Health Plans: Achieving High Performance in Uncertain Times

Unprecedented uncertainty in the health plan industry creates threats and opportunities for leaders. Despite obstacles, health plans can achieve high performance. The baseline step for all health plans is to fully reexamine their administrative and medical costs to drive significant near-term savings. Improving administrative and medical cost performance will enable health plans to compete in the present while investing for the future. Health care reform is likely to open up the largest untapped domestic market ever, but it will require capital and new capabilities to capture the opportunity.

These are uncertain times for sure, but the high-performance health plans of the future will be those that both aggressively address the near-term cost challenges and at the same time proactively invest to be well positioned to gain significant share from the emerging growth opportunities.

According to the US Bureau of Statistics, the number of unemployed persons has risen about 6 million over the past 12 months. With millions of American workers filing jobless claims, the traditional market for health plans is shrinking as employers cover fewer workers.

Small employers will continue to demand lower-cost plan options or they will have to drop coverage altogether. Increasingly, larger and self-insured groups will come to their insurers and ask for reductions in administrative service fees. Further, as President Obama follows through on his campaign promises related to Medicare Advantage, premiums to private insurers for Medicare beneficiaries will be reduced to help fund health care reform.

All the news is not bad however. As traditional markets and reimbursement levels weaken, the prospect of universal coverage opens up a possible new market of up to 46 million new customers, the majority of whom are likely to be covered via private health plans. This unprecedented opportunity for growth exceeds the market opportunity created when Medicare Part D was introduced.

But capturing the new market of the uninsured will require different strategies and robust retail capabilities that many health plans are not ready to provide. This new market segment brings with it unique utilization behaviors and health care needs that will require health plans to develop specific strategies to engage these consumers.

Passage of the economic stimulus package adds further uncertainty to the health plan environment. National investment in the implementation of health information technologies, like electronic medical records and health information exchanges, will change the way health care is delivered over a period of many years.

In the interim, health plans need to address the current uncertainties. Accenture sees significant opportunities for health plans to act now and improve their performance. Reducing their administrative and medical costs in the near term can help them meet their current market challenges and also help to fund investment to develop the capabilities required to win in a changing market.

Administrative Cost Performance
In the health insurance industry, administrative costs are commonly measured as a percentage of the overall premium cost. The increasing incidence of chronic conditions, combined with new, sophisticated treatments and drug therapies have driven double-digit increases in the cost of care.

Unfortunately the administrative cost ratio has largely kept up with that high rate of inflation instead of tracking more logically to the consumer or producer price indices. Not only does this administrative cost creep contribute to the affordability problem, it has also left health plans with higher fixed cost structures as the economy turned sharply downward.

Health plans can meet the challenges of these uncertain times and counter the trend in administrative costs by focusing their efforts on driving out costs and creating a more variable cost structure. A more variable cost structure will enable them to shift resources from lagging products and segments to those that are growing.

Reduce Medical Cost Trend
Ongoing medical cost inflation, the current position in the underwriting cycle and downward pressures on commercial membership all combine to add further urgency to managing near-term medical costs.

With large-scale, government-subsidized investment in health information technologies through the federal stimulus package, the potential to capture medical cost savings and improve the quality of care has never looked brighter. But those advances will take years to accomplish, and health plans need to act aggressively to find and achieve more medical cost savings now.

Health plan care management teams can deliver tactical savings by sharpening their ability to apply a data-driven approach to identify and act on specific pockets of overuse and misuse of the medical delivery system. Using data to be more focused on high-impact areas will allow staff to address more of the population. Across client engagements, Accenture has helped clients achieve 3 to 5 percent per member per month medical cost savings.

Develop Capabilities For a Potentially Large, New Market
As mechanisms for covering the uninsured are devised, health plans will need capital and also the ability to respond to the new market. While the timing and structure are not yet certain, the potential of universal coverage offers health plans a tremendous opportunity to expand their business, but only if they are prepared to serve a different set of populations.

Depending on how universal coverage is rolled out, health plans are likely to face a direct sell of up to 25 to 30 million new prospects out of the overall uninsured population of 46 million. The remaining portion of the uninsured is likely to obtain coverage through Medicare, Medicaid, or the Children’s Health Insurance Program.

This new addressable market will come with a widely varying set of needs and circumstances, from lower income, chronically ill consumers to wealthy, healthy consumers who previously have exhibited little interest in purchasing health insurance. Customer segments among these newly insured will likely be far more diverse than health plans currently address in their employer-based coverage market.