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September 9, 2022

How health insurers are reinventing themselves

Daily Briefing

    New policies and heightened competition are making payers re-consider their identities and roles in the health care industry.

    Radio Advisory's Rachel Woods sat down with health plan experts Mallory Kirby and Sally Kim to talk about why payers are positioning themselves as health solutions companies, the strategic moves in play, and why diversification may be necessary for survival.

    Infographic: How health insurers are diversifying their revenue streams

    Read a lightly edited excerpt from the interview below and download the episode for the full conversation.

    Rachel Woods: The two of you have been tracking a pretty significant shift in the way that health plans, particularly those big nationals, are positioning themselves in an increasingly competitive market. What is the shift that you are seeing?

    Mallory Kirby: I think that part of the shift that we're seeing or really the major shift that we're seeing is this evolution away from a really traditional role of acting like an insurance company into something more indifferent.

    Sally Kim: Yeah, I know that even a few decades ago, we would say that plans were purely risk aggregators or claims processors, and nowadays, most plans would be offended by those terms because they think of themselves as playing for health care or even more now being these health solutions companies.

    Woods: You mentioned that a few decades ago, we would have called them just risk aggregators. Is that when we started noticing this kind of change to more than just insurance?

    Kirby: Yeah. I think that there are a lot of really interesting places that we can try and pinpoint this shift, but depending on the company, we've been seeing moves in this way for I would say 10 to 15 years in terms of widening their scope outside of this insurance functionality and into what Sally described as a health solutions company. I think the other interesting piece of that is health solutions company, that term is something that we're still trying to internally define.

    Woods: What does that mean?

    Kirby: You see it in how companies are talking about themselves, so if for the big nationals, for example, Anthem is rebranding as Elevance to reflect this health solution ideology, or Cigna is really congregating a lot of their health solution services under Evernorth.

    So you see it in how companies are describing themselves, but you also see it in what they represent to their purchasers and really what they're trying to bring to market. So that's what our research is trying to do, is really say, what do we mean when we talk about health solutions companies and where are they going?

    Woods: And you said we really started to see a shift towards more than insurance about 10 or 15 years ago. What was the big spark behind some of these moves?

    Kim: So I think one of the reasons was the Affordable Care Act and the medical loss ratio standards, so for those who aren't familiar, plans now have to spend the bulk of their premiums that they receive on medical expenses, and that percentage is either 80% or 85%, depending on line of business.

    But what that basically means for plans is that they are restricted in how much profit they can have, and if their MLR is too high, then that starts eating into their margins.

    Woods: And that makes sense why we would then see traditional insurance companies say, "We need new ways of making money outside of traditional insurance." Is MLR the only motivation that you're seeing?

    Kirby: No. I think that MLR, to Sally's point, that this is creating increased pressure on their margins. It was one of the biggest triggers, but we're adding onto that increases that we're seeing in medical and drug spend. We have providers who are pressuring payers for increased reimbursement, just given the kind of micro economy that we're living in right now, especially coming out of the pandemic.

    So all of those factors lead to this pressure for revenue diversification, which I think is one of the big things that we're seeing here and is coupled with service diversification in terms of who plans are to people.

    Woods: Let's also be honest with ourselves, we are talking about public companies, and public companies have a mandate for growth, they are beholden to their shareholders to make a profit. So if your profits are capped because of changes happening on the policy level, it only makes sense that they would say, "Well, we've got to figure out new ways to make money."

    Kim: Yeah, and it's interesting because even though this is a really hot topic now, which is why we started researching this as more and more CEOs of these national plans come out and say this is our mission statement or part of it, but they've been doing this for years because you don't become UnitedHealth Group* overnight.

    Kirby: You don't become UnitedHealth Group overnight. I think that United is charting the course for this competition. I don't know if anyone will really ever play catch up there but that's what people are trying to do.

    So United is setting the bar in terms of their plays for diversification. They were the first to start buying out medical groups and employing doctors to diversify their portfolio in that way, and that has really pushed everyone else to try and explore different types of diversification plays.

    Woods: But to your point, it's not just United. They may have been the first, especially when we think about what is now normal practice, which is owning and employing physicians. What are some of the other moves you are seeing these plans make as they think about diversifying their revenue streams.

    Kirby: That's really interesting and I think that we can talk about it in a couple of ways, the first being what are the most common ways that we see people diversify? So provider groups is a big one. Entering the PBM and other pharmacy space is another huge one. Selling their tech services is also really big. And all those ring pretty familiar to you. I feel like we all are familiar with examples of those that you can attribute to different large nationals.

    Kim: And Mallory, how are they different, if they are at all?

    Kirby: So I think that that's the other way that you can slice this transformation. So if UHC or UHG is the biggest diversifier, they're doing a little bit of everything—like I like to say, they have their eggs in 20 different baskets—all of the other large nationals and regionals who are trying to play catch up might be latching onto different pieces of that diversification play but might not be doing everything altogether, so you can break down the moves that other large nationals are making and categorize them in different ways.

    Woods: Mallory, I wonder if you can be specific with us. What are some of the big moves beyond the physician acquisition that you talked about with United that maybe our listeners would be familiar with? But let's put a finer point about the fact that this is a diversification of their revenue streams.

    Kirby: I think that one of the most interesting ones to pause on is CVS and Aetna. And this is especially interesting because of how they entered the health plan diversification space, where Aetna, the health plan was actually the one being acquired.

    This makes them the most diverse in terms of revenue, so if you look at how their revenue is broken out, and shameless plug, we have a revenue infographic that breaks all of this down, their revenue that's coming in from their clinical facilities and other assets really dwarfs what revenue they have from their insurance companies specifically. So I think that's the clearest thing of how what you think of as an insurance giant is super diversified.

    Kim: And you can see if you look in the infographic that Mallory and team has been working on, even though all these plans are national plans and they're all trying to diversify, the way they're doing it is so different, it could almost be a personality quiz you take of which type of national are you?

    Woods: What you're describing is almost that the big nationals are, dare I say, having a bit of an identity crisis. They know they need to be more than just a risk aggregator and would be upset if they were just described as an insurance company, but to what end or what a health solutions company looks like seems like it's anybody's game at this point, and clearly, the big national plans are out there paving the way for what it might look like to be more than an insurance company.

    Kirby: I think that that is really true, and especially this idea of an identity crisis rings true because as we try and categorize what they're doing, there are a lot of different ways to bucket them. Two of the ways that I think about bucketing them is on this axis of specialization versus a broad reach, and you can use that to say, do they have a really focused way that they are trying to carve out their future, or are they diversifying for diversification's sake, trying to make a grab on everything out there to hedge their bets in a way?

    And I think that the other way that we can think about this is in terms of their ownership versus partnership. So really, who are they working with to carve out their ideal future? Are they keeping everything in house or are they really leaning on those partnerships to try and advance what they can bring to their members?

    Kim: I agree with everything Mallory said, but almost on the flip side of this is I think some of these large nationals do know exactly what they're doing and they recognize that they need to carve out a specific niche for themselves so that's why they're going down this identity route.

    I'm a little bit more worried actually for the other plans in America who see the nationals doing this, feel like they need to keep up in some way but don't know exactly what role they're supposed to play in the future.

    *Daily Briefing is produced by Advisory Board, a division of Optum, which is a wholly owned subsidiary of UnitedHealth Group.

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