While the insurance provisions in the Affordable Care Act will change many aspects of the healthcare industry, one of the most dramatic changes will be the growth in individual coverage as a percentage of the health insurance market. And that will mean huge shifts in focus and strategy.
In the past three decades, the employer-sponsored insurance market has dwarfed the individual coverage market. As a result, health plans grew used to assessing and managing risk for large populations, where the financial risk of covering individuals was blunted by the size of the population insured. If health costs went up, employers absorbed some of the cost and passed some of it on to employees. The ultimate risk lay largely with employers and this sometimes accounted for insurers being unwilling to cover small groups of employees.
In the individual market, risk management focused on the application and acceptance phase of underwriting. The primary goal was to avoid insuring high-risk individuals, rather than managing their risks.
Under the new rules, where a payer must take all comers in the individual market, risk management will land more squarely on the payer, and it will become a much more granular endeavor.
Instead of management of populations contracted “wholesale” in large groups, the industry will now have to switch to a retail focus. Health insurance providers will need to interact closely and effectively with individual consumers as well as healthcare providers.
The key to success in this new environment will be information. Knowing who is at risk, and connecting them to services that will reduce their risk, will be important for preventing out-of-control costs and financial disaster. It will also give health plans the ability to provide coverage at affordable rates, increasing their sales.
Insurers will most likely be able to identify individuals with chronic diseases, such as diabetes and heart failure, and thus have the opportunity to help them avoid complications that reduce their quality of life and are very expensive to treat. The challenge will be monitoring those patients, seeing if they are following their physicians’ instructions, taking their medications, etc.
If the health insurers cover effective prevention services and work with physicians to connect patients to these services, they have a chance to head off the personal and financial disasters that arise from complications. It’s a win-win that will remake the healthcare landscape in positive ways.
It also holds the promise of doing something much, much more important – making American healthcare more effective at providing wellness.
This is not just pie-in-the-sky cost-savings speculation. A recent study published in Health Affairs suggests that patients who are actively engaged in their care cost less to treat over time. Numerous studies have shown that effective management of heart failure patients can cut the number of hospitalizations in half. And diabetes patients who effectively manage their blood sugars are much less likely to end up with vascular damage that leads to kidney failure and limb amputation. If you can prevent those complications, you can cut a huge amount of cost from the national healthcare budget.
Reducing individual risk will require an effective partnership among consumers, providers and health insurers. And a free flow of information, more than just claims data, will be at the heart of that partnership.
It won’t be simple, and it will require more powerful and sophisticated data tools than most insurers currently use. Insurers will have to invest in their total information technology infrastructure. That means spending money on business process changes, new technology and software. It also means adopting consumer-oriented social media tools and analytics.
It’s a big task, made all the more difficult by the culture change inherent in the process. But if health insurers embrace the new role they can be the principal architects of a better, more cost-effective healthcare environment for all of us.
Part 2 of this blog will examine the role of insurers in helping individuals make cost-efficient healthcare decisions and lifestyle choices, and the technology tools that have proven effective in guiding behaviors. I’ll also take a look at how insurers could provide better customer service.