Health reform demands new market efficiencies

In early May, the Psilos Group released its third annual outlook report highlighting trends in the health care marketplace, 2011 Outlook on Healthcare Economics & Innovation. Psilos invests in innovative healthcare companies, (frank and full disclosure: Extend Health is one of Psilos’ investments), and its team has reliably insightful commentary about health care market trends.

This year’s report predicts dramatic shifts in the health insurance market. According to the report, “Psilos believes that the PPACA will accelerate sweeping changes to consumer-oriented business models and distribution channels, as well as increase the competition among insurance companies.” In a few short years, the Patient Protection and Affordable Care Act (ACA) will allow many consumers to play an expanded role in the purchase of their own insurance. State-based Health Insurance Exchanges will be places for millions of new insurance consumers to make educated, informed decisions about their insurance options, and insurance carriers will have to intensify their commitment to the consumer experience dramatically.

But as Psilos points out, carriers will be forced to compete in an entirely new business environment, as “The most likely distribution channel for the exploding individual insurance market will be a new landscape of Internet and call center-based public and private health insurance exchanges (HIXs)….” As individuals begin finding health insurance through exchanges in 2014, and businesses send their employees there over time, insurers will have to shift from selling business-to-business—marketing group plans to employers—to selling business-to-consumer. In a new world of consumer-oriented private and public Health Insurance Exchanges, carriers will deal directly with their consumers from the very beginning of the relationship. This change will force efficiencies throughout their business model, and create competition based on cost, quality and service—all of which will be newly transparent.

As I read the report, I was struck by the similarities between Psilos’ prediction for the evolution of a successful insurance company in the new dispensation, and the business model that Extend Health currently uses to help over 350,000 retirees find health plans. Our exchange allows retirees to choose the right Medicare plan for them, the first time. We are inherently a consumer-facing organization, and our ability to help retirees navigate the insurance market usually results in lower out-of-pocket costs and higher satisfaction levels.

One of our most important “secret weapons” is our unparalleled and innovative proprietary technology that facilitates a friction-less transition from group coverage to individual Medicare plans. The efficiencies gained from our significant investment in technology, including our telephone system, online insurance exchange, and back-end integration with carrier partners, improve the customer experience for our retirees, and (along with the advice and guidance of our licensed and certified benefit advisors) help them find and enroll in the best plan for their health needs.

Psilos is right that carriers who want to remain competitive in the evolving health insurance market will need to improve their efficiency dramatically. Insurance carriers today have first-rate IT systems for claims processing, but the market has not yet demanded sophisticated technology to assist with plan choice, enrollment and ongoing customer service. While some carriers will step up to the plate, this role will often be filled by private and state-based exchanges.

Exchanges will bring new transparency to the cost and quality of health plans offered, and the new health insurance market will mean greater interaction between consumers and carriers. The regulatory environment is also demanding new efficiencies. Just this week [May 19^th], the Federal government finalized a proposal to require insurance companies to publicly disclose and justify premium increases of 10% or more. Carriers will have to meet these expectations, AND become much more efficient and consumer-friendly for first-time insurance purchasers, to thrive in the coming health care market environment.

Related articles

• Psilos Group: Health-Care Reform Inspires New Technologies (blogs.wsj.com)

Visit Extend Health — the nation’s largest private Medicare exchange.