Business Model
Innovation for the
Health Insurance
Provider
Our proposal offers an idea on how the for-profit
health insurance provider business model can be
innovated on to not only allow for active
participation and collaboration by policyholders in
the creation of value, generate additional revenue
and help finance the cost of health plans, but also
provide for the realization of an improved, and
invariably more productive alignment of interests
and strategies across healthcare value chains, and
throughout the entire healthcare value network.
Distant Drums Consulting
Oct. 20, 2009

Sections
1. Introduction
2. The Idea
3. Benefits and Other Concept Highlights
4. Assumptions
5. Advantages for A Free-Market Healthcare
System
6. Outlook
2 © Distant Drums Consulting 2009

Introduction
Our proposal looks to the internet, and particularly to the health 2.0 transformation and
the expanding role of online health consumer platforms in enabling synergy in value creation,
and offers an idea on how the for-profit health insurance provider business model can be
innovated on, to not only allow for active participation and collaboration by policyholders
in the creation of value, generate additional revenue and help finance the cost of health
plans, but also provide for the realization of an improved, and invariably more productive
alignment of interests and strategies across healthcare value chains, and throughout the
entire healthcare value network.
Indeed, the failure by the health insurance providers to innovate on this model in the face
of evolutions in healthcare practices and growing consumerism is often cited as one of the
key factors behind the defragmentation of the U.S. healthcare system. Simply put, this is a
business model that proposes to help underwrite the costs of healthcare consumption by
betting against the likelihood of a pervasive need for that consumption across a random
but ‘balanced’ pooling of consumers. This inherent contradiction in its rationale stems
from a (dated) presumption that, under ordinary circumstances, only a fraction of its
customers (a predictable fraction at that) will experience the need for healthcare
consumption in a given period, thus not only allowing the insurance company to meet the
costs incurred by the few, with the funds contributed by all, but to also retain the
remainder as profits for itself and its shareholders. Needless to say, this limited approach
to value creation has afforded the insurance companies little capacity for adapting
progressively to inevitable changes in health care, and in the society as a whole, and
directly sets the interests of the firm and its shareholders at extreme odds to the interests
of their customers. With costs in healthcare continually on the rise - driven upwards, in
part, by the high rate of advancement in medical science and medical practice in recent
decades, and increased consumption by an increasingly aware public - this conflict
between shareholder and policyholder interest has only gotten worse. In order to protect
their interests and sustain their bottom lines on an upward trajectory, so as to gratify their
shareholders and retain the confidence of the financial markets, insurance companies
have, as a result of their business model limitations, been forced to employ certain
measures aimed at limiting consumption. Stricter underwriting rules, rising premiums,
higher deductibles and co-pays, stringent treatment protocols and other bureaucratic
provisions imposed on the value chain, have become the instruments of first resort for
insurance companies whose business model limits their ability to continually improve on
their value creation. It is such narrow focus by the payers, most critics observe, that has
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over time served to badly confound the configuration of interests, relationships and
strategies across values chains and throughout the entire healthcare value network,
severely hampering the development of efficiencies as the system and society as a whole
advance.
Today, however, with the intervention of the internet and the continuing enhancement
of online interaction (as through the widespread adoption of so called web 2.0
technologies), a new plane of convergence is developing in healthcare, where new and
exciting synergies between the different actors are becoming more and more possible,
and where a great opportunity for innovating on the insurance provider model and
making it more consumer-centric, presents itself. As it is, the significance of the
accommodation being struck on such online health consumer network platforms as
Revolution Health and WebMD - between the health information and social support
needs of the health-conscious consumer, and the advertising, marketing/sales, R&D
interests (etc) in the industry – is not lost on most observers. Not only is the internet
enabling consumers to engage and network around health matters in ways that are
significantly influencing health care consumption, but it also provides possibilities that
producers and providers of healthcare services and products can tap into these networks
and secure the active participation and collaboration of consumers in value creation,
enabling synergies of partnership that will radically improve quality, uncover far-reaching
efficiencies, and help bring about a more productive alignment of interests in this all too
vital industry.
As it is, however, these possibilities are hindered from being fully realizable by the
inability of the existing platforms to provide two critical elements that would ensure
greater convergence, and more sysematic, more productive collaboration. This elements
are:
1. Greater incentives for consumers.
2. A robust basis for organizing these online engagements within the context of
healthcare value chains.
Greater incentives for the consumers would of course increase the likelihood that the
producers and providers of healthcare products and services could secure the consumers’
active participation and collaboration in the creation of value. While the organization of
these online engagements within the framework of value chains will ensure that they yield
real benefits with measurable impact. The existing platforms are hindered from being
able to provide these elements for the simple reason that they do not have the necessary
leverage within the value chains. Only the insurance companies have this leverage, and
this is where our business model innovation comes in. As the underwriters of healthcare
consumption, health insurance companies have just the leverage with which greater
convergence can be incentivized, and are ideally positioned within the value chains to
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make their participation in brokering and coordinating this convergence a critical element
in ensuring that the benefits realized are real, tangible, and significant for all the actors,
and that the advantages of the internet for network and network value creation are fully
delivered to value chains across the entire healthcare system. What we are proposing,
then, is an innovation that will see the limitations of the health insurance provider
business model extended to allow the insurance companies to become more proactive
catalysts of value creation within healthcare. The opportunities that will become available
to the health insurance firm, as a result of this innovation, will not only provide it with
additional revenue from multiple sources, provide for the adaptability of the firm in the
face of rising costs and increased consumption, but are such that, in pursuing them, the
insurance company will itself equally be providing opportunities for its customers, and
the other actors in healthcare, to individually realize significant benefits. In pursuing this
opportunities, too, the insurance companies will also be providing the perfect basis on
which all the actors in a value chain can collectively exploit the internet for better
information communication, exchange and coordination in the delivery of value, and for
more effective interdependence in value creation. In this dynamic and ingenious way
thereby, this innovation will ultimately be providing for the realization of an improved
and invariably more productive alignment of interests between the actors in the
healthcare system.
The Idea
Our idea then calls for this: For a health insurance firm to set up and operate a
commercial online network platform, similar to Revolution Health and WebMD, where
its policyholders will be incentivized to generally interact and engage with each other
around health information and health matters, and particularly to engage and collaborate
with business and knowledge actors from across the healthcare industry (and beyond), in
the creation of value. This incentivize will be in the form of an insurance based revenue
sharing deal, wherein policyholders will stand to earn a share of the revenues generated
from the business transacted on the platform, and get to have that income applied
towards enhancing their insurance coverage. This revenue sharing arrangement will itself
be implemented through a points system, where points will be awarded for various levels
of participation and engagement, and at the end of a set financial cycle, the value of these
points will be determined against the platforms earnings (similar, in principle, to a
determination of dividends).
The types of participation for which points will be awarded could range from how often a
user logs on and uses the platforms’ services, to their engagement and collaboration in
promotions, marketing surveys, and research studies, to transacting business and making
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purchases through the platform, and so on. In some cases the value of the points to be
awarded for a specified activity will be linked to a direct share of the revenue that the
firm can attribute to that activity; for instance, a user can get ‘rebate’ points for a
purchase that they make through the platform, where the points are directly connected to
a discount sum offered by the vendor, or to a share of the brokerage fees that the vendor
pays to the insurance firm for access to the platform’s market. Or they can get points for
participating in a market survey, research study, marketing promotion, or interacting
with advertising (etc), where the points earned would also be directly linked to the fee
that the interested party paid to the insurance firm for each instance of engagement. The
value of these points would then be determined directly, as opposed to other cases,
where points could only be earned on a general basis, e.g. as a measure of the user’s
overall levels of participation, and where the value of the points could only be
determined indirectly as a share of the platform’s overall profits.
Assessing the value of the points earned by the policyholders at the end of a set financial
period, will obviously provide the insurance firm and the platform with protection from
risk, and ensure that the system is fair and results-based. At the same time, because of the
risk of manipulation and fraud by users seeking to game the system, the use on this
platform of certain pricing models, such as pay per click for leads and advertising, would
perhaps not be ideal, and some more result- based models would work better. And given
the fact that registration and log in is necessary for the users in question to be identified as
policyholders, possibilities exist for innovating on pricing models and for employing
tracking techniques using interactive technologies, in ways that offer greater security and
effectiveness.
How a particular points system will ultimately be calibrated will off course be up to the
individual insurance firm, and will therefore be a major point of innovation and
competition. However, it is essential to recognize that feasibility for the entire innovation
will largely hinge on how well the chosen points system matches up with measures of
actual productivity, thereby accurately foreshadowing actual revenue gains and enabling
practical revenue sharing. As already pointed out, there will be a need for different levels
of points given the different levels of participation, engagement and collaboration that are
possible under this innovation. Depending on these, calibrating the points system to
measure up to actual gains in productivity and revenue will be a relatively straightforward
or a relatively complex (but wholly feasible) proposition. In devising its points system
overall, the individual insurance firm will therefore need to factor in such elements of
production as customer base and adoption rates, the value offered to the business and
knowledge actors, engagement and pricing models, tracking technologies, costs of
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operations and so on. Again, as already indicated, certain pricing models will not be ideal
under this innovation, because of the risk that they present for manipulation, and because
they are entirely not feasible with revenue sharing. In instances where points are to be
earned on a general basis, volume based models (say, for passive forms of advertising) will
work better, because of their compatibility with metrics for assessing an individual user’s
general contribution to revenue generation. For instance, if marketers were to be charged
a fee per every one thousand views (for passive advertisements), the insurance company
would be better able to devise the metrics for awarding points, by pegging them to the
pricing model, and thereby allowing, for instance, for a system where users could be
awarded a point (or points) for a certain number of log ins, postings and other forms of
general or indirect contributions to the generation of revenue. In the end, however, it
must be emphasized that, with the right engagement and pricing models, points based
online revenue-sharing systems are entirely feasible, and like other revenue sharing
systems, such as Google’s Ad sense, are a manifestation of the ways in which the internet
can enable better benefit distribution and more productive configurations of interests
within value chains and entire value networks.
Assessing this innovation from the standpoint of other feasibility factors, we find that its
viability receives strong confirmation, as can be seen from the following considerations:
• This innovation fits well with the overall role of the insurance firm within the
value chain and, indeed, provides great opportunities for streamlining and
harmonizing its business processes and strategies with respect to the value chain,
by effectively delivering the advantages of the internet for network value creation.
• It is also a low cost proposition for implementation, since most insurance
companies already have considerable investments in internet infrastructure and
online operations, not to mention the cost-effective nature of business operations
over the internet.
• This innovation provides the insurance provider with significant competitive
advantage over the existing health consumer platforms, not just in the form of an
incentive that works both ways to attract consumers and business and knowledge
actors alike, but also because of the fit between its opportunities and the position
of the insurance provider in the healthcare value chain.
• Predictions for user-adoption are supported by data that shows that most adult
American internet users (Data discussed in subsequent sections) turn to the
internet regularly to access health information and to engage with others around
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health matters. Offering them an insurance-based incentive will make it more
worth their while and provide them with opportunities to influence value creation
within healthcare.
• Predictions for revenue generation and profitability are supported by data on the
financial performance of the existing platforms, which indicate the market viability
of the health consumer network platform. As WebMD, a publicly traded online
health consumer platform, has shown, potential revenue generation on such
networks can reach upwards of $ 300 million annually, with annual net incomes of
$ 30 million and above. And off course this is without the consumer incentive plan
that we are proposing here, and without the direct user collaboration in value
creation that this plan is designed to secure. If WebMD and the other existing
platforms were underpinned by such a scheme for incentivizing user collaboration,
revenue generation and profitability would certainly be much higher, and the
impact that this income potential could have on the business of insurance cannot
be ignored.
So what, realistically, can incentivizing consumer engagement and collaboration in value
creation be expected to yield in the final analysis? To start with, it will enlist the active
partnership of the most important actors in healthcare, i.e. the ones with the biggest stake
in the final outcome of better health. Though value creation in healthcare is mainly driven
by science, it is highly dependent on consumer/patient information, and the insights that
consumers acquire as a result of their first-hand experience of health conditions and
healthcare products and services is an invaluable information resource in healthcare value
creation. Incentivizing their engagement and collaboration in online value creation will in
turn present a world of possibilities to a host of business and knowledge actors, who will
range anywhere from hospitals, physicians, caregivers, pharmaceuticals, research
institutions, medical device manufacturers, vendors, natural health advocates, health
fitness programs, and advertisers. With incentivized consumer collaboration, these actors
will stand to gain invaluable insights into a diverse range of matters, from product and
treatment effectiveness, disease symptoms, drug side-effects, quality and efficiency in
value delivery, lifestyle choices, societal patterns, etc, the list is endless. In addition to
this, an incentivized online consumer network platform will also have the added
advantage of being a highly dynamic marketing environment, where the combination of
interactive technologies and an engaged and participatory consumer audience will present
these actors with incredible capacities for successfully carrying out marketing campaigns
with high measurable impact. All in all, the value that will be made available to these
actors, as a result of this incentivize, will be of such diversity, significance and indubitable
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quality, and the means by which it will be delivered, dynamic and highly effective, that
whether or not these actors would be interested can be considered a foregone conclusion.
The value creation interests of these business and knowledge actors, needless to say, will
represent opportunities for revenue generation to the insurance firm and its
policyholders; and in this way, therefore, this innovation will be providing the perfect
conditions for different interests in healthcare to converge around a collaborative dynamic
of online value creation that will yield tremendous benefits for all. And with the
insurance company’s participation in guaranteeing, so to speak, and coordinating this
dynamic, this innovation will ultimately mean that the full advantages of the internet for
network and network value creation will be fully delivered to its value chain. Indeed, the
benefits that will be realized under this innovation are so numerous and of such
significance that on their further consideration, the viability of this innovation will, of
necessity, be no longer in doubt.
Benefits and Other Concept Highlights
To better appreciate the benefits that this innovation will help deliver, perhaps we can
begin by asking what it will mean to have the health insurance companies, their
policyholders, and the business and knowledge actors actively interacting, engaging and
collaborating with each other in online value creation? For one, the goal of more
widespread adoptions of fully integrated and efficient systems of electronic health record
exchange, will have a much more stronger and cohesive basis for rapid and more
successful implementation. As evidence accrued from experience has shown, it is within
integrated systems of health delivery, HMOs, for instance, that the adoption of systems of
electronic medical reports, EMR, has been most successful, and has had the greatest
impact. Because it is also based on the insurer and underwriter of consumption, and
because it leverages the dynamic capabilities of the internet, this innovation offers the
same potential for integration as managed care systems, with perhaps greater flexibility,
greater potential for value creation, and more value-based competition. Insurance
companies will find it to their advantage to offer their platforms as as a channel through
which electronic health records were transmitted and coordinated between the different
actors in a value chain, i.e. the physicians, hospitals, patients, diagnostic centers,
pharmacies and, of course, the payers themselves. The gains in cost-savings, efficiency
and quality of service will acccrue to everyone.
Secondly, with all the actors in healthcare actively collaborating with each other online,
sharing insights, cooperating in research and product development, collectively
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exploiting the internet for better information communication and coordination, and for
transacting business, and so on, the opportunities for uncovering efficiencies in value
creation will be innumerable, and will undoubtedly lead to significant gains in quality and
cost-savings. In this way then, the online collaboration that this innovation incentivizes
will lead to the realization of two sets of objectives that have hitherto been viewed as
mutually exclusive: better value-based competition and more effective interdependence.
Thirdly, because it incentivizes active consumer engagement and collaboration in online
value creation, as well as the channeling of out-of-pocket healthcare consumption through
the online platform, this innovation will provide robust and dynamic means through
which consumerism in healthcare can be a more productive force. For example, by
engaging more on health matters with each other, and with other actors, consumers will
play a crucial role in disseminating and raising awareness of health issues and promoting
healthier lifestyle choices in the larger society. Also, through their willing and self-
interested collaboration in value creation, as we have already noted, consumers will be
instrumental in no small way to the discovery of the efficiencies that will lead to gains in
quality and help deliver effective reform and change to the healthcare system. What’s
more, by channeling their out-of-pocket consumption of healthcare products and services
through the online platform, consumers will be enabling their partnership with the
insurance company to realize additional revenues which will help finance the costs of
health plans and alleviate the conflict between shareholder and policyholder interests. It
is, after all, estimated that private out-of-pocket spending on healthcare by consumers
makes up 15% of the 2.28 trillion current total annual spending on healthcare, or 340
billion. The potential that this kind of spending presents for this innovation is obvious,
and the extra income will help insurance firms better absorb the pressures of
consumerism and wean them off their obstructive tendencies.
And for the insurance company and the business of insurance, too, the benefits that this
innovation will deliver are enormous and of breakthrough significance. With more of its
policyholders and business partners participating online, for instance, the insurance firm
will be better able than before to more effectively exploit the advantages that the internet
offers for streamlining and adapting its business structures and operations, as well as
strategies. This will no doubt help eliminate the wasteful costs and other inefficiencies
that have been associated with the traditional model and approach. Clear examples here
of course include inefficiencies in areas of administration, information processing,
communication and coordination, in marketing and sales, and in consumer relations – all
of which stand to be transformed with the shift to the internet and the attainment of
user/policyholder collaboration online.
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Even with regards to its policies and strategies in coverage structuring and underwriting,
the insurance firm will stand to benefit from this innovation, as the additional earnings
come in to provide greater flexibility and help to relieve some of the pressures brought
on by a method of financial reckoning which pits the interests of its shareholders at
diametric odds with those of its policyholders. This realignment of interests between the
firm, its shareholders, and its policyholders, will see, in time, the firm shift away from
those policies which have earned insurance providers a negative image with consumers
and with the other industry players, and which, quite frankly, have led to a cul-de-sac in
terms of possibilities. The end result, then, of implementing the proposed innovation
would be a more efficient, more flexible, and more adaptable consumer-powered
insurance firm, which is able to dynamically take advantage of diverse business
opportunities, and be a more proactive catalyst of value creation within the healthcare
value network.
All in all, the potential benefits for the insurance provider will be numerous and
significant, and will further serve to justify the decision to implement. In summary they
include:
A wealth of business opportunities in line with the enhanced role as a broker of
network synergies. Offering this incentivized engagement platform to all the
actors in the healthcare value network, with an insurance incentivize for the most
important actor, the consumer, the insurance firm will place itself squarely at the
intersection of a great number of online business opportunities. This will set up
the incentive for the insurance firm to become a more proactive player in the
search for greater efficiency and greater quality in value creation, in the
healthcare value network.
Increased income from new multiple revenue streams, which will help subsidize
the cost of health plans and add substantially to the bottom line. The engagement
platform we are proposing here will deliver opportunities for generating
additional income in collaboration with users/policyholders, and this extra
income will help the firm be better able to offer enhanced coverage and benefits
to consumers and policyholders, and help allay the conflict between policyholder
and shareholder interests.
Opportunities for developing efficiencies for insurance business operations,
processes and strategies, as a result of greater internet interaction with
policyholders and healthcare business partners. Having its policyholders and
business partners engaging with each other, and with the insurance firm itself,
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online, will provide the insurance firm with incredible opportunities for
streamlining its business structures, processes and operations, which have long
been identified as a great source of waste and inefficiency. It will also provide the
perfect opportunity to achieve greater synergy and effectiveness in its
coordinating functions as the payer and underwriter of health care consumption.
This Innovation (and its incentivize plan) will mitigate against the pressures of
over-utilization and over-consumption in two key ways. One, by drawing
consumers to channel their healthcare consumption through the platform in ways
that generate additional earnings and benefits for the firm and for their
(consumers) own insurance policies. And two, by incentivizing consumers to
engage in health matters in ways that raise health consciousness and promote
healthier lifestyles.
Greater flexibility and adaptability for the firm on the whole. Taking advantage
of the opportunities that this innovation will provide, the insurance firm will be
transformed into a more efficient, more versatile enterprise and operation. This
innovation will enable the insurance firm to benefit more widely and more
dynamically from its unique role in the healthcare value network, and, at the
same time, help it better absorb the pressures of consumerism in health care.
Increased insurance business as a result of lower costs of health plans, and also as a
result of the viral and network effects that the online platforms and incentive
schemes will help generate.
Improved relations with consumers/policyholders and industry business partners,
and more productive collaborations and partnerships.
The potential for cost-savings in all of this, too, is huge and glaringly evident;
particularly as the insurance firm takes advantage of the various opportunities that
will be provided by this innovation for streamlining and adapting its business
structures and operations, as well as strategies.
Key Implementation Issues
One of the best advantages of this innovation with regards to implementation is, of
course, that it is a relatively low-cost proposition. Costs are diminished, in the first
instance, by the internet advantages of low cost and cost-effectiveness for implementation
and operation; and, in the second, by the fact that most insurance companies already have
considerable investments in internet infrastructure and operations. Risk is also diminished
by the innovative mechanisms of value creation and micro-transaction based benefit
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distribution that the internet enables, and that can be devised to ensure that benefits are
realized entirely based on results, while virtually guaranteeing real value generation. The
internet not only allows for real, dynamic engagement and collaboration in value
creation, but also provides capabilities for applying precise methods of reckoning
transactions of value whereby benefits can be fairly and adequately distributed between
the participants. Other key issues to take into account when considering implementation
include:
1. Engagement and Pricing models. The insurance firm considering
implementation will, of course, need to set up a policy and transactional
framework under which other business and knowledge actors in the industry will
engage its policyholders, and under which these policyholders will stand to be
rewarded with a share of the revenue. This system will need to be intricate and
flexible at the same time. It will have to provide different models of user-
engagement for different types of business and knowledge actors, and strike
reasonable accommodations that ensure the interests and concerns of all the
participating parties are safeguarded, while optimizing quality value generation.
And though there are some obvious challenges and limitations in devising
engagement and pricing models that fully exploit direct user-collaboration for all
business and knowledge actors, the accommodations that are possible under this
innovation are such that incentivized user-collaboration is still a major factor in the
quality of value that these actors can achieve. Incentivized user-collaboration on
the whole will mean a much more engaged user base; and so, while it may not be
viable for some business actors, say advertisers, for instance, to be charged a fee
for ever instance of user-collaboration within an unlimited number, the
accommodations that are possible under this innovation will be such that the
potential benefits for these actors will surpass those that can be had elsewhere.
Therefore, if an advertiser were to be offered an engagement model that
combined a limited number of instances of direct user-collaboration with more
passive forms of advertising, the fact of greater user-engagement, overall, would
have the effect of increasing the potential impact of the advertiser’s campaign.
(Passive forms of advertising could, for instance, gain from being posted, by
consent, on the personal pages of a user with a high participation rating - because
of his/her frequency of posting quality content and other forms of contribution –
and, as such, had established themselves as a viable avenue to an engaged audience.
This user would, of course, stand to be awarded points for this indirect form of
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collaboration, and the value of the points earned will be a share of the fees for
hosting the advertisement.).
Outlines of other possible models of engagement and pricing for other business and
knowledge actors include:
Providers of health care services, such as hospitals, physicians, hospices and
retirement homes etc, would benefit from a ratings and referral directory system
that promoted quality and customer satisfaction. Consumer would post ratings on
quality and provide feedback that helps these providers improve their services and
achieve competitive advantage. Providers who received leads or business as a
result of a favorable rating in the directory of providers would, naturally, be
charged a fee per a certain number of leads. The collected fees would be shared
with consumers as part of the platforms overall profits, as opposed to a direct
share for each instance of posting a rating, providing feedback, or even engaging
the services of the provider.
Pharmacies and other vendors of health care products would be allowed to offer
their products to a market of incentivized consumers, and charged a fee for each
transaction. The fee would be shared between the transacting consumer and the
insurance firm.
Researchers looking for a limited number of participants for a research study,
pharmaceutical trials or market survey, would be afforded the opportunity to
place their appeals on the platform long enough to get the required number of
respondents, and be charged a fee for each instance of participation. The limited
scope of this model could be compensated with other opportunities for engaging
the user; for example, through communications and discussions on their work
posted on the platform, in which case revenue could be earned from
advertisement and sponsorship attached to such content.
Agreements between the insurance firm and promoters carrying out promotion
campaigns of health and hygiene related products and services could be struck that
would see users offered a certain number of points for participation instead of the
commonly employed gift or prize options.
2. Privacy and Security Concerns. As usual, User’s Privacy and the security of
personal information is always a key concern, especially when it comes to personal
health. But as we have already pointed out, the existing platform providers have
pioneered privacy policies that have been shown to work, and there is nothing
about the approach we are advocating for here that would necessitate adopting
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different policies or significantly modifying on these. Invariably, the main
principles to observe are transparency and openness, together with user-control
and all the other customer-centered values that are today codified as best practice
for enterprises operating in the web 2.0 internet environment. Fortunately, it is in
this innovations DNA, so to speak, that these values be front and center for it
work. It is not a charade: it is real genuine partnership.
3. Marketing and Promotion. The potential that the implementation of this
innovation could be met with skepticism from the public is, however, admittedly
present, and it is therefore imperative that the firm takes some important steps to
overcome this. For one, the insurance firm must be prepared to offer the
consumers real significant benefits for their participation and be prepared to open
up the business of insurance to greater transparency and to more involvement and
participation by policyholders. The method for reckoning the value of the points
earned, for instance, should be weighted in favor of the policyholder. There must
be real benefit for participation. The details of this method must be shared with
the public, just as should the record of the platform’s performance and earnings.
The value to the consumer, and to the business and knowledge actors, for
participating, must be front and center of a comprehensive marketing and
promotion campaign that is executed on the basis of full disclosure and genuine
communication of the ideas behind the innovation. This strategy should aim at
straightforward communication designed to engage the diverse audience of
consumers and producers in the health care system, and in the public domain, in
an open and objective consideration of the real benefits that this innovation for all.
These and other similar measures would be very instrumental in helping
consumers and everyone else overcame any skepticism. Fortunately, and as we
have already mentioned, the merits of this innovation are compelling enough on
their own, and do not require any sensationalist pitch beyond the simple facts;
and, being engaged on the basis of the bare and compelling facts, consumers and
business and knowledge actors will be more readily driven to act out of their own
self-interest.
The opportunities and potential benefits for both business and knowledge actors and the
consumer/policyholder are given here:
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Business and Knowledge actors
Greater potential for impact and better results for advertising, marketing and
promotion campaigns as a result of having an engaged and participatory
audience.
Quality and dynamic feedback from consumers.
Quality market and societal information.
Quality research through incentivized consumer participation and
collaboration.
Numerous opportunities for uncovering efficiencies and achieving greater
quality in value creation through incentivized consumer collaboration.
Better online sales for vendors like online pharmacies, health books and
information publishers, natural health product vendors, health fitness
programs etc.
Quality opportunities for developing effective CRM strategies as a result of
incentivized consumer engagement.
Better value-based, consumer driven competition in the industry.
Higher quality communication avenues for public outreach initiatives such as
public service announcements, appeals for public contribution, and other
public awareness efforts.
Potential for cost savings with the uncovering of efficiencies and the shift away
from less successful online strategies.
Consumers/Policyholders
Top of the list, off course, is the opportunity to earn a share of the revenues
from their engagement and collaboration in value creation, monies that will
be applied towards enhancing their insurance coverage.
Through their contributions to value creation, consumers will be instrumental
in no small way to the discovery of the efficiencies that will deliver reform
and change to the healthcare system.
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Along with this will come the opportunities to influence value creation and to
get the producers and providers of healthcare products and services to
respond more readily and more effectively to their needs and interests.
By engaging on health matters with each other, and with other actors,
consumers will play a crucial role in disseminating health raising awareness of
health issues and promoting healthier lifestyle choices in the larger society.
This, too, will have the inevitable effect of influencing quality and value-based
competition in the system.
With greater efficiency and more value-based competition in the system,
consumers will stand to gain from increased quality of health care, lower costs
and more value added benefits.
Assumptions
Key assumptions in this proposal include inferences on potential adoption rates and the
willingness of policyholders/consumers to engage and collaborate under this innovation,
as well as its potential for revenue generation and profitability. In short, we assume that
the policyholders will find the insurance incentive and the other potential benefits
significant and appealing enough to warrant their participation, and that the adoption
rates on the proposed collaborative platform will be significant enough to support this
innovations practical and financial viability. The arguments in favor of these assumptions
are numerous and varied, and stem from observations on current online trends in
healthcare consumer engagement and the performance of existing online health consumer
platforms.
As things stand, it is quite clear to most observers that insurance firms are hindered, by
reasons numerous and needless to comment on here, from fully and effectively take
advantage of the internet and its capabilities. User adoption rates on insurance firms’
customer-facing online platforms are dismal, between 20-30%, and the activity patterns
of users are predictably periodic. This is in stark contrast to the evidence that shows that
every day more and more Americans are going online to access (and engage one another
around) medical information and health matters. The Pew Internet Life Project, for
instance, estimates that 61%, or some 122 million, of adult American internet users use
the internet regularly to access health information. (Of these, 60% reported that the
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information and advice accessed through online search and engagement had had a
significant impact on how they managed their health or that of others in their care.).
Online health consumer platforms, moreover, continue to record increases in web
traffic, with WebMD, for instance, receiving an average of 54 million unique monthly
users in 2008, an increase of 21% over the previous year, and 1.3 billion quarterly page
views, or a 30% increase. In 2008, the company reported annual revenues of $383
million, an increase of 15% over the previous year. EBITDA earnings for the same period
were reported as $78 million, a 30% increase over the previous year; and the impact that
this income potential could have on the business of insurance (together with the other
benefits) cannot be ignored.The success of these pioneers have even defied market trends
and shown a growth in online advertising and sponsorship, thus not just underscoring the
unique and vital utility of the online healthcare consumer platform, but the health care
consumer’s willingness to engage. All available data shows that American consumers are
increasingly engaging online with one another, and with health professionals, and the only
ones lagging behind in exploiting the advantages that the internet offers for value creation
are the insurance companies.
This is indeed unfortunate, for no other players in the health care sector have better
leverage than the insurance companies, for providing the perfect basis upon which online
value creation in the health care system can be more systematic, more efficient and more
productive. Exercising their leverage as payers, insurance firms can provide the perfect
incentives for more active collaboration between all the players in the healthcare value
network, paving the way for the realization of immense benefits for all. Much as they
would desire to, the existing online health consumer platforms cannot exercise the same
leverage that insurance firms can to bring about these transformational outcomes, unless,
of course, they started to offer insurance themselves. The insurance companies’ leverage
therefore confers on them unique competitive advantage with respect to the
opportunities and possibilities we are outlining here, and virtually guarantees that they
can not only replicate these existing platforms’ success, but can far out-surpass it and lead
the way to the realization of incredible possibilities. Offering consumers an insurance
incentive will not only make it more worth their while to engage and collaborate in
healthcare value creation, but will also mean that they had a serious and effective avenue
for effecting change and reform.
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Note:
Even assuming modest adoption rates that would see only a fraction of the firms’
policyholders active at the beginning, the opportunity to engage with an incentivized
consumer will still be attractive to the business actors, because of the obvious gains in
quality that come with it. Assuming even an active population of say 1 million users for a
mid-sized carrier with a customer base of 8 million, or 12 ½ %, which is below the current
adoption rate for insurance providers’ customer facing online platforms, with user
collaboration, business actors would still find it to be an appealing proposition, each for
their own reasons, a specific or set of specific ways in which they can gain immensely
from user-collaboration, and all of them because of how important the health insurance
provider is in their transactions with the marketplace. The incentives are there for
everyone and the potential benefits for all, including the insurance provider, are both
real and significant. Once the collaborative platforms are up and running and the first-
adopter policyholders, business actors and insurance firms are actively engaging in
dynamic and highly productive ways, the efficiencies that they uncover will experience
lock-in and become part and parcel of the way of doing business in the healthcare
system, and with time everyone else will be drawn in.
Advantages for a Free-Market Healthcare System
Two basic features of healthcare industries and value networks across the world,
including the U.S., are the high level of interdependence between the different actors,
and the great reliance on information/knowledge processing and communication. The
critical nature of all value creation activities and the stake that each actor has in the final
outcome of better health drives this interdependence and necessitates quality discovery,
development, processing and communication of information and knowledge. A
distinguishing mark of the U.S. system is of course the large role that private enterprise
plays both in the production of health products and services and in the financing of
consumption, which opens up the system to the influence of market forces and provides
dynamically for consumer choice and informed consumption. And while the participation
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of the private sector in the U.S. system has led to enormous gains, particularly in research
and advancements in medical practice, it has also contributed significantly to a
disproportionate and unsustainable rise in costs, linked to a variety of factors, including
rapid advancement, high rates of consumption and utilization, and, we have already
pointed out, the inherent limitations of the generic for-profit insurance business model.
High costs, as everyone agrees now, have invariably been associated with such
detrimental consequences as continued contractions in access for consumers, waste and
further disintegration of interdependence and market efficiency, more obstructionism
from insurance companies, declines in quality, and an overall state of hazardous
unsustainability.
Not incidentally, what most analysts taking a look at the private sector in the ongoing
healthcare reform debates (and in the past) have remarked, is the urgent need for ways to
enhance more value-based competition and to achieve a better and more productive
alignment of market forces, as the surest means of reigning in the untenable escalation of
costs in the U.S. healthcare system. Increased value-based competition in the health care
system would mean that the marketplace, specifically informed consumers, exerted
greater influence in the determination of value and the standards of quality, than is
currently the case. In such a state of affairs, producers and providers of health care
products and services, including insurance firms, would compete to deliver on customer
expectations through persistent efforts in search of greater efficiency, cost-effectiveness,
improved quality and value added benefits, and greater customer service. Now obviously,
this is not something that can easily be mandated through legislation, and instead requires
change and innovation from within that will organically produce significant realignments
of interests in favor of value. An assessment of the ways in which our proposal provides
for the realization of these objectives all within a single innovation, offers further
confirmation of its strength and dynamism, and validates it as presenting a truly
breakthrough opportunity.
Value Based Competition
(a) It will incentivize consumer participation, engagement and collaboration in
value creation, therefore providing business actors with the opportunities to
have their value creation activities informed actively by the consumer. This
will undoubtedly lead to important gains in efficiency and quality and ensure
that competition in the healthcare market place is value-driven. Through user
generated ratings and consumer feedback, for instance, consumers will ensure
that their choices and preferences impact on the value creation activities and
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choices of producers and providers, and help maintain a focus on the
generation and provision of real value.
(b) It will deliver the internet and, more specifically, an incentivized online
marketplace, where business actors can achieve greater impact from their
marketing and value delivery strategies. With greater engagement and
informed consumption by consumers, these strategies will naturally emphasize
value and further reinforce the bias in favor of quality.
(c) It will present opportunities for the realization of operational efficiencies by
enabling synergies of online connectivity between the different actors in a
value chain, thereby strengthening value creation and enhancing quality.
Market Realignment
(a) It will provide incentivizes for the convergence of diverse synergies of self-
interest around a collaborative dynamic of online value creation wherein the
benefits for all will be numerous and significant.
(b) It will provide the perfect basis on which all the actors in a value chain can
collectively exploit the internet for better information communication,
exchange and coordination, and for more effective interdependence.
(c) It will provide great incentives for the insurance companies to become more
proactive catalysts and brokers of value creation. The benefits that insurance
companies will stand to gain from this innovation will help to extend the
limitations of the generic insurance business model and help wean them off
their obstructive tendencies.
(d) It will incentivize consumers to engage on health matters with each other and
with other actors in the system, thereby serving to raise health awareness,
promote healthier lifestyles and disease prevention habits, all of which will
help mitigate against over-consumption and over-utilization.
(e) It will serve as an alternate means of financing healthcare consumption which
will help to ease the pressures on both insurance companies and policyholder
premiums, and help to keep costs down. The revenues earned from these
platforms will provide insurance companies with the extra flexibility to offer
policyholder more coverage benefits, and deliver greater, expanded coverage
to the market.
From all of the foregoing, it can be summed that this innovation is a fully free-market
proposition for achieving better value-based competition, and greater market and system
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efficiency, in the interdependent and information/knowledge heavy healthcare industry
in the age of the internet. It provides the perfect and most dynamic basis on which all the
actors in the healthcare value network can collaboratively exploit the internet, the
greatest information/knowledge communication and network tool in history, to
independently and collectively realize incredible gains in efficiency, quality, and cost-
savings, better benefit distribution and more effective interdependence. It incentivizes
and empowers consumers, the actors with the greatest stake in the final outcome of
improved health, to play a greater role in value creation, to inform the value creation
activities of business and knowledge actors in ways that lead to significant gains in
efficiency and quality, to engage more on health matters and help promote better health
in society, and through their overall participation, help make consumerism a much more
productive force in healthcare. And last, but not least, this innovation provides the
insurance provider with great incentives (by way of significant potential benefits) for
adopting more productive strategies in relation to the other actors in the value network.
Outlook
In the short term, an insurance firm that implements this innovation will begin to see
growth in activity and growth in early adopters, both policyholders and business and
knowledge actors, on its platform. With increased activity, the insurance firm and its
business partners (including the policyholders) will begin to explore what engagement
and pricing models are most effective, and decisions will be made on what changes to
adopt. In time, the business and value creation opportunities will become clear and the
work of exploiting them will begin in earnest. From the engagement and collaborations
between policyholders/consumers and the business and knowledge actors, will come a
wealth of benefits that will see other actors attracted to the platform. Advertisers and
marketers, for instance, will see their campaigns achieve greater measurable impact.
Online vendors will register better sales and gain additionally from quality CRM
strategies that benefit as a result of incentivized consumer engagement. Researchers will
have their pick of incentivized participants for their research and studies, not to mention
the advantages that the platform will provide for data collection, all of which will impact
significantly on the quality of their work. Health service providers like hospitals,
physicians, caregivers etc, will benefit from consumer rating systems, and so on. As they
continue to reap the benefits from this incentivized engagement platform, many of these
business and knowledge actors will make the decisions to adapt their strategies, fully or
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partially, to the opportunities on offer, and, in time, lock-ins will form in terms of new
ways of doing business.
Consumers/policyholders, on the other hand, will take increasingly to the platform to
perform a variety of tasks: for example, to search for health information and research on
providers, products and services; to participate and engage with other consumers on
forums, discussion boards, through blogs and other forms of user-generated content; to
engage with health experts and other types of knowledge actors and acquire information
on health matters that they will in turn help to disseminate. They will also develop their
personal spaces to communicate their interests and concerns, attracting audiences and
helping to spur more activity from other participants. And, of course, they will
increasingly channel their consumption through the platform, purchasing prescription
meds, health supplements, health publications and countless other products from online
vendors, earning rebate or discount points for themselves in turn. In everything that they
do on the platform, consumers/policyholders will, in one way or another, be helping to
generate significant revenues from e-commerce and advertising, and will stand to get
their fair share.
All the while, the insurance firm will in turn be taking advantage of the increased
interaction between itself, its policyholders and business partners, to achieve incredible
efficiencies in its business operations. The immediate opportunities for achieving such
efficiencies will of course be in the communication, exchange and coordination of
information within a value chain. Claims processing, for instance, which is surely
supposed to be a core capability of any insurance firm, but which is increasingly
outsourced (because in the current state of things insurance firms find it easier to do so
than to develop efficient systems), will obviously stand to be strengthened by this
increased interaction. The exchange and coordination of patient medical records between
providers of health services and the insurance firm will also stand to be made more
efficient under this platform. The insurance firm will also right away take advantage of
the greater interaction and engagement with its policyholders and business partners to
improve relations. With time, as business increases on the platform, and as lock-ins occur
in terms of new ways of doing business, the insurance firm will find that more areas of
their operations stand to be transformed. These include areas of administration, coverage
structuring and underwriting, marketing and sales, amongst others, which have
continually been associated with waste and inefficiency. Administration will stand to be
transformed as operations become more centralized around the platform, reducing the
need for extended operations in multiple locations. Marketing and sales, likewise, will be
revolutionized by the shift of business onto the internet, lessening the dependence of the
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insurance firm on agents, as it successfully exploits the internet and its advantages of viral
and network effects, to open up new ways of reaching the market with product and
service offers and to bring in new insurance business
In addition to taking advantage of the opportunities that the platform will provide to
transform its operations, the insurance firm will also pursue the new business
opportunities related to the convergence of interests that will be made possible under this
innovation. As the operator and initiator of the platform, the insurance firm will find
itself squarely at the intersection of a great number of business opportunities that will be
to its advantage to help broker. In so doing, the insurance firm will be helping to
underwrite value creation, albeit in more a proactive sense than in simply putting up the
finance for it. And of course, the benefits from this for the insurance firm, in terms of
revenues earned, will be enormous.
Indeed, the totality of revenues earned and costs saved, directly and indirectly, from this
innovation, will be so significant as to transform the business of insurance radically. At
the end of a full financial year in operation, the insurance firm will find that the income
earned from this innovation will be considerable enough to satisfy both its bottom line
expectations and the demands of its customers for enhanced coverage. As a result of the
increased, the insurance firm will begin to experience greater flexibility with respect to
its coverage structuring and underwriting strategies, allowing it to expand coverage and
offer more competitive benefits to consumers.
In the long term, say 2 to 5 years, and with more insurance companies making the
decision to adopt this innovation, the health care system will stand to be radically
transformed. The efficiencies and new ways of doing business that will have been
discovered by the early adopters will have experienced lock-in and the newcomers will
serve to expand the reach and benefits of these new practices. Online value creation in
the health care system will become more systematic, more efficient, and more
productive. The gains in quality and value-based competition will be considerable and
will have a significant, measurable impact on health outcomes. Increased participation and
engagement by consumers will also begin to register a measurable impact on the health
lifestyle choices of the larger society. Information communication, exchange and
coordination within value chains will be drastically enhanced, and the goal of widely
adopted systems of electronic medical record exchange, will, more readily than with any
other approach, be realizable. Together with the increased income for the insurance
provider, and for its business partners, these things, all these varied ways in which this
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innovation will deliver benefits to the U.S. healthcare system and its actors, will, above
all, translate into one ultimate outcome: a drastic cut-back on runaway costs.
With more insurance companies choosing to implement this innovation, more consumers
and business and knowledge actors will be drawn to the online platforms and into their
collaborative dynamic of value creation. The efficiencies and new ways of doing business
that will come from this innovation will become more widely spread, and the benefits
generated will accrue to an even wider range of actors. This expansion will serve to push
back against rising costs a lot more effectively than any single piece of reform or
legislatively mandated change could.
Inevitably, however, some insurance companies will be more successful at this than
others. Competition will be made even more perilous by the very nature of business on
the internet, where, more than in any other sphere, consumers exercise choice more
readily. While this undoubtedly a good thing in terms of driving quality, insurance
companies will have to work harder to retain their customers, who will always have the
choice of switching carriers to join different platforms for whatever reason. The less
successful companies will naturally lose their market-share of consumers/policyholders,
while the more successful ones will move in to consolidate their positions and to maintain
growth. Inevitably, corporate consolidations and outright buyouts will occur, leading to
instances of regional and niche dominance. Far from being detrimental, such instances of
dominance will actually be beneficial in terms of enhanced efficiency and the sort of
concentrated value creation that will ensure an optimization of benefits for all.( And
again, due to the nature of competition on the internet, and because this is a fully free-
market approach, no instance of dominance will ever be invulnerable.). With all the
actors within a region, for instance, interconnected together through one or two carriers,
the integration of value creation activities will be much more enhanced and will lead to
greater quality productivity. Invariably, the circumstances that will prevail in the U.S.
health care system after this innovation becomes entrenched will be ones where value
creation is greatly enhanced, quality is significantly improved, access is broadened, costs
are down and under control, enormous benefits are widely distributed, and the interests
and strategies of all the actors are more effectively and more productively aligned.
Author:
Jones Mereu
mereuj@hotmail.com
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