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Health Plans

Strategic Flexibility for the Health Plan Industry The Next Move for Growth & Innovation in an Uncertain Market


Forward Dear Colleague: Tremendous flux and uncertainty in today’s U.S. health care market are making it difficult for health plans to develop and implement strategies to achieve sustainable competitive advantage. Consider some of the current issues facing health plan executives: •

Non-value-added expense is a significant portion of health plan spending. Of the estimated $2 trillion in annual U.S. health care expenditures, roughly 25 percent is for administrative services that may not lead to improved member outcomes.1

Profit margin is thinning. Based upon 2006 estimates, health plan revenues are increasing at 13-15 percent annually but costs are also increasing. The majority of premium dollars are needed to cover the cost of administering benefits, leaving a scant 0.5 percent profit margin.2

The number of consumers who believe that health insurance companies are doing a good job serving their customers has declined significantly, from 55 percent in 1997 to 36 percent in 2004.3

The growth of self-insured and high-deductible plans has outpaced fullyinsured plans, yet insurers’ earnings are lower for these types of plans. Insurers’ earnings per enrollee (in dollar terms) for self-insured businesses are onethird the level for insured members, while earnings per enrollee in high-deductible plans are 30 percent lower than that of comprehensive plans.4

Traditional insured membership growth is stagnant at 1-1.5 percent annually, leaving health plans with limited opportunity for organic growth.5

We believe the potential severity and convergence of these and other issues over the coming three to five years may compel health plans to redefine their role to preserve their economic position. Organizations should identify new ways to differentiate their value proposition and attract and retain members if they hope to compete profitably in the future. One of the keys to accomplishing this transformation is looking to other industries for examples of innovation, flexibility and disruption that have resulted in new, consumercentric business models. This document, anchored by research conducted by Deloitte Consulting LLP across several industries including health care, will highlight a new way of thinking, Strategic Flexibility, which can serve as a framework to achieve growth and innovation in an uncertain market. Strategic Flexibility is designed to enable organizations to prepare for what they cannot predict…and to cope with and ultimately exploit uncertainty for competitive advantage. We invite you to join us on this journey.

William Copeland Jr. Principal Deloitte Consulting LLP National Managing Director, Life Sciences & Health Care Practice 1 2 3

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CIBC World Markets Corp. and CIBC World Markets Inc., February 22, 2007 Wachovia Capital Market LLC, Kaiser, Industry Sources Harris Interactive Market Research Study, “Reputations of Pharmaceutical and Health Insurance Companies Continue Their Downward Slide,” June 22, 2004 C. Boorady, L.A. Hubbard, and S.C. Morena, United States Managed Care: The Medicare Industrial Complex, New York: Citigroup Equity Research, 8 June, 2006 M.E. Porter and E.O. Teisberg, Redefining Health Care, Boston: Harvard Business School Press, 2006

We believe the potential severity and convergence of these and other issues over the coming three to five years may compel health plans to redefine their role to preserve their economic position.


Table of Contents Executive Summary

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Why Strategic Flexibility is Important to U.S. Health Plans

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The Growth & Innovation Imperative SCENARIO 1: Extreme Health Plan Consolidation

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SCENARIO 2: Business Diversification

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SCENARIO 3: Health/Wealth Convergence

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SCENARIO 4: Consumerism and the Uninsured

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SCENARIO 5: Provider Disruption

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What’s Your Next Move?

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Contact Information

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Executive Summary Health plans are uniquely positioned to serve as the information and service integrator between providers and employer groups and their members. Only recently have health plans begun to respond to a new health care environment in which more members are taking direct responsibility for health care purchase and insurance choices. Some health plans, for example, are developing capabilities to distribute products directly to consumers, which is quickly becoming a minimal requirement for a credible competitive position. Product offerings alone – no matter how innovative – may not prove to be a winning strategy. In this new environment, the party that “owns” the member health care relationship will ultimately prevail. Unfortunately, to attain that position, health plans first need to overcome pervasive member mistrust that dates back to the HMO backlash of the early 1990s and continues to be measured on member satisfaction surveys and in insurance industry consumer studies. Fifty-six percent of respondents in a recent Harris Interactive Survey of consumers, for instance, said they felt that health insurance companies were generally doing a “bad job” of serving their customers.6 To effectively compete in such a skeptical market, health plans should strive to provide their members with quality information and advisory capabilities to aid them in making informed health care decisions. Lessons learned in other industries like retail and financial services can reveal valuable insights that could benefit health plans. Health care’s traditionally complex business model, changing customer relationship dynamics and an uncertain regulatory environment render conventional strategic planning processes and financial decision-making tools less effective for health plans. Relying on “agility” as a way to cope with uncertainty is also ineffective, since unforeseen “disruptions” in the form of threats or opportunities can appear before health plans can respond. To effectively build member engagement and address other challenges in this market, health plans may need to shift the focus of strategic planning away from undifferentiated investments to calculated investments that respond to a range of possible futures.

Health plans are uniquely positioned to serve as the information and service integrator between providers and employer groups and their members. Only recently have health plans begun to respond to a new health care environment in which more members are taking direct responsibility for health care purchase and insurance choices.

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Clearly, health plans should consider departing from a traditional approach to strategic planning. In this paper, we propose a rigorous yet adaptable methodology called Strategic Flexibility to help executives guide their organizations through a complex and uncertain health care market, both today and in the future. Developed by Michael Raynor of Deloitte Research and Deloitte Consulting LLP, Strategic Flexibility consists of a four-phase framework (Figure 1) that has been used effectively for strategic planning in other industries, including financial services and life sciences. Figure 1: Strategic Flexibility Framework The Strategic Flexibility framework helps health plans to more effectively develop and execute a strategy in an uncertain health care environment through four steps:

Anticipate   

Identify drivers of change Define the range of possible futures Determine which are truly plausible

Operate

Monitor the environment Determine which optimal strategy is most appropriate  Exercise relevant options  Combine with core elements

Formulate 

Develop an optimal strategy for each scenario Compare optimal strategies to define “core” and “contingent” elements

Accumulate

Commit to the core elements Take options on the contingent elements

Source: The Strategy Paradox, 2007

Applying the Strategic Flexibility framework to the health plan industry requires understanding possible future market scenarios and identifying the dimensions of uncertainty which define their boundaries. Each likely scenario should include an optimal strategy that contains both core and contingent elements: core elements are the capabilities that can be applied across multiple scenarios and contingent elements are the capabilities that need to be present only when conditions for a particular scenario are met. For purposes of this piece, we define an “optimal strategy” as one that provides a portfolio of options for each of the possible outcomes. When we look at the future health care market as a whole, we believe that there are five key drivers of uncertainty that lend to the complexity of the health care industry (Figure 2).

Harris Interactive Survey, 2004

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Executive Summary, cont. Figure 2: Health Care Industry Drivers of Uncertainty

Increased health care spending and shifting demographics

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Increased health care use by America’s aging population, supported by a shrinking pool of workers, will lead to funding challenges as health care becomes the driving force of the U.S. economy.

Regulatory uncertainty around the uninsured and underinsured population

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Federal and state governments are experimenting with legislative measures to mandate universal health coverage for the nation’s 46 million uninsured.

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In response to rising premium prices, employers have begun to shift costs to employees, leading to increased adoption of consumer-directed health plans (CDHPs) and greater focus on cost/quality transparency and consumer decisionmaking tools.

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Economic analysis shows that profit margins are shrinking for health plans, necessitating the exploration of different options to improve their financial position.

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Health information technology (HIT) has become a key focus area for the U.S. government. The market is seeing such trends as decreasing costs for telemedicine technology and increased use of web-enabled physician practice management systems that integrate administrative, financial, and clinical management applications.

Changing demand in the existing customer base (the insured)

Changing competitive landscape

Rising prevalence of a technology-enabled health care delivery model

By analyzing these drivers of uncertainty, our research has identified five scenarios that are likely to impact the health plan market (Figure 3) and create additional instability. These scenarios are already at play in the industry; the uncertainty lies in how extensive and influential each scenario will be in the future.

Figure 3: Five Health Care Market Scenarios Scenario 1: Extreme Health Plan Consolidation The pace of consolidation among plans within the marketplace will continue into the future.

Scenario 5: Provider Disruption A new provider service delivery model emerges which impacts health plan networks, referral patterns and reimbursement models.

Source: Deloitte Consulting LLP

Scenario 2: Business Diversification The rise of health outcome management expands the revenue stream for health plans beyond premium dollars.

Scenarios of Uncertainty

Scenario 3: Health Wealth Convergence New entrants to the health plan market led by a proliferation of non-traditional and niche players provide HSA/HRA funding/products to consumers.

Scenario 4: Consumerism and the Uninsured Consumerism and CDHP models become a dominant trend in the marketplace.

In the pages that follow, we discuss these five scenarios, delving into potential optimal responses for health plans, containing both core and contingent strategic elements for each scenario. It is our hope that this paper will serve as a catalyst for health plans in all markets to adopt a new perspective on strategic planning for the complex and uncertain health care environment.

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Why Strategic Flexibility is Important to U.S. Health Plans How can health plan executives approach strategic planning in a way that serves current competitive needs and prepares for a range of possible futures given the uncertainty and number of potential market disruptions? Certainly, dynamic structural, technological and regulatory changes make conventional planning processes and financial decisionmaking tools such as net present value (NPV) and internal rate of return (IRR) less effective than before. If the future turns out differently than health plans have planned, they might need to mitigate strategic risk and position their organizations to exploit other emerging opportunities. To do this, organizations should create strategic flexibility by identifying options that can be exercised or abandoned depending on how those uncertainties unfold. Such an approach requires health plan senior management to know (1) which options to take; (2) how much to invest in these options; (3) how to manage the options over time; and (4) when and how to exercise or abandon these options while directing the corresponding actions of the functional/operational units within the health plan. In a lesson learned from outside the health care industry, global insurance company Royal & SunAlliance (R&SA) demonstrated Strategic Flexibility by investing in multiple options. R&SA recognized that it needed different business models as unique opportunities presented themselves in the various countries in which it operates. However, a core competency of the company is to share knowledge and spread costs across locations. R&SA created shared services for multiple country locations to reduce the administrative cost of the global organization. R&SA’s ability to scale its investment in a country up or down as circumstances changed enabled the company to withdraw from Taiwan, a market that did not live up to expectations, while profitably executing ventures in other developing markets.7 In the health care industry, Johnson & Johnson (J&J) found a way to preserve the benefits of constraints – those limitations every organization faces around resources, structure, and strategy which can actually help to sharpen strategic focus – while using its corporate venture capital arm, Johnson & Johnson Development Corporation (JJDC), to transcend the constraints and manage strategic uncertainty faced by J&J’s operating divisions. JJDC created and manages a portfolio of options and alternative strategies for J&J’s operating companies that evaluates combinations of ideas and products from different operating companies to identify new products and markets for the organization. JJDC’s output enables the larger J&J organization to determine when to exercise potential options in advantageous market conditions. A similar approach could allow other companies with high-risk, high-return strategies to change their strategic stance as needed, in an effort to improve overall corporate performance and lower overall corporate risk.8

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Applying Strategic Flexibility to Scenario Planning Why should health plan executives build scenarios and use them as input to create real options for their strategic planning process? Scenarios capture the range of plausible future conditions or outcomes within which a health plan might have to operate. Since health plans cannot predict the future, they must instead use forward-looking methodologies such as scenario-based planning to understand the range of outcomes tomorrow might hold. At the C-suite level, the challenge is to build a portfolio of options – an optimal strategy for each of the possible outcomes – and to analyze those strategies to determine their core and contingent elements. This iterative process creates the strategic foundation and strategic options necessary for the health plan’s functional areas to attain true Strategic Flexibility. The following scenarios outline the core strategic elements for various health plan market segments, as these will likely be the minimum requirements for health plans to remain competitive in the foreseeable future, as well as provide examples of contingent strategic elements. These scenarios may be validated by identifying real-world corporate strategies that match a health plan’s likely response if it believes that a particular scenario is, in fact, imminent. Health plans that demonstrate this Strategic Flexibility should not only be able to cope with future uncertainty, but also exploit it.

Since health plans cannot predict the future, they must instead use forward-looking methodologies such as scenario-based planning in order to understand the range of outcomes tomorrow might hold.

“Strategic Flexibility in the Financial Services Industry: Creating competitive advantage out of competitive turbulence,” Deloitte Research, 2001 The Strategy Paradox, 2007

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The Growth & Innovation Imperative Scenario 1: Extreme Health Plan Consolidation “The Cheese Stands Alone” In response to a not-too-distant future in which the nation’s five largest health plans control nearly 70 percent of the insured market, smaller, independent health plans should consider beginning now to focus on identifying and strengthening local and regional advantages to build and sustain membership. In 1995, the 10 largest health plans controlled just 27 percent of the U.S. market. By 2005, their share grew to more than 50 percent. WellPoint, one of the industry’s primary consolidators, anticipates that consolidation will reach 70 percent in the next 10 years.9 Together, the Blues plans and the three largest, national, non-Blues carriers control more than 60 percent of the market in 34 states, serving one in three Americans.10 Regional nonprofit HMOs remain strongest in the states where they launched three decades ago (California, Minnesota, Massachusetts and Oregon). Only in three states do the three largest health plans control less than 50 percent of the total enrollment.11 We expect health plan consolidation to continue, with consolidation activity outpacing new commercial entrants. It is almost a foregone conclusion that in the future, the top 10 plans will control the bulk of the market and a myriad of small plans will carve-up what remains into niche businesses.

The View From Wall Street “[When we look at further consolidation in the health care industry]…integration is what is happening…they are all saying the same thing. There has been a total commoditization of the business…the benefit of integration in terms of scale is outweighed by the detriment of the lack of innovation.” - Christine Arnold, Wall Street Analyst12 Health care premium increases continue to grow and outstrip the medical cost trend, so health plans have realized some profits; however, organic growth is becoming more difficult to achieve. Health plans cannot keep increasing premium rates and new memberships are slowing. For now, Wall Street appears to be convinced that a rational pricing environment will persist. Opportunities relating to the government sector, the uninsured, and new service models help to offset the risk of pricing pressures and stagnant membership in traditional product offerings. Wall Street also appears to believe that acquisitions and further consolidation will continue to drive accretion through synergies and expanded revenue opportunities. Anticipated Merger and Acquisition Trends With fewer acquisition targets, the industry saw a decrease in largescale consolidation activity in 2006. However, industry-wide, we anticipate that the frequency of deals will remain strong in the near term, although they will be driven by different factors for national and regional plans. National health plan merger and acquisition (M&A) activity has shifted away from commercial group plan consolidation to “tuckin” transactions that provide quick entry into relatively underserved markets or expansion into new vertical segments. Additional M&A activity around specialty, ancillary and government products is likely in the immediate future. Mergers among regional plans are expected to continue, as these plans search for economies of scale to combat unit cost advantages that national health plans enjoy. BCBS plan consolidation likely will correlate with the level of individual state budget pressures. The biggest limiting factor may prove to be a lack of acquisition targets.

Deutsche Bank, July 24, 2006 S&P Managed Care Survey 2006 “Consolidation And The Transformation Of Competition In Health Insurance,” James C Robinson, Health Affairs – Volume 23, Number 6, 2004 12 11th Annual Wall Street Comes to Washington Conference, Conference Transcript, June 21, 2006 9

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Further industry consolidation is expected as small local plans continue to be purchased by the dominant carriers. Regional, investor-owned health plans could be acquisition targets, offering national carriers increased enrollment and further reducing the potential for price competition. UnitedHealth Group’s acquisitions of Mid Atlantic Medical Services and Oxford Health Plans are two such examples in the mid-Atlantic and New York markets, respectively.13 This activity may foreshadow acquisition efforts targeted at mid-size plans elsewhere. In fact, investment bankers have developed scenarios and price estimates for the acquisition of the remaining regional plans, including Coventry Health Care and Humana.14 Recent bidding wars between CVS and Express Scripts over Caremark also may spur potential M&A activities between health plans and Pharmacy Benefits Managers (PBMs).15 Large Blues plans also may consider a move to non-Blues, further complicating the M&A landscape.

Consolidation Fallout and Opportunities On a cautionary note, there are some potential legislative and market developments that might slow future health plan consolidation activity. For example, the historical backlash against HMO business practices could prompt increased legislative scrutiny of this new wave of consolidation. In addition, increased regulatory pressure to adopt common data standards could create further integration complexity for market participants as they strive to build consistent and transparent data across multiple systems and IT platforms. Also, higher barriers to entry could stifle innovation and limit the rate of new product introductions, an outcome analogous to other insurance markets. Finally, the potential of local job losses due to health plan consolidation and premium increases may prompt state and local government intervention and limit transactions involving the purchase of small local plans. Fortunately, health plans can expect several benefits to emerge from continued consolidation activity. As the number of health plans is further reduced, pricing power likely will shift in favor of the remaining players. We expect to see additional benefits such as increased shareholder value, traditional economies of scale, technology benefits

Combining Specialty and Traditional Offerings With future market conditions remaining highly uncertain, health plans should consider building contingent elements that can be easily exercised when a particular market condition prevails. One health plan serving the Medicaid market believes that a combination of specialty services and traditional insurance products will be the key differentiator in serving state Medicaid organizations. Through acquisition of specialty vendors in disease management, vision, and PBM, this particular health plan stands to capture significant Medicaid market share if its vision becomes reality.16 through economies of code as organizations take advantage of the notion of “write once, run anywhere,” as well as product diversification and differentiation. Ultimately, the most significant results will likely come from those plans that effectively manage profitability by adhering to underwriting controls and margins in their core medical business and devising innovative strategies to achieve revenue growth in other areas. While contingent elements are difficult to generalize across specific health plan segments, strengthening core elements should be the focus of all health plans, regardless of the level or pace of future consolidation. We propose investments in the following core elements: • Large national plans: Look beyond acquisition as merely a means to expand membership. Make strategic acquisitions to develop capabilities in growth products and services (e.g., consumeroriented products, Medicare Advantage, Medical Management) while striving to lower administrative costs. • Regional plans: Focus on using a combination of partnerships and acquisitions to gain scale and acquire the necessary capabilities to create local-oriented, value-added member services. Dependent on local market conditions, regional players can seek appropriate partnership opportunities to potentially better leverage their unique local market advantages.

Standard & Poor’s Industry Survey, Managed Care “Mergers Will Benefit Buyers and Sellers,” Boorady et al, 2004 http://www.forbes.com/markets/2007/01/08/caremark-cvs-express-markets-equity-cx_jl_0108markets01.html 16 Managed Care Industry Primer, Deutsche Bank, 2006; http://www.centene.com/corporate/whatwedo (2007) 13 14 15

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The Growth & Innovation Imperative Scenario 2: Business Diversification “Pet Insurance, Anyone?” Much as convergence in web, mobile and fixed-line technology has driven revenue growth and reshaped competition in the telecommunications industry, innovation that transforms fragmented health information into integrated, actionable health intelligence promises to reshape competition in the U.S. health care delivery system and create new revenue opportunities for health plans. Technology integration is just one of the business diversification options health plans should consider as they look to jump-start revenue generation in an era of stagnating premium growth. A pressing challenge facing health plan CEOs is to discover new revenue opportunities, given slower membership growth, tightening profit margins from traditional medical insurance businesses and fewer attractive acquisition opportunities. Increasing revenue in such a restrictive environment requires health plans to deploy new and innovative strategies. For large national plans, new business opportunities need to continue to satisfy Wall Street expectations, as measured by year-over-year annual growth rates. Opportunities to move into dental and PBM businesses may allow these plans to take advantage of their existing capabilities and customer base by facilitating cross-selling within a captive audience. In addition to leveraging their customer base, large health plans also can extend core operational capabilities to serve other stakeholders in the health care delivery system. For example, through Ingenix, UnitedHealth Group acquired Claredi, an e-commerce software vendor, to provide integrated technology services to providers. By doing so, UnitedHealth Group expanded its Health Benefits Technology offerings for providers, health plans and other health care technology vendors and created value for participants in the health care delivery system:17 • Providers can benefit from lower claims administration costs, lower accounts receivable balances, reduced contractual underpayments, decreased denials and reduced health plan/provider disputes. • Health Plans can better manage processes beyond the transmission and acceptance of claims, increase auto-adjudication rates, reduce claim rejection rates, improve claims accuracy and decrease claims processing costs. • Health Care Technology Vendors (e.g., Ingenix) are able to develop additional services such as clean-claim capabilities, health planspecific edits and reimbursement management in an open network.

Managed Care Industry Primer 2006 – Deutsche Bank Personal interview by the authors, March 8, 2007 Blue Cross and Blue Shield Association, BluePrint for Health Care Support Program, http://www.bcbs.com/innovations/ blueworks/provider/blueprint-for-health-care.html 20 http://www.businessworld.in/sep1503/indepth_bpo.asp, http://www.planmanites.com/health-care.html 17 18 19

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“For us to be successful, we need to not just innovate but also evolve our core business model strategically to the marketplace and help enable the integration of adjacent businesses. Diversification is not in and of itself that compelling of a strategy - particularly in health care - other than serving as a potential alternative source of revenue. The most desirable adjacent market opportunity is one that accentuates and strengthens the core business and provides tangible incremental value to the customer.” - Kenny Klepper, President and COO, Medco18 Unlike the large national health plans, regional plans may not be able to compete in the same alternative business lines due to geographical constraints. Some regional organizations have strived to enhance member value-added services by improving the effectiveness of their disease management programs. For example, Blue Cross and Blue Shield of Minnesota took its traditional disease management program one step further by creating the BluePrint for Health Care Support Program, which integrates disease management programs for all appropriate conditions and widens the range of member population eligibility.19

Focus Investments on Value-Added Services To focus limited resources on investments that have the potential to dramatically impact member welfare, an increasing number of plans (of all sizes) are leveraging Business Process Outsourcing (BPO) to further reduce costs and provide better service. The health care BPO market in general is expected to grow to over $4.5 billion in 2008, with more than 60 percent of health care organizations expected to continue using outsourcing services.20 Blue Cross and Blue Shield of South Carolina has already captured a share of this growing market by leveraging its business processing core competencies. The company has major contracts with several of the nation’s larger health care companies and the federal government to provide “back office” support, particularly in the area of claims processing. With one of the largest data centers in the country, BCBSSC has both the capacity and capability to process all types of claims — health, including PPO, HMO and Medicare Advantage (PFFS, HMO and PPO), dental and vision. BCBSSC is also a major contractor in the government health arena, providing claims processing and other administrative services for Medicare, TRICARE and the Federal


Employee Program. In addition to its processing prowess, BCBSSC also supports self-insured employers, third party administrators and other insurers in the administration of COBRA, consumer-directed health plans, flexible spending accounts, health savings accounts and health reimbursement arrangements. BCBSSC can even provide fast start-up of customer service call centers.21

“The challenge facing regional plans is to discover creative ways to identify value-added, member-centric services. What keeps me up at night is ‘How will my company continue to innovate in order to sustain our success?’”

- Cleve Killingsworth, CEO, Blue Cross and Blue Shield of Massachusetts22

Long-term care (LTC), another potential diversification play, can be an attractive option for both national and regional plans. Twenty percent of Americans are estimated to be over the age of 65 by 2030, yet only one percent of nurses are currently certified to provide geriatric care.23 This disequilibrium creates a market opportunity that should not be ignored. Niche players in this space have developed effective business models that demonstrate up to a 45 percent reduction in hospitalization through their LTC programs.24 These companies have expanded into different geographic locations by working jointly with state governments to serve the Medicare and Medicaid population.

Regardless of the chosen path to sustained revenue growth, health plans of all sizes should build core capabilities to master the management of their single largest asset – member health information. Much as Financial Services Institutions (FSIs) use customer data to provide personal financial advisory services, health plans should leverage existing health benefits data to provide members with meaningful health care advisory services. In addition, we suggest that health plans consider the following strategies: • Large national plans: To develop a diversified revenue stream, leverage an existing customer base to create critical mass among a captive audience for new product offerings. Partnering and acquiring informatics capabilities could be valuable in creating value-added services for members. • Regional plans: Core strategies should focus on creating and demonstrating value-added services for members. Also, consider making specific investments (e.g., LTC) based on local market conditions and receptiveness of local government and employer groups.

Identifying Alternative Revenue Streams As health plan executives look to identify new sources of revenue, there are a number of considerations they might need to make: What is the most efficient and effective way to prepare for business diversification? Will dental and PBM opportunities provide sustainable revenue increases? What role will technology developments play? Should they leverage their current capabilities and expand into other insurance products, such as pet insurance? Will the effort to discover alternative revenue streams further shift the focus from core administrative services to a “member health advocate” model?

Standalone Company Creates New Revenue Stream A suggested near-term contingent strategy for health plans is to make small investments in a diverse set of business opportunities and build-up contingent capabilities that can capitalize on market changes. For example, Aetna in 2005 acquired ActiveHealth, a well known medical and data analytics vendor.25 As a standalone company, ActiveHealth created an alternative revenue stream for Aetna. In addition, Aetna is well positioned to gain a large share of the growing medical informatics services market as demand increases from other plans, employer groups, and federal and state agencies.

Personal interviews by the authors, October 3, 2007 Personal interview by the authors, February 1, 2007 U.S. Census Bureau, 2005 24 Robert Kane report, University of Minnesota, reported in Journal of American Geriatrics Society, October 2003 25 http://www.aetna.com/news/2005/pr_20050513.htm 21 22 23

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The Growth & Innovation Imperative Scenario 3: Health/Wealth Convergence “Who Invited Them?” Non-traditional and niche players are proliferating in the health care insurance market, prompting the need for health plans to develop flexible, modular businesses and technologies to address this emerging competitive threat. However, by forging relationships with other niche players, such as FSIs, health plans can retain current members and attract new ones. Health plans traditionally have served as the intermediary between providers and their patients, trying to manage the behavior of both parties. Historically, this role has not gained either party’s trust, particularly that of the patient, who also is a health plan member. With more experience acquiring and maintaining customer loyalty, some FSIs are exploiting this frequent health plan weakness to gain an entrée into the health care market. The superior wealth-management capabilities of large banks and investment management firms, coupled with an increase in consumer health care purchasing power and the slowly growing penetration of CDHPs featuring Health Savings Accounts (HSAs) and/or Healthcare Reimbursement Accounts (HRAs), create opportunities for nontraditional players such as FSIs to attract business from health plans. The convergence of health care and financial services is being driven largely by shifts in health care funding and a change in the health plan’s role from the “payor” to the “health advocate” for its members, which is creating demand for the types of advisory capabilities most FSIs have mastered. Aging baby boomers also are creating new opportunities for both health plans and FSIs as they look to combine retirement health benefits planning and funding with wealth accumulation strategies.

The Race Is On for Consumer Health Care Financing Dollars The market size for funding mechanisms such as HRAs and HSAs is significant and still growing. With the increasing total out-of-pocket payments, individual consumers are taking on additional responsibility for managing their health and health care expenditures through HRAs and HSAs, producing a strong incentive for FSIs to enter this space.26 Health plans may need to evaluate their ability to become HSA custodians to capture their share of the associated revenues. At a minimum, health plans should negotiate for a portion of HSA-related fees — projected to top $1 billion in 2012 — as they establish strategic partnerships to service HSA accounts for their members.27

“Convergence is here. Most people believe the convergence of health care and financial services is being driven by the shifts in health care funding and the move toward more defined contribution products. We believe it is the aging of the baby boomer population and the need to plan and fund retirement health benefits alongside wealth accumulation strategies. The issue is that the market and public policy have yet to catch up.” – Guy Patton, Former Executive Director, The Fidelity Research Institute28 Other new entrants in the non-traditional plan market, especially niche product suppliers, are collaborating with FSIs to take advantage of their superior customer service and wealth management capabilities, as well as specialized skills such as developing pricing models, underwriting, risk management, product design, and understanding and navigating government regulations. An example is the partnership between Assurant Health, which creates specialized health insurance products, and State Farm, which sells the products directly to consumers.29 Through partnerships such as this, costs can be underwritten and consumers can be empowered through direct access to preventive and disease management services via niche vendors.

“By the Numbers,” Modern Healthcare, December 2006 Market Overview. Forrester Research, March 7, 2005 28 Personal interview by the authors, February 5, 2007 29 http://findarticles.com/p/articles/mi.mOEIN/IS_2004_July_6ai_n6096044 26 27

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FSIs appear well-positioned to win the race for consumer health care financing dollars. Because of their deep advisory capabilities, FSIs historically have done a better job as a customer advocate than health plans. Credit unions, for example, have demonstrated that strong advocates win the loyalty of their customers. With the advent of HSAs and CDHPs, retail banks and investment firms — particularly those that are HSA administrators — have begun to supply an array of products and tools to support consumer health care financing.


Fidelity Investments is one example of an FSI that has seen rapid adoption of HSAs due to strategic realignment and effective collaboration. In response, Fidelity is launching an HSA product – a tax-free account that complements high-deductible health plans and provides administrative support tools for employers and decision support tools for consumers. The combined strength of Fidelity’s financial tools and breadth of WebMD’s health care tools offer formidable personal health care finance tools for consumers.30

Financial services institutions are lacking certain capabilities that health plans should have but too often do not know how to leverage. For example, FSIs do not have a platform to offer health benefit advisement services. They also lack historical and other data to predict future consumption. Health plans should decide whether to capitalize on these existing capabilities and embrace consumer advisory opportunities or adopt a wait-and-see attitude.

To stay in the race, health plans should consider developing competitive offerings that establish them as advocates to help consumers navigate the complex health care decisions they face. Health plans have spent the past few years developing online tools to help members research and manage their medical conditions, and compare drug cost and quality. However, as CDHP enrollment continues to grow and consumers bear more of the health care cost burden, they increasingly may require financial as well as medical advice.

How do health plans convert the threat of health/wealth convergence into an opportunity? To remain relevant to consumers in the face of increasing incursion by FSIs, health plans – regardless of market segment – should turn their attention to building the core element of advocacy skills. To get started they should:

Applying Lessons Learned from FSIs As health plans reevaluate and redefine their role in the marketplace amid increasing, non-traditional competition, they could apply lessons learned from similar situations faced by banks and other FSIs. As these organizations were examining their competitive options – aggregator, customer gateway, transaction specialist, product specialist – industry disaggregation occurred and third-party, niche players emerged in the form of pure-play credit card companies. Today, using debit cards or credit cards for health care spending is no longer a new concept. Through the repurchase of credit card companies by the very banks that started them, FSIs are building capabilities to extend their reach into health care and are positioned to make a significant impact. As FSIs contemplate future strategic options, they may consider an alliance or acquisition of a health plan; they may choose to “go it alone” and target the individual market; or they may enter through a small, predictable subset of the market, such as a PBM.

UnitedHealth Group Positioned to Compete with Financial Institutions To properly gauge the impact of potential future disruption from FSIs, health plans also need to consider their contingent capabilities. Through Exante Bank, a banking subsidiary serving HSA accounts, UnitedHealth Group has gained valuable insights into its members’ behavior related to HSAs and CDHPs.31 Exante Bank provides UnitedHealth Group the ability to sense the market and to understand the changing dynamics of customer behavior. This capability positions UnitedHealth Group to compete with likely FSI entrants, who traditionally have done a better job at understanding their customers’ behavior.

Converting a Threat into an Opportunity

• Make prices transparent. Contract provisions usually prevent health plans from publishing provider-specific discounted rates. Health plans should, at a minimum, post a range of realistic innetwork and out-of-network rates for the most common types of physician visits to help consumers budget their health care expenses. • Simplify member communications. Industry jargon obscures health plan communications with members. Health plans should simplify member communications such as Explanation of Benefits (EOBs) by avoiding complex terms and providing clear explanations. • Develop financial decision-making tools and pair them with new advisory service offerings. Health plans and HSA administrators offer HSA calculators that help consumers determine how much to deposit in their annual HSAs and anticipated tax savings but can’t answer more immediate personal health care finance questions. Health plans may want to invest in the development of online decision support tools to help consumers answer these types of questions before financial leaders such as Citigroup and Fidelity Investments beat them to it.32 The race to provide financial and health care advisory services to members also could require large national plans and regional plans to consider other core elements: • Large national plans: Develop underwriting capabilities for HSA/HRA products while acquiring consumer-oriented, financial decisionmaking tools and advisory services and assisting members to assess health care provider quality. • Regional plans: Focus core strategies on seamless delivery/ integration of core operations and consider partnering with regional and local FSIs to offer financial decision-making tools.

Fidelity’s New Health Savings Accounts Challenge Health Plans’ Customer Loyalty, January 3, 2006 Managed Care Industry Primer 2006 – Deutsche Bank 32 The Race for Personal Health Care Finance, Forrester Research, August 2005 30 31

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The Growth & Innovation Imperative Scenario 4: Consumerism and the Uninsured “Let’s Go Shopping!” As the nation grapples with the issues of health care consumerism and coverage for the uninsured, health plans should be poised to differentiate in a potentially explosive retail-oriented health insurance market. While consumerism in general is on the rise, actual CDHP adoption rates have been slow. As of October 2005, only one percent of the privately insured population between the ages of 21 and 64 was enrolled in CDHPs that have an HRA or HSA.33 Another nine percent of the demographic groups were enrolled in high-deductible health plans that are HSA-eligible, but they did not take advantage of this feature. Critics worry that higher out-of-pocket expenses will prevent many participants, especially those with low incomes and chronic diseases, from getting needed treatment. They further maintain that such plans, while favorable to employers that want to reduce health care costs, are less beneficial to employees and do not address financing difficulties that the poor and the lower middle-class will experience. While the debate over CDHPs’ benefits continues, employer interest in these plans is growing. According to a 2006 survey by the Deloitte Center for Health Solutions, more than 70 percent of large employer respondents said they are considering replacing traditional health plans with CDHPs in the next five years.34 Their decision is based, in part, on potential cost savings: According to the survey, CDHPs experienced the lowest premium cost increase among all plan types in 2006, with an average 2.6 percent increase in CDHP premium versus upwards of eight percent for other plans. Consumerism and the promise of a more retail-oriented market for health care services and insurance is attracting the interest of both health plans and non-traditional players. For example, after introducing retail health clinics to provide simple, fast, and convenient treatment at 25 percent of the cost of a traditional office visit, Wal-Mart announced it will provide generic prescriptions at $4 per prescription, extending its retail model to the prescription drug market.35 With traditional pharmacy transactions costing up to 50 percent of total health care costs, Wal-Mart’s move into the prescription drug sector creates a disruption requiring a health plan response.36 Both national and regional plans need to leverage their existing pharmacy and medical management capabilities to better serve individual consumers and tackle the threat of low-end disruption by “big retail.”

“The rise in retail health clinics is a good thing for the health care industry, which has an opportunity to create behavioral change in members who seek appropriate care earlier on.” - Ray McCaskey, CEO, Health Care Service Corporation37 Employee Benefit Research Institute, December 2005 34 “Reducing Corporate Health Care Cost 2006 Survey,” Human Capital Practice of Deloitte Consulting LLP and the Deloitte Center for Health Solutions, 2006 35 “Could walk-in retail clinics help slow rising health costs?,” USA Today, August 24, 2006 36 Standard & Poor’s Industry Survey: Managed Care, March 2006 37 Personal interview by the authors, December 18, 2006 38 Personal interview by the authors, March 8, 2007 33

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The Need for Product and Service Innovation In addition to attracting non-traditional players to the market, health care consumerism is disrupting traditional broker-employer or health plan-employer relationships. Conventional sales and marketing channels focused on promoting products to employers via brokers or account managers are no longer effective when individual consumers become the decision makers.

“From a pure consumer or patient point of view, there is a fundamental lack of integration across the array of touch points they must access to secure, manage and finance their care. The key to success with member engagement is to rethink traditional customer service approaches entirely. We believe it’s about creating and maximizing the value of teachable moments and consistently delivering a superior customer experience so that from a consumer’s perspective they’ve gotten what they need, when they need it, in the format they want it. This then becomes the foundation on which you build and sustain a trust-based lifetime relationship with the customer.” - Kenny Klepper, President and COO, Medco38 In a CDHP world, consumer decisions related to product selection are often guided by cost/benefit trade-off analyses of physicians’ abilities to perform specific treatments and deliver quality outcomes. This has led to an increased need for available tools and data that help facilitate consumer purchasing decisions. One new market entrant has taken advantage of this need by offering transparent and comprehensive data to guide consumption of health care via an integrated comparison-shopping portal. The site allows users to select providers based on geography, specialty and average length of experience, in addition to allowing users to search for reviews of all selected physicians. Facing an increase in consumer empowerment, many health plans are dedicating resources to developing innovative products and services that provide value for stakeholders beyond the typical employer group to differentiate and remain competitive. These offerings should extend beyond simply pushing web-based tools and technologies to consumers to encouraging consumers to make informed choices about personal health management.


The Uninsured: An Untapped Market Opportunity In addition to other trends in health care consumerism that necessitate product and service innovation, the industry is increasingly focused on providing coverage for America’s 46 million uninsured individuals, a huge potential market for health plans. Recently, UnitedHealth Group established the Center for Affordable Consumer Health to target this segment.39 WellPoint also has introduced plans targeting the uninsured population.40 These “limited benefit” or “mini-medical” plans will create a low-end health benefit product for the uninsured that provides coverage for basic health care services without coverage for catastrophic events. The increasing numbers of U.S. working uninsured are key targets for the in-store health clinics and “big retail” discounters offering health services that closely resemble the retail experiences consumers are already used to: affordable and relatively transparent prices, convenient locations and recognizable brands. At face value, the propagation of in-store health clinics makes both geographic and economic sense: These retailers already are located in close proximity to and serving the low-to-middle income consumers who are most likely to have foregone necessary health care due to prohibitive costs. How well health plans can adjust to the notion of retail health clinics and the needs of the uninsured population using existing capabilities will be a key factor for achieving results in this expanding market segment. Already, agile adopters such as Aetna are addressing the trend by expanding network coverage to allow access to retail clinics.41

The Next Chess Move?

In addition to developing new products and capabilities, health plans can emphasize on better serving existing members. As plans continue to focus on disease management and health advocacy capabilities, some organizations have diversified into web-based media channels to reach their members. WellPoint’s strategic collaboration with WebMD Health in 2005, for example enabled WellPoint members to access online health information products provided by an experienced Internet content provider.43 To customize the information for its members, WellPoint also partnered with another company to develop technology to help its members make more informed health care decisions.44 The rise of consumerism requires health plans of all sizes to develop core capabilities to assist consumers in making informed purchasing decisions and managing their health care dollars much as they currently do with personal wealth. • Large national plans: Focus core strategies on developing a flexible, scalable and modular information architecture that can support product needs from employers and individual consumers, and on developing consumer tools with accurate and transparent pricing/ quality metrics to facilitate choice. Develop CDHP models with effective sales and marketing channels to serve the needs of the targeted consumer (including the uninsured market). Leverage price, first-mover advantage and customer-facing technologies for the individual market. • Regional plans: Focus core strategies on product development and targeting the niche uninsured market, leveraging local relationships and consumer marketing tactics.

Facing new competitors who are trying to capture the consumer-driven segment of the health care market, incumbent health plans may need to develop “shop-and-compare” capabilities – whether organically or through acquisition – to demonstrate focus on the individual member’s needs. With no emerging model for health plans, both acquisitions and organic growth are used to acquire contingent capabilities.

Acquisitions Bolster Capabilities As exemplified by UnitedHealth Group’s purchase of Definity Health and WellPoint’s acquisition of Lumenos, large national health plans are using strategic acquisitions to quickly build up technology capabilities to anticipate a rise in their book of CDHP business.42

Standard & Poor’s Industry Survey: Managed Care – March 2006 Managed Care Industry Primer 2006 – Deutsche Bank “The Secret’s Out: Aetna Members Gain Access to Care Price, Quality Data,” Washington Post, August 23, 2006 42 Standard & Poor’s Industry Survey: Managed Care – March 2006; 2) Managed Care Industry Primer 2006 – Deutsche Bank 43 media.corporate-ir.net/media_files/irol/18/189524/2005/07_15_2005.pdf 44 Managed Care Industry Primer 2006 – Deutsche Bank, Factiva 39 40 41

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The Growth & Innovation Imperative Scenario 5: Provider Disruption “Over-the-Counter and Offshore?” As pay-for-performance and other quality-related initiatives enter the mainstream, health plans may need to consider investments in non-traditional care delivery options (e.g., offshore breakthrough medicine, walk-in clinics at large retailers, virtual/telemedicine) to continue lowering costs while improving quality of care. The issue of clinical-outcome information quality and transparency is at the center of a continuing debate between providers and health plans. While plans believe that a focus on quality will reduce the overuse, under-use, and misuse of medical treatments that have contributed to an annual 98,000 U.S. deaths and one million injuries, providers continue to contend that the current payment system is the true barrier to delivering quality care.45 Providers believe that a focus on quality of care without a commonly recognized standard makes it difficult to collect and compare consistent data, and will only result in more administrative costs – further squeezing already slim profit margins. Therefore, most providers that are piloting clinical quality initiatives prefer investments that can show immediate cost and quality results and are channeling their investments into dedicated Centers of Excellence. At the core of the quality and transparency debate is Pay-forPerformance (P4P) or value-based purchasing programs for hospitals and physicians. With Congress requiring and backing moves by CMS to tie Medicare payment levels to quality measures for hospitals and physicians, P4P seems to be part of a value-based purchasing agenda that was promoted through the Medicare Modernization Act of 2003 (MMA) and further endorsed in congressional debate in 2005.46 Transparency of provider quality data will continue to be an issue for health plans until P4P gains traction at the state or national level, with CMS taking a bigger role.47

“[CMS is] seeing that pay for performance works…We are seeing increased quality of care for patients, which will mean fewer costly complications – exactly what we should be paying for in Medicare.” - Mark McClellan, former CMS administrator48

“Promoting Physician Adoption of Advanced Clinical Information Systems,” Deloitte Center for Health Solutions “Paying for Performance, A Call for Quality Health Care,” Deloitte Center for Health Solutions 49 The Secret’s Out: Aetna Members Gain Access to Care Price, Quality Data,” Washington Post, August 22, 2006 45

46, 47, 48

14

Changes from P4P Appear Inevitable While P4P appears to be a growing and significant aspect of the health care delivery system, there is still some uncertainty as to how dominant a trend it will become. A number of questions remain, such as: Will P4P evolve into a reward and penalty program? How will providers have to change to address the challenges created by P4P? And, how will this provider change impact the contractual reimbursement structure for health plans? Regardless of the answers to these specific questions, changes for providers – and how they collaborate with health plans to provide data on outcomes and quality measures – appear to be inevitable. Changes from P4P are also expected to impact life sciences organizations, which could have residual impact on health plans. These organizations may need to increase the use and number of measures to track and market drug efficiency and effectiveness, with the goal of improving health outcomes and upgrading patient safety. Health plans, in turn, could adjust their formularies using the newly available efficiency and effectiveness data to offer efficacious, yet cost-effective, drugs and innovative clinical practices to their members. Note also that an increased emphasis on efficacy, safety, and cost effectiveness may herald a future drug portfolio that shifts to more specialized products, versus the current blockbuster approach. In addition to P4P initiatives, competition from non-traditional players such as Wal-Mart and its retail health clinics is increasing the need for traditional provider organizations to work with health plans to demonstrate value and high-quality outcomes to consumers and their health plan sponsors. Already, some national health plans are testing programs to change the way they work with their providers. Aetna, for example, has launched a pilot program to provide online price and quality data for its Washington D.C.-area network.49


Other Emerging Trends Another nascent trend in the provider space is medical tourism. With costs soaring and a shortage of qualified hospital staff across the U.S., patients increasingly are seeking medical treatment abroad as a popular cost-saving alternative. In the U.S., a hip replacement can cost 25-40 percent more than the same procedure conducted in an overseas facility, including travel and hotel costs. With its simplified administrative and insurance processes, the cost of conducting procedures in an overseas facility can have a substantial, positive financial impact on the patient. In a similar vein, telemedicine is becoming a closely watched field, with teleradiology solutions, eVisits, and telediagnosis services just three of many enterprises in the field. Currently, U.S. radiologists spend 70 percent of their time acting as an imaging consultant and 30 percent writing radiology reports. By outsourcing the task of report writing, U.S. radiologists often can decrease costs and focus more on the role of imaging consultant, providing added value to their patients.

Capitalizing on Technology-driven Disruptions Teleradiology and eVisits are only the beginning of a larger technology-driven disruption in the U.S. health care delivery model. Digital medicine may become an important future trend as wireless and web-enabled technologies provide cheaper, faster, more accurate, and more convenient exchange of health information among providers, members, and their health plans. It is difficult to predict when such a future will arrive and its exact impact on health plans, but health plans such as Blue Cross and Blue Shield of Massachusetts are investing in ePrescribing and other eHealth initiatives as contingent elements that will allow them to leap-frog competition in an emerging digital health care system.50

50

In an environment where employers and consumers are demanding more for less, medical tourism, telemedicine and other technology-driven disruptions offer attractive options for people who require expensive surgery and procedures but do not want to be limited by their health care insurance policies. Changes in provider organizations offer health plans new opportunities to expand their networks to include quality, low-cost facilities in the U.S. and abroad. Additionally, Clinical Information Systems (CIS) adoption not only reduces the rate of medical errors, it helps providers comply with health plans’ demands for consistent and highquality care. Finally, disruptions and innovations in the provider space may prompt health plans to re-think contractual arrangements with providers. Trends on the care delivery side present a huge incentive – if not mandate – for health plans to develop member decision support tools and advisory services on provider quality and outcomes. Also, possible changes in network configuration and provider contracting may require health plans to build the following core strategic elements: • Large national plans: As bargaining power shifts to the health plans, consider tying specific incentive payments to quality clinical outcomes in provider contracts and the network. A new, tiered provider structure may be realistic, with a national network of provider Centers of Excellence. • Regional plans: Develop the ability to build specialty service Centers of Excellence by leveraging local provider networks. This can be a competitive differentiator in local markets.

Personal interview by the authors, February 2007

15


What’s Your Next Move? Regardless of an individual health plan’s current market and operating position, we expect several unavoidable drivers of uncertainty to potentially have a universal impact in the coming years: • Since 2001, inflation has increased 17 percent and wages 19 percent; health care premium costs, by contrast, have increased 78 percent in the same period.51 The implications for health plans could be significant as employers shift more costs to employees and consumers are required to assume greater financial responsibility for their health care expenses. • The uninsured population is growing by one to two million people annually; as of 2006, 15.8 percent of U.S. citizens are without health insurance. 52 Increasing government involvement at the federal and state level in response to this issue could have significant implications as health plans scramble to mobilize to address new regulations. • While 60 percent of employers continue to offer health insurance – including 45 percent of small employers – these percentages continue to drop at significant rates annually. More troubling is the fact that more than 50 percent of all employers intend to increase out-of-pocket costs next year. 53 These developments could further swell the ranks of uninsured Americans. These sobering market trends create a new imperative for health plans to formulate strategies that include definitive, yet flexible investment choices for growth and innovation. Strategic Flexibility offers a potential solution to this dilemma. Strategic Flexibility is a way for health plans to effectively embrace uncertainty as part of the planning process without abandoning the benefits of making a commitment. It can help executives to better prepare for a range of plausible, albeit unpredictable, tomorrows rather than being forced to commit to one specific version of the future.

Sobering market trends create a new imperative for health plans to formulate strategies that include definitive, yet flexible investment choices for growth and innovation.

51,52,53

16

Kaiser Family Foundation, Employer Health Benefits 2007 Annual Survey

Already, Strategic Flexibility appears to have yielded important insights for the health plan industry: • Health plans appear to be poised to have a major impact on the continued restructuring of the health care delivery system. • Highly efficient operations will likely be a fundamental requirement to reduce the cost of doing business. • The ability to achieve growth in underserved markets should offer a competitive advantage. • Pursuit of a larger share of the consumer wallet will likely require re-segmentation of the existing customer base and targeted discretionary spending. Outcome-based revenue opportunities appear to exist for the integrated health manager. Strategic Flexibility offers a rational alternative to agility. It can help executives to realize the benefits of commitment without relinquishing the ability to respond to change. It involves choosing commitments that can be nurtured, adjusted, or abandoned. With Strategic Flexibility, health plans no longer need to presume an unknowable future. Instead, they can better position themselves to compete effectively no matter what the future holds.


Authors William Copeland Jr. Principal Deloitte Consulting LLP Tel: +1 215 446 3440 Email: bcopeland@deloitte.com Diane Davies Principal Deloitte Consulting LLP Tel: +1 213 688 4734 Email: didavies@deloitte.com Erin Reuss-Hannafin Principal Deloitte Consulting LLP Tel: +1 212 436 4422 Email: ereusshannafin@deloitte.com

Acknowledgements We’d like to recognize the many individuals across Deloitte & Touche USA LLP and the industry at large who contributed their foresights, insights and support to this project, including:

Steve Birchard, Principal, Deloitte Consulting LLP Chris Brandt, Principal, Deloitte Consulting LLP Mike Canning, Principal, Deloitte Consulting LLP Anne Claussen, Manager, Deloitte Consulting LLP Mark Hopkins, Principal, Deloitte Consulting LLP Mark Lockwood, Senior Manager, Deloitte Consulting LLP Dave Rosenblum, Principal, Deloitte Consulting LLP Greg Scott, Principal, Deloitte Consulting LLP John West, Principal, Deloitte Consulting LLP Jim Zhu, Senior Consultant, Deloitte Consulting LLP

17


Item# 7412 This publication contains general information only and is based on the experiences of Deloitte Consulting LLP practitioners. Deloitte Consulting LLP is not, by means of this publication, rendering business, financial, investment, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte Consulting LLP, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this publication.

About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms, and their respective subsidiaries and affiliates. Deloitte Touche Tohmatsu is an organization of member firms around the world devoted to excellence in providing professional services and advice, focused on client service through a global strategy executed locally in over 140 countries. With access to the deep intellectual capital of approximately 150,000 people worldwide, Deloitte delivers services in four professional areas — audit, tax, consulting, and financial advisory services — and serves more than 80 percent of the world’s largest companies, as well as large national enterprises, public institutions, locally important clients, and successful, fast-growing global companies. Services are not provided by the Deloitte Touche Tohmatsu Verein, and, for regulatory and other reasons, certain member firms do not provide services in all four professional areas. As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms has any liability for each other’s acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names “Deloitte,” “Deloitte & Touche,” “Deloitte Touche Tohmatsu,” or other related names. In the United States, Deloitte & Touche USA LLP is the U.S. member firm of Deloitte Touche Tohmatsu and services are provided by the subsidiaries of Deloitte & Touche USA LLP (Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Financial Advisory Services LLP, Deloitte Tax LLP, and their subsidiaries), and not by Deloitte & Touche USA LLP. The subsidiaries of the U.S. member firm are among the nation’s leading professional services firms, providing audit, tax, consulting, and financial advisory services through nearly 40,000 people in more than 90 cities. Known as employers of choice for innovative human resources programs, they are dedicated to helping their clients and their people excel. For more information, please visit the U.S. member firm’s Web site at www.deloitte.com. Copyright © 2007 Deloitte Development LLC. All rights reserved.

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Health Plans  

William Copeland Jr. Principal Deloitte Consulting LLP National Managing Director, Life Sciences & Health Care Practice We believe the...

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