Payers must restructure to serve individual customers as employer-driven plans wane

The 50-year reign of employer-driven health insurance is quickly being replaced by a new consumer-driven market that payers are unprepared for, according to a new reportby Psilos Group Managers, LLC, a healthcare investment firm.

And while technology problems associated with the rollout of the Affordable Care Act (ACA) have gotten a lot of attention, the report argues that not enough attention is being paid to the behind-the-scenes “chaos” insurers are experiencing as they attempt to grapple with this new reality.

“The health insurance industry’s 50‐year legacy as a business‐to‐business model is on the edge of irrelevance,” said Steve Krupa, MBA, managing member of Psilos Group, in a press release. “The health insurance market is rapidly shifting to 40% individual policies from just 10% prior to the Affordable Care Act. A change of this magnitude affects every stakeholder in healthcare.”

In order for insurers to remain competitive, they have to implement changes that encompass the entire value chain-including market research, benefit design, network development, operations, marketing, and sales.  In doing so, says the report, they have the potential to significantly improve the country’s healthcare system.

“We’ve come to a point where insurers will have to make major changes to their business models in order to remain competitive in a post‐ACA world,” said Al Waxman, PhD, chief executive officer and senior managing member of Psilos. “The good news is that technological innovations are addressing the full spectrum of needs–from cloudbased core administration platforms to clinical workflow and decision support tools to mobile and telehealth applications –all aimed at better aligning insurers, providers, and patients in the reshaping of America’s healthcare system.”

READ: Employers grapple with changing healthcare market

The report, released October 1, notes that health expenditures are expected to grow to 20% of the U.S.’s gross domestic product by 2020, as estimated by the U.S. Centers for Medicare and Medicaid Services. At the same time, new coverage to previously uninsured populations is estimated to provide a $100 billion annual economic boost. Both trends hold opportunities for insurers, says the report.

Price transparency is an area where insurers need to evolve to meet consumer needs, according to the report. Historically such transparency, including the upfront costs of procedures, wasn’t a requirement as long as employers were happy with a plan’s overall financial performance. But consumers purchasing and managing their own plans have a legitimate need to know upfront differences in both cost and quality among providers, and to compare out-of-pocket expenses with higher deductibles and coinsurance payments.

Psilos also suggests that providers experiment with structuring plans that put provider choice completely in the hands of consumers. “Instead of locking into static networks, plans would allow consumers to choose a provider at the time they need care based on a value decision. In this model, out-of-pocket costs vary based on provider-specific pricing,” says the report.

Many insurance providers outsource their claims processing and customer service to offshore companies, says the report. Although they provide minimum service at very low costs, “It is hard to see these service levels withstanding the scrutiny of an actively engaged consumer, and so an industry within an industry is now reforming itself,” notes the report.

To remain competitive, notes the report, plans will need to develop new corporate cultures and operational capabilities or else pressure their BPO partners to change their service focus to meet the needs of the individual consumer. For example, customer service will need to be offered 24/7 in real-time, across multiple platforms.

Noting that the ACA mandates baseline care, the report says that “true product differentiation can only be achieved through modular extensions that add value to baseline plans.” That means insurers have to become promoters not just of insurance, but of overall cost-efficient health.

Psilos released its first annual outlook report in 2009.

Related: Plans with greatest market share will have higher premium increases for 2015