The traditional health insurance business model is on the verge of a cataclysmic shift toward individual consumers. While that will require moving away from the old IT running within many payers, it also makes now a great time for reinvention, venture capitalists argue, if not the only opportunity.
Individual health plan membership represented only 10 percent of the greater American health insurance market before the Affordable Care Act -- and it's soon expected to reach 40 percent, as employer-sponsored insurance dwindles to only about half of the market.
That migration highlights the need for truly consumer-oriented and value-based insurance, according an outlook report by the Psilos Group, one of numerous investment firms riding the digital health wave.
"The health insurance industry's 50-year legacy as a business-to-business model is on the edge of irrelevance," said Steve Krupa, Psilos managing member. Already, he argues, the expectations for personalized options are spilling over into group and self-funded insurance.
"Imagine the tense human resource meeting in which an employee expresses frustration at being locked into a staid plan with few options when his partner has a plethora of choices on the individual market or an employer-sponsored private exchange," Krupa and colleagues said.
These days, few health plan experiences are actually consumer-oriented, which is one reason for insurers to rethink their value proposition and their customer experience, the report argues.
U.S. health spending is expected to reach 20 percent of GDP within the next decade, and the insurers find themselves in a unique if also perhaps problematic position -- "a mediator of costs and connection" between patients and many kinds of health providers, medications, products and services.
After three decades of managed care and aggressive underwriting, no doubt some of the American public would like to see private insurers cease to exist; more than 35 percent of Americans would favor a single-payer program, according to a recent Rasmussen poll.
At the same time, Krupa noted, expanding health insurance coverage to the uninsured is set to increase the country's net economic well-being by as much as $100 billion per year. Health insurers can embrace the idea of wellness to help consumers achieve it.
The trouble is narrow provider networks, confusing benefit explanations and high-cost sharing are leaving new individual consumers as well as traditional group members unsatisfied.
Add to that: Many health insurers are "operating with very old legacy technology that makes data integration awkward, often out of synch with real time events and clunky with regard to configuring new products and benefit designs," Krupa said.
He pointed to Cognizant's recent $2.7 billion acquisition of Trizetto, a long-time insurance IT developer that also competes with some of Psilos' portfolio companies offering automation and web-based services.
"Trizetto's software is installed in a large percentage of health plans," Krupa opined. "Clearly Cognizant thinks there is a big market ahead modernizing systems."
That big market includes nine million Americans insured in the first public exchange open enrollment, and it's the tip of the individual iceberg. Public exchanges could double in a few years, and there are many millions enrolled in private exchanges and Medicaid managed care -- all expecting better value for their healthcare dollars.
"The shift to consumerism is happening more quickly than even we expected," Krupa said, "because the ACA opens the door for employers to either exit or completely restructure their historical role in health insurance procurement, something many firms find cumbersome and expensive."
There is real demand for consumer-engaged, value-based health insurance, in which individuals can access wellness programs, chronic disease interventions, free-preventive services and low-cost evidence-based therapies. Among the technologies that will require are tools for creating real-time claims processing, data availability and cost-effective product configurations.
Many digital health startups are lining up to try to help insurers ply that model.
"For the time being," it is a "noisy space full of conflicting messages and value propositions," Krupa said. "We expect those firms that support the health plan brand to the consumer to begin to differentiate themselves from the rest of the pack."