   The payers are concerned about keeping their companies in business; guaranteed issue (GI) would put some of the national companies out of business.

What about the new technology and new treatments that are constantly being introduced which can extend lives?  Hospital stays are shorter, outpatient surgery is becoming more common for procedures that once required overnight stays.  New technology and procedures that are minimally invasive are replacing more complicated surgeries.  The immediate thought is that new technology and shorter stays should decrease the cost of healthcare; but what about the increased costs in research and development, technology, and training costs?    

How does this impact the average citizen?  Many studies have shown that people have been forced to reduce the amount of money they spend on healthcare by techniques such as using OTC drugs; home remedies instead of going to the doctor; skipping health checkups and cutting doses of medications; postponing needed healthcare; and not filling prescriptions.   Average citizens are feeling the pinch of the increased healthcare costs through decreased available care, and through less disposable income.

If the government isn’t successful in reforming healthcare through legislation, consumers will force the reform.  Currently consumers are in a silent rebellion, but savvy consumers are starting to shop around.  As the government continues to struggle to make progress, consumers are becoming more educated and “shopping” around for services.  I recently found that by signing up through a national chain’s prescription program that I was able to reduce my medication costs for three months from $105 to $10.  Everyone should review their healthcare options and become informed consumers by looking at their medication plans; asking more questions of physicians related to tests and procedures to understand why they are being done; and generally being a more informed consumer.  

Source: Edison/Mitofsky, National Exit Poll, sponsored by the National Election Pool. Conducted November 4, 2008.

According to The Henry J. Kaiser Family Foundation report in March of 2009, 16% of the U.S. economy is devoted to healthcare and the U.S. spends $7,400 per person each year.  In the exit polls after the 2008 Presidential election, 65% of respondents were concerned about healthcare.  I am confident that of the 33% not concerned, a percentage has moved to the “worried” category.

So what is the next step in Healthcare Reform?  The White House has sent out invites for the health-care summit on February 25 to select Democrats and Republicans in the House and Senate.  The President believes that through bipartisanship they can come to a resolution between the parties to move forward.   There is no doubt that the healthcare system is broken; the question is where, how bad, and how to fix it.  The tactical focus needs to be on reducing the rising costs for healthcare, and then strategically how to provide quality healthcare for citizens at a reasonable cost.  However, do we really want the federal government to be the one to take control of our healthcare? 

What can payers do to remain competitive and viable?  They can look for ways to cut or reduce IT systems costs through modernization, consolidation, or replacement.  Business process improvements can streamline the processes and reduce costs.  Provider, agent, and member portals can be implemented to provide a competitive advantage with better access to needed information.  Through an enterprise data strategy, Payers can leverage the data collected and develop reports and dashboards around key performance indicators (KPI’s), driving improvements throughout the enterprise’s operations.  These changes can put an organization on a path toward measurable improvement; not a bad first step toward badly needed reform.