The structural break in healthcare has created a major challenge for U.S. health plans. Top-line growth has been constrained by a number of factors, such as a softening in the secular inflation in medical costs, rising numbers of coverage buy-downs and self-insurers. Meanwhile, the near-term and long-term outlooks have been disrupted by a host of forces, including rising levels of chronic disease, emerging consumerism and the mandates of reform.
Payers haven’t been sitting on their hands. From 2009 to 2012, our research shows that ten leading publicly held plans, representing 60 million members nationwide, undertook $11 billion in capital expenditures (CAPEX). These investments, which grew as a percentage of revenue for seven of the 10 companies, funded expansion into new markets, such as insurance exchanges, fostered the delivery of differentiated value in existing markets and enabled regulatory compliance at the federal and state levels.
Unfortunately, these plans’ financial results show that these investments did not lead to higher profits. In aggregate, the 10 plans reported that return on invested capital (ROIC) shrank by 8% over the same period. In fact, only two of the 10 insurers reported increased ROIC.