Health Plans Outlook 2014 February, 2014 BLOG POST
Multiple Factors Driving Industry “Downgrade”; However Growth Opportunities Still Persists In January 2014, Moody's changed the outlook for U.S. health insurers to negative from stable, citing continued uncertainty due to implementation of the Affordable Care Act (ACA). Moody's predicts reduced profit margins of 2 percent this year, compared with an average of 3 percent the previous year. Additionally, overall membership growth is expected to decline 1 percent from 3 percent in 2013. According to Moody’s, there are additional key concerns driving the downgrade of the health insurance industry, namely: Uncertainty over the demographics of those enrolling in individual products through the health insurance exchanges. Enrollment statistics show that only 24% of enrollees so far are aged 18-34, a critical group in ensuring that lower claim costs subsidize the higher claim costs of less healthy, older individuals. This is well short of the original 40% target based on the proportion of eligible people in this cohort. Challenging outlook for Medicaid business, as insurers are not able to pass on additional costs to consumers, and it remains to be seen whether states will permit insurers to factor in the assessment cost in determining Medicaid reimbursement rates.
Apart from these issues, there are other critical areas where payers might be impacted from revenue and margin perspectives: Missed enrollments: There are concerns over new enrollment opportunities through exchanges due to operational glitches and over estimation of these enrollments. The exchanges are supposed to add about 7 million new taxpayer-subsidized customers to private insurers’ membership rolls in 2014, however these operational issues have deterred about 1 million consumers from signing up for coverage, according to the Congressional Budget Office. Also, the actual number of enrollees is difficult to gauge due to the glitch-plagued rollout of federal health insurance websites. Medicare Reimbursement: Medicare has always been an area of concern for payers and will continue to be so in 2014 as the government sees lowering reimbursements as a way to manage its budget, despite an aging population that is increasingly dependent on Medicare. Additionally, greater scrutiny of reimbursement and even coverage issues going forward, may lead payers to reduce or reshape their networks. Payer-Provider relationships: With the advent of Accountable Care Organizations (ACOs) and focus on quality of care and outcomes, the payment relationship between payers and providers is likely to be strained further and put margin pressure on payers. Payers are seeking to exclude from their networks providers that they think are uncooperative, and providers with some market leverage are rejecting payment offers from plans that are viewed as unreasonable. Customer Management: Health insurers also face a major challenge with marketing to the new lot of potential consumers who are more information-driven, choice-conscious, and treatment outcome driven. Payers need to overhaul their traditional marketing campaigns to demonstrate to customers the value of their products, equip them to make informed insurance decisions and secure their commitment to improve their personal health. Health Plans Outlook 2014
Despite the looming challenges in 2014, there are several growth opportunities for payer organizations if they can adapt to changing trends and focus on driving enterprise-wide efficiency. Leveraging Analytics: Payers can invest in business analytics platforms to figure out the successful drivers of health outcomes and determine what worked and why. This will enable the organizations to create targeted products, improve margins, and work in collaboration with other stakeholders. In a survey conducted by IDC in mid-2013, 63 percent of health plans stated that analytics as their leading investment driver, behind other priorities such as replacing outdated technology and new IT due to growth. Retail-focused Selling: Consumers will be buying more healthcare services directly due to the ACA's federal exchanges. According to Forbes, approximately 25 percent of Americans are expected to buy individual exchange plans by the end of the decade. As a result, insurers are adapting the retail model to reach out to customer. For example, Blue Cross Blue Shield of North Carolina is opening half a dozen retail storefronts to pitch its exchange offerings and educate North Carolinians - uninsured and otherwise - about how the exchange works. Market Personalization: Digital personalized newsletters are particularly appropriate for health payers in 2014. Digital newsletters continue to be highly effective for healthcare and insurance industries with an open rate of 32.2% and 43.7% respectively according to MailChimp, a leading email service provider. The digital communication piece offers an ideal way to build relationships and engagement with healthcare customers regardless of changes in the landscape of the industry. This allows an organization to market new services and products immediately to those who would be most interested in them thus facilitating an effective segmentation and marketing approach.
In a nutshell, the biggest challenge for health plans in 2014 is adapting to changes resulting from the Affordable Care Act, especially with respect to health insurance exchanges and Medicaid expansion, effective Jan 1. In 2014, health Plans will need to make course corrections to their business models and operating strategies and will increasingly need to leverage analytics to ensure they are meeting financial goals, reaching their target segment, and optimizing pricing.
Health Plans Outlook 2014