With the onset of healthcare reforms, the individual health insurance market is set for a major expansion. Insurers need to decipher whether they can profitably expand their presence into this segment. Obviously, making the transition is not going to be easy. Insurers have already realized that their overall profitability might be compromised by MLR restrictions with health insurance exchanges likely to be unforgiving on substantial premium hikes. Payers on the exchanges are expected to showcase products with competitive costs. This discussion delves into how payers can continue to drive profits in the face of such rising challenges.
Choosing business model isn’t easy but it isn’t impossible either
Building a profitable business strategy on the exchanges might translate into stepping away from the traditional pricing structures previously used in acquiring new consumers. The age old dependency on better risk selection might have to be decreased and underwriting precision may no longer hold the key to long-term profitability. The focus needs to be shifted on creating compelling product offerings that maximize the potential for consumer engagement with the “Invincibles.”
With almost similar benefits structures in the reformed market, product configuration might no longer be the principal differentiator. Insurers need to capture the customer’s attention with new product designs—especially targeting the Invincibles, who are new to health insurance but very price and network conscious. This new way of looking at value proposition of health insurance products includes better consumer guidance and greater affordability.
Insurers need to understand that with reforms taking root, the emphasis is upon significantly improving the outcome of care. Thus, better provider networks which can ensure enhanced quality of care become imperative to success. Considering these aspects, three possible types of business designs emerge:
1. Low-cost business model that emphasizes affordability— the value proposition here is providing the maximum coverage for the lowest premiums and minimum out-of-pocket expenses. Getting the pricing right here is perhaps the biggest challenge here. Such health plans are likely to have:
• Pricing as the USP
• Limited provider network
• Little room for plan customization
• Self-service model
• Greater presence on the Exchanges
This is essentially a no-frills package that seeks to keep administrative costs at the bare minimum and will, thus, address the most basic of consumers’ health coverage requirements. This kind of business model is not meant for every insurer, particularly those who don’t have prior experience of succeeding in the restricted-margin category.
2. Customer-targeted business model that emphasizes tailored solutions— these health plans can be positioned across specific populations and regional demographics. Here, the value proposition lies in meeting the unique healthcare coverage challenges of an area along with targeted branding for hyper-selective customer engagement. Deciphering the unique customer preferences to create a compelling product is likely to be the biggest challenge. These types of health plans are likely to have:
• Customer-centric health plans as the USP
• Plans targeted at different demographics like ethnicity, index of diseases
• Coverage targeted at specific populations
• Reasonable room for customization
• Emphasis on building consumer loyalty
• Very limited presence on the Exchanges
This is essentially a consumer-conscious approach with focus on enrolling small populations with specific health insurance requirements. This could mean taking a defined range of risks, serving less-penetrated populations and developing a portfolio of plans that might have no takers in other regions. For instance, a health plan providing coverage for a chronic disease that is endemic to an area or providing health plans with Hispanic providers in predominantly-Hispanic neighborhoods. This can be interpreted as the neighborhood or the community approach to selling health plans.
3. Service-oriented, basic product model with superior customer service— the value proposition lies in creating a competitive but not exclusive insurance product and mating it with the best in customer service, allowing the maximum room for accessibility and personalization. The idea is to provide an impressive array of customer services along with tailored benefits that help decision-making and provide multiple options for out-of-pocket expenses payments. Such health plans are likely to have:
• Maximum room for customization
• Multiple customer service models
• Greater connection with consumers via social media
• Emphasis on guiding and assisting consumers throughout a product’s lifecycle
• Greater focus on addressing traditionally unanswered needs of consumers
• Negligible presence on the Exchanges
Looking Beyond Basic Business Model Questions
Along with considering these business models, payers need to find answers to some basic questions that are due to arise in the new Exchange market. They need to decipher how the profit margin will be affected by:
• Insurer ratings
• Risk increases
• Buying behavior of first-time consumers
• Selling exchange plans in the off-Exchange marketplace
• States’ interpretation of ACA provisions
Each of these factors can make a significant impact on the buying decision of the consumer irrespective of whether the payer chooses to participate in health insurance exchanges or not.