Health plans are reinventing what it means to be a plan—moving away from their traditional identity and making increased diversification plays to become "health solutions companies." Plans are more motivated to diversify their business in new and unexpected ways because of a variety of external factors that makes diversification increasingly imperative for long-term growth and market stability.
Health plan executives cite four major drivers pushing plans to rethink their traditional role. These drivers include increased medical spend, competition from other health plans, heightened member needs, and shifts in purchaser demands. Read on to explore each of these four drivers in more detail—and discover the benefits of the new health plan identity in today's market.
4 drivers evolving the health plan identity
1. Increased medical spend
Health plans' profit margins face financial strain as increased medical and drug spend combines with unpredictable utilization. Health plans have historically relied on member premiums as their primary source of revenue. Many plans are now increasing their pursuit of diversified revenue streams in response to medical costs that continue to grow and cut into premium dollars.
2. Heightened member expectations
Heightened demands for member management have contributed to shifting beliefs of what a health plan can or should be, and what services are in their purview. And while health plans sell their products mainly to employer purchasers, they feel increased pressure to make the members' premiums worthwhile.
Plans are forced to juggle member needs (e.g., chronic condition management, care coordination) with member wants (e.g., wellness programs, seamless experience). As members accept more involvement from plans in their health care, they may also expect more. Plans are actively trying to strengthen their reputation as a lifetime partner in health for diverse cohorts of members.
3. Shifts in purchaser demands
In addition to members, the two largest purchasers of health insurance in the US—employers and the government—have the leverage to shape expectations for "health plan" identities. Government-funded products like Medicare Advantage and Medicaid Managed Care are increasingly expected to play the role of health care coordinator for their member populations, while employers are asking for more services, like tele-behavioral health, at a lower cost.
Plans increasingly feel that they must own all parts of the member-patient journey to realize new purchaser expectations and believe they are better equipped than independent partners to realize goals around lowering total cost of care and improving care outcomes.
4. Intensified competition from other health plans
Large nationals and dominant regional plans are pursuing a rapid pace of growth that introduces new competitors to markets across the country. Plans of every size are feeling the heat from increased competition—but smaller plans who existed in a relative market bubble are feeling more acute strain as larger plans come for their slice of the pie.
Small and regional plans are increasingly focused on optimizing their identity and value proposition for long-term survival. Many regional plans are making diversification plays that mirror the actions of large nationals, while others are doubling down on their localness or another niche value proposition.
While there is no one size fits all approach, plans must consciously craft their identity to stand out against new competitors.
How diversification helps in today's market
Plans' acceleration of diversification efforts leaves them better prepared to respond to new market conditions than could their legacy insurance business alone. Health plans view diversification as essential for growth in revenue and purchasers—now more than ever before. For publicly traded companies, growth is a mandate for shareholders; for everyone else, growth is survival.
Overcoming MLR limitations
The Affordable Care Act (ACA) in 2010 introduced Medical Loss Ratio (MLR) requirements that require insurers to spend an established percentage of premium dollars on health care claims and quality improvement efforts or rebate the difference to enrollees.
The rise of the health solutions company: how plans are reinventing the traditional health payer identity
These requirements effectively capped the profit margins plans can expect from premium dollars, making diversified health plans better equipped to generate new revenue from non-insurance assets. Some "insurers" already generate a higher percentage of their profits from non-insurance products that are more insulated from rising medical costs.
Pursuing increased stability and business resilience
Outside of pursuing new business divisions to drive untapped revenue, diversified health plans are better positioned to withstand current and future market uncertainties. The health care landscape is constantly changing with different "winners and losers" across business divisions depending on the circumstances. Diversified assets are equivalent to health plans putting their eggs in multiple baskets—hedging against conditions that may negatively impact one but not all parts of their business.
Responding to new and non-traditional competitors
As we've acknowledged, plans are facing unprecedented competition from other health plans, but they're also bracing themselves for a new wave of non-traditional competitors. Walmart, Amazon, Google—to name just a few—are all entering the health care market, with their potential impact still unwritten.
Apple's inclusion of health data gathering through the Apple Watch didn't revolutionize the wearables market like many analysts suggested, for example. Amazon's former joint venture with Berkshire Hathaway and JPMorgan failed. But we can't count these disrupters out just yet. Amazon is as committed as ever following their acquisition of OneMedical, while Walmart moves into the world of clinical trials.
Many plans are banking on diversification and vertical integration as their best bet for responding to market forces and realizing long term growth and stability. Stay tuned for our next installment in the Diversified Health Solutions blog series to explore where plans are investing in diversification—and what goals they hope to realize in the future.