Emerging Individual, Retail Market for Health Plans Drives Consumerism

Declines in employer-sponsored insurance and coverage levels, paired with escalating costs and number of uninsured, are propelling a paradigm shift toward an individual, retail market. As individuals shoulder more responsibility for choosing, coordinating and financing their own coverage and care, their role as patient expands to consumer. Traditional stakeholders intent on preserving or growing their market share must acquire new competencies and become adapt at retail to succeed in this new environment.

A significant challenge

“Consumers have much more responsibility and financial risk than they did several years ago,” according to Kismet Toksu, senior consultant at Reden & Anders, an Ingenix company. “Helping people make wise decisions about their coverage, care, the cost of that care along with their behavior will be critical success factors in a retail environment.”

Consumerism takes hold as PPO enrollment increases

Significant enrollment shifts from HMOs to PPOs between 1996 and 2006 are in part a result of consumers valuing choice. Along with choice came deductibles, co-insurance, higher out of pocket expenses and more complicated administration, Toksu said. In 1996, HMOs out-enrolled PPOs, but in 2006, PPOs had three times the enrollment of HMOs, according to a recent survey. This change may be the result of consumers backing away from the managed care environment that took hold during the 1990s.

“Individuals today want to see the providers they choose and are demanding access to more care and services,” she explained. “As we all know, costs continue to rise. This is largely due to increased demand, an aging population, technology advances, quality and liability issues and – very importantly – unhealthy lifestyle choices of individuals.

“Along with concurrent declines in employer-sponsored coverage and coverage lapses and an increase in uninsured Americans, more costs are thrust upon patients – patients who are becoming consumers,” she said, adding that appropriate incentives, rewards and penalties must accompany value-based support systems.

The difference between patients and consumers is highlighted by the following example. “If a patient’s doctor calls for a test the patient already had two months ago, the patient, lacking financial interest, would likely repeat the test. But the consumer who has an incentive is more likely to raise his or her hand and say, ‘I just had that test and I will get you those results,’” Toksu remarked. “Cost containment results from an alignment of interests.”

Government is empowering health care consumers

State and federal governments also are playing a role in empowering individuals as health care consumers. Following the introduction of health savings accounts (HSAs) through the Medicare Modernization Act in 2003, federal and state initiatives have sought to make HSAs more accessible and attractive.

The “Tax Relief and Health Care Act of 2006,” signed into law on Dec. 20, 2006, expanded HSAs to make them more attractive to individuals. The White House 2007 Vision for health care called for a focus on affordability, transparency, port

Another move toward supporting individuals as consumers was made through an Executive Order, which was signed into law in August 2006. The Executive Order calls for price and quality transparency to be made available to beneficiaries of federal programs and employees of the federal government.

State policy initiatives also abound. In 2006, HSAs were authorized in more than 30 states. Universal coverage bills focused on providing coverage to individuals have been introduced by 18 states and transparency bills have been introduced in more than 30 states, all just one year after the Executive Order.

Many health plans have taken steps toward focusing on individuals as both payers and partners in reducing costs. They have begun treating members as consumers by providing tools and support. “From baby steps to big steps, pushing ahead into a retail model will require health plans to take a new look at all aspects of their organization,” Toksu said.

Big changes needed to move toward consumer-centric business

“Moving to a retail model and developing direct relationships with consumers may appear evolutionary, but the migration is really revolutionary,” she said. “Plans must recognize the complexities of establishing, developing and maintaining market share when the consumer is at the nexus. This requires strategic planning, investment and a commitment to new approaches,” Toksu continued.

When looking at the core competencies that will position traditional health care stakeholders for success in a retail environment, a Reden & Anders analysis shows that health plans’ current strengths are likely to remain strong but are only part of the foundation needed. Plans are rarely expert at one-to-one marketing, retail distribution, personalized service or providing consumer advice and education.

Importantly, health plans are rarely described by consumer words like convenience, simplicity, ease and trust. New market entrants, such as financial institutions, are often described as such because their core business success depends on it, Toksu said. In building out capabilities, health plans may buy, build or partner. In this context, new market entrants may be viewed as potential partners or competitors.

“Markets will not be owned by those that possess only today’s core competencies,” according to Toksu.

Some plans already have started to make changes in these areas. “The thought process is simple to understand but challenging to execute,” she explained. “It can be broken down into three steps: (1) accurately assess your organization from internal and external perspectives; (2) determine your future objectives in the context of market evolution; and (3) determine your strategy for moving from today to tomorrow.” The risk of imperfectly predicting the future is often smaller than the risk of taking no action, she added.

1. Understanding and predicting target markets;
2. Fostering agile product innovation;
3. Engaging and empowering consumer’s in their health management;
4. Attracting, winning and keeping consumers;
5. Building operational dexterity;
6. Managing financial risk; and
7. Developing and optimizing a strategic product portfolio.

As the consumer’s role changes, stakeholders must change to accommodate those shifts, Toksu said. “Those rooted in a wholesale mindset will be required to expand in numerous ways to achieve corporate objectives in this emerging model.”

Transformation support can ease the transition

Stakeholders often seek outside help to understand how the market changes will impact their organization, determine the best way to enter or grow in the individual market and devise strategies for transforming into a business with an updated set of core competencies. Doing so permits continued focus on current operations and a fresh look at market possibilities, according to Toksu. “Reden & Anders can bring tremendous expertise, experience and capabilities to the table as we advise clients across all functional areas and assist with strategy, development, measurement and operations,” she said.

“There is currently a great deal of attention being paid to the individual market. Entry into this segment varies in significant ways from group business – distribution, medical underwriting, enrollment, customer service are some examples,” she continued. “We have strategic, actuarial, clinical, operational and research expertise that may be leveraged to build new books of business while maximizing the current one.”

Forward-thinking organizations must predict now how increasing support of consumerism will affect their share of the market, because growth, and even market preservation, will hinge on this prediction. According to Toksu, “This transformation to retail will affect all functional areas discretely and as a consumer-centric operating unit.”

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