The Consumerization of Health Insurance: Adapting to Private Exchanges

findcustomersThe new Affordable Care Act (ACA or ObamaCare) is introducing new opportunities and challenges for health insurance companies. The complex set of regulation, exchanges and integrations needed is still a political and technical mess but one thing is clear: health insurance companies will have to embrace their consumers.

It’s no secret that currently most health insurance companies’ customers who make buying decisions are not the actual consumers but employers or benefit brokers. This is about to change.

The process started even before the latest reforms and is modeled to a large part after the successful pension / retirement benefits model where companies moved from a company provided pension into a marketplace. The employer is putting in a defined contribution, and the employee is choosing investment vehicles from various providers.

The model works very similarly for health benefits with private exchanges giving employees more choices. Walgreen has recently moved its 160,000 employees to a private exchange and estimates are that by 2017, 18% of the American public will buy their insurance at private exchanges.

So what do health insurers need to do to better compete in an open marketplace? Mostly, steal the best practices established by other competitive markets such as the aforementioned retirement benefits and P&C insurance providers:

  1. Enable consumers to make an informed buying decision. While prices and coverage may be negotiated with employers, additional tools and content written for consumers is essential. For example, a “find a doctor” tool that lets you see if your physician is part of the plan, and detailed coverage comparison between plans.
  2. Give consumers full access to their information and personalize the experience. Web portals, mobile applications, email and text messages all tailored to consumer preferences and health interests. The self-service aspect will both give consumers control and save call center costs.
  3. Know your customers. Since until now most group members were not customers, the interaction was very transactional and focused on claims. A huge part of the consumerization of healthcare and of health insurance is starting to use ecommerce style tools – CRM systems that help track and manage all interactions; improving data collection, tracking and analytics to help segment and personalize user experience and wellness communications and offerings.
  4. Establish a clear measurement and analytics framework. New measures and metrics need to be put in place to judge the effects of this transition on the business and the determine best ways to react. The new measurement framework has to look at metrics such as:
    • Customer acquisition cost
    • Customer retention rates 
    • Customer profitability by source and segment
    • Customer lifetime value
    • Impact of wellness activities and user engagement with them on costs
    • Impact of self-service portal and mobile applications on call center volume and costs.
  5. Adapt and optimize marketing. The direct approach requires multichannel direct marketing.  Analytics can help guide the best mix of marketing options to achieve the different acquisition and retention costs.

A lot of people question whether going after the direct channel is even worth it. Some have had bad experiences in the past with individual members that tended to consume more healthcare since they were not always in a good enough health to hold a full time job.

The transition we are seeing to private exchanges and defined contributions seems much more substantial and can dominate the market in 5-10 years. A good toolset, marketing approach and measurement framework will be invaluable to compete for the right segment.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s