Strategic changes can open up new business risks

Managed care organizations fully recognize that what began as a "health reform" initiative ultimately morphed into "health insurance reform." In this environment, payers must provide added benefits while holding the line on costs. Increased competition will occur, and how organizations respond could raise their risk levels.

Competition will create new revenue streams. As they try to drive revenue, many health insurers will consider expanding into new areas, including: delivery of medical services, ranging from the direct employment of physicians to increasing involvement in patient care (which needs to be done within the limitations of the corporate practice of medicine); providing services to contracted providers; leasing owned real estate to tenants; selling data to self-insureds; and increasing sales through new retail or online distribution channels.

While each approach may add revenue, it also brings new risks.

Competition will curtail rising medical costs. To reduce costs, payers must continue to provide traditional transactional services while expanding efforts to educate consumers and help them improve their health and reduce medical costs. This may involve greater integration of health insurer services into the provider/patient relationship, wider use of medical health forecasting based on individual health data, efforts to strengthen bargaining power with providers, and the use of technology to increase the patient-to-provider ratio.

Direct services to consumers opens up risks of intervention in medical treatment. Medical health forecasting can create risk of the failure to warn a consumer of the impact of a forecasted medical condition. Increased bargaining power can interfere with provider business practices. Increased technology runs the risk of dissatisfaction with methodology of care.

Competition to improve access to care. With some 30 million new insured patients entering the medical system, health insurers will need to ensure that their new customers can access appropriate care. To that end, health insurers may deploy capital and technology to help increase the number of patients a provider can treat and improve delivery of care. Examples include: using video technology to facilitate remote evaluation by providers; and using electronic records to coordinate care.

Remote technology and monitoring runs the risk of errors in medical procedures. Electronic records also open up the potential for breach of patient privacy.

As they strive to meet new requirements and expand revenue, payers must reassess their risks. While the commercial business insurance market may offer solutions to help address new risks, payers should also review their existing protections.

For instance, they should make sure they have adequate professional liability coverage for professional services, coverage for premises liability and property damage for leased space, and insurance for the financial consequences of cyber risks and data security breaches.

Mark Karlson is managing director for Marsh Inc.