1. The U.S. healthcare industry
is undergoing its most radical
transformation since the creation of
Medicare and Medicaid in the 1960s.
The confluence of rising healthcare
costs and sweeping regulatory changes
has given rise to new consumer-driven
healthcare models that are forcing the
health insurance industry to re-examine
its business. U.S. healthcare spending
reached an estimated $2.7 trillion in 2011,
nearly 18 percent of gross domestic
product (GDP). An aging population,
improving economy and the ongoing
implementation of the Affordable Care
Act (ACA) are projected to push spending
on medical services to nearly 20 percent
of GDP by 2021.1
The emerging role of consumerism in
healthcare is a marketplace response to
escalating costs and a regulatory lever
aimed at expanding healthcare access
to millions of uninsured people. New
consumer-driven business models are
emerging that are designed to engage
people in the management of their own
healthcare spending. These business
models also encourage people to pursue
healthier choices and lifestyles that can
help contain long-term medical costs.
After decades of selling health plans
to employers rather than individuals,
insurers must dramatically shift gears.
To thrive in an increasingly competitive
marketplace, they need to augment
traditional business-to-business models
with new consumer-centric ways of
doing business.
Healthcare Consumerism:
Higher Quality Care at Lower Cost
Healthcare Consumerism
2. 2
The momentum behind healthcare
consumerism has been building for
years as employers and insurers have
fought to contain growing costs.
However, changes in the marketplace are
accelerating as provisions of the ACA and
related legislation take effect through
2014 and beyond. The ACA creates a
variety of tax incentives, subsidies and
mandates intended to bring millions of
uninsured Americans into the market.
The individual mandate provision of the
law requires all individuals not covered
by an employer-sponsored health plan,
Medicaid, Medicare or other public
insurance program to buy a private
insurance policy or pay a penalty (with
some exceptions based on religion or
financial hardship). The Congressional
Budget Office estimates that within 10
years, the health insurance market will
swell by 33 million people who would
otherwise be uninsured.2
These new insurance customers will
be joined in the marketplace by 3 to
5 million people who were previously
insured through employer plans, but
for various reasons are expected to
join the expanded pool of individual
health insurance shoppers.3
Payers will
have to adapt quickly as their relatively
stable business-to-business operations
evolves over the next 10 years into
a highly competitive, cost-sensitive
consumer marketplace. While customer
expectations are rising in this new
marketplace, new regulatory restrictions
severely limit payers’ ability to react as
they have in the past.
Cost control is key. Though the lingering
effects of the Great Recession and a
still-sluggish economy have helped
moderate the growth in healthcare
costs, containing them remains a key
challenge for payers, employers and
consumers alike. Aging baby boomers,
the steady increase in chronic illness
and advances in medical technology
and treatment options continue to spur
healthcare costs upward. Consumerism
in healthcare — particularly insurance
plans that engage consumers in the
management of their own spending and
encourage preventative care and healthy
lifestyles — is increasingly popular as a
means to control costs while improving
care. The new coverage mandates and
the corollary rise in consumer-driven
health plans emphasize preventative care
and wellness programs, which can lower
costs by helping people prevent illness
before treatment is required.
Competition is intensifying. The influx of
new customers into the market and ACA
mandates put increasing pressure on
insurers to be more efficient, particularly
in engaging individual consumers rather
than employers. A key feature of the ACA
is the creation of federally-mandated
health insurance marketplaces operated
by the states or the federal government
New consumer-
driven business
models are emerging
that are designed to
engage people in
the management of
their own healthcare
spending. These
business models also
encourage people
to pursue healthier
choices and lifestyles
that can help
contain long-term
medical costs.
The marketplace is changing
Healthcare Consumerism
3. 3Healthcare Consumerism
(formerly known as a Health Insurance
Exchange or HIX) from which individuals
can purchase insurance eligible for
government subsidies. While insurers
must increasingly interact directly with
people, those individuals have grown
accustomed to doing business online,
with better product selection and
price transparency. Health insurance
must follow the lead of retailing, auto
insurance, banking and other industries
that have reinvented themselves
in recent years. Consumer-facing
businesses must now provide customers
with anytime, anywhere access to their
full range of products and services. And
they must deliver that access in channels
those customers prefer, whether that’s
at a physical storefront or online from a
variety of devices.
Legislative restrictions are tightening.
The ACA promises to bring 33 million
new customers into the health insurance
marketplace just as it is imposing new
standardized reporting requirements
and new pricing, coverage and privacy
restrictions on insurers. Under the law,
insurance companies are no longer able
to deny coverage based on pre-existing
conditions, and pricing latitude can only
be based on age, premium rating area,
family composition and tobacco use.
There are limits to how much pricing
may vary.
The demographics of this influx of
previously uninsured new customers are
not likely to be as favorable to insurers as
employer-covered policyholders. Some
of their traditional tools for managing risk
though pricing and selectivity have been
eliminated. Managing profitability
in this hyper-competitive health
insurance marketplace will present
unprecedented challenges.
Health insurance must follow the lead of retailing, auto insurance, banking and
other industries that have reinvented themselves in recent years.
