Health Insurance Top 10 Issues ‘07

Health Insurance Top 10 Issues ‘07

What’s going to drive change in 2007? How are health plans positioning for the future? Here’s a look at the trends shaping health insurance this coming year.

Technology From cybercondriacs to genomics, healthcare technology will be a huge force. With over 120 million people online searching for health information, the customer has embraced technology! For health plans, integrated benefit card technology promises a new era of administrative efficiency.

Differentiatio n Health insurance products have become indistinguishable. Going head-to-head with competitors means rising above this “sea of sameness”. Differentiation will come from unique brand positioning that connects with customers and has competitive muscle.

Boomers America’s 78 million baby boomers are expected to live longer than any generation this country has ever seen. They are educated, tech savvy and convenience driven. From empty nesters to Medicare, boomers are a growing opportunity for health insurers.

Consumerism “Proof-of-concept” will take center stage in 2007 as health plans justify Consumer Driven Healthcare investments. Employers are expecting premium savings and at the same time employees are suffering deductible shock and benefit intimidation.

Distribution Detailed customer profiles, psych-demographic data and predictive modeling are making multiple sales channels a competitive necessity. The result is improved product awareness and a one-on-one customer relationship that turns into sales growth.

Lifestyle Half of Americans now believe it is fair for people with unhealthy lifestyles to pay higher insurance premiums, deductibles and co-pays. New and innovative lifestyle management programs are embracing wellness and prevention and rewarding members to get healthy.

Individuals As employer-based health insurance shrinks and the uninsured population grows, the individual health insurance market is booming. Products need to be tailored to unique purchaser needs, striking the right balance between benefits, affordability and insurability.

Convergence Health insurers own banks and banks have healthcare business units. Financial planners are integrating benefits into long-term asset protection, and health brokers are weighing tax implications of HSAs. Today’s healthcare consumers are tomorrow’s payers.

Communication Customers are demanding information in user-friendly, readily accessible formats. Communications need to reflect demographic segmentation. It will take a new mix of strategies to ensure that companies are reaching their target customer.

Healthcare Concierge medicine, hospitalists, intensivists, retail clinics and medical tourism are changing health care delivery. Spending on prescription drugs will surge and employers will continue to cut back on sponsoring health benefits.

This year promises to be challenging. Smart health plan executives will set themselves up to anticipate market change, refine strategic vision and capture new market opportunities.


Health literacy: do we have the mantra right? (Part 1 of 2)

Health literacy: do we have the mantra right? (Part 1 of 2)

The Mantra

“Health literacy is increasing; consumers are becoming more sophisticated.”

This statement supports the textbook definition of health literacy: the ability to obtain and use health information and services. Unfortunately, patients’ motivation to (1) cultivate and (2) utilize that capacity is often missing from both the definition and reality.

In what other consumer behavior would we overlook the fact that action requires both motivation and capacity? Walk into any car dealership and you’ll see how quickly the salesperson assesses your motivation, as distinguished from your capacity to act!

The Gap

Unlike literacy in general, which has clear utility in daily life, there are significant disincentives for health literacy, e.g. the potential consequences of a bad choice, the effort of making it, etc. It is also relatively easy to choose not to exercise health literacy, whereas it would be difficult to choose not to read more generally. Moreover, a plethora of choices is a natural rationale for denial and shutting down.

We’ve all experienced some version of health care hell, in which decisions:

o Had to be made while in physical and/or emotional pain

o Were only supported by information that was either over-simplified, or in a foreign language

o Were clearly a “choice between evils” and/or offered less than even odds of the most favorable outcome

Thus, choice is often less about empowerment (the movement to redefine CDHC as “patient-empowered care” notwithstanding) than necessity and hope. Everyone who seeks to influence health behavior should consider daily that information-seeking, care-seeking and self-treatment each carries significant emotional, physical and economic (including opportunity) costs. Though making one’s own decisions with appropriate support may be better than the alternatives, it is not the pain-free, no-muss event too often portrayed.

So the circular incentive presented for exercising health literacy (“take charge of your health”) may be less than persuasive when it comes to action. For many, including the uninsured, that directive entails time and/or money they don’t think they have, and/or appears to be a code word for increasing OOP costs.

With great power comes great responsibility. Health literacy can increase both, yet, often, neither is desired.

Next, some thoughts on alleviating the huge burden of health decision-making. Please leave a comment (with a URL if appropriate) to let everyone know what your organization is thinking and doing, as well.


The Relationship Between Premium Increases and Reform

The Relationship Between Premium Increases and Reform

Never mind that PriceWaterhouseCoopers recently issued a study indicating the medical costs increases that health plans bear will further decelerate for 2008. Hewitt Associates just issued projections that initial premium increases quoted by the plans to employers will spike upwards for 2008. If indeed premiums increases reverse the trend of the past four years and accelerate again, such movement will in turn accelerate reform initiatives and market changes.

Lets take a step back and look at the premium pricing and underwriting cycle. Under this historical model, plans are driven by cyclical market share and premium price competitive behavior. There are periods where premium increases are significant, then decline, and then rapidly increase again. Here’s how the cycle works:

  • During profitable periods: a) plans want to expand market share; b) they start to lower price to do so; c) other plans match lower prices to keep pace and not lose share; d) price wars similar to airline fare wars erupt and multi year contracts develop.
  • Then a downswing develops: a) due to insulation of provider contract capitation and discounts and the time lag on fee for service claims, considerable time elapses before financial pressures are fully visible from the lowered premiums; b) due to multi-year contracts and price pressures nothing much can be done about the problem as it becomes apparent.
  • A period of significant losses then occurs: finally enough of the market is losing money so that several major players break rank and begin increasing rates and everyone else follows suite.
  • Finally there is a return to profits: the premium increases continue until profits are being generated, and the cycle begins anew.

However, with the new century, health plan economic behavior appears to have changed to some degree:

  • Plans are now somewhat less driven by long-term market share
  • Plans are now somewhat more driven by short-term bottom line profitability
  • Plans are more willing to exit unprofitable markets and product lines
  • Plan consolidation has occurred due to closures of failing plans, market exits and acquisition of plans.
  • Premium competition has somewhat diminished because of all the above.

This doesn’t mean that the premium pricing cycle has disappeared. It does mean the down part of the cycle will be less pronounced due to reduced premium competition. Here’s how the cycle looks graphically:


Source: MCOL Managed Care Fact Sheets

Now let's correspond a little history of some major reform and market movements in the past twenty years to this premium increase graph. You will notice each of these major market movements correspond with shifts in the premium trends:

  1. PPO marketshare diminished, and HMOs became the mainstream employer health plan option in the late 1980s as the vehicle to address double digit rate increases nearing 20%
  2. HMO tight utilization controls, provider capitation arrangements and deeper discounted contracts rapidly increased in scope as HMOs gained marketshare clout in the first half of the 1990s, and health plans required cost savings to counter significant premium price competition. Pressure for health care reform erodes after 1993 as premium increases rapidly delerate.
  3. Significant Managed care backlash emerged from providers, media and consumers in the late 1990s, causing a relaxation of utilization controls, a very large reduction of capitation programs and reduction of provider discounts. PPO enrollment again accelerated due to the backlash, and premium increased as resulting costs increased.
  4. Consumer driven health plans and greater consumer cost sharing emerged with the new decade as cost increases reached double digit levels. the number of uninsured reach peak levels and pressures for reform increase.

So now plot the next points on the graphs fro 2008 - 2010. Will they continue downward or climb back upward. If they continue to decelerate, we would predict diminished enthusiasm for significant health care reform, and for movement to consumer driven plans. If they start accelerating, a fire should be lit under greater pressures for reform, as well as consumer driven programs. Of course, the reform movement and consumer driven movement will most likely be at odds in the direction they intend to take us, but momentum they may both well have in that scenario.

So the question is, what happens next? Will health plans keep decelerating their premium increases, as the PwC medical cost study would cause us to believe, or will premium increases accelerate, as the Hewitt analysis indicates?

The PwC study: "Behind the numbers Healthcare cost trends for 2008" from the PricewaterhouseCoopers' Health Research Institute, released this June 2007 is available at The following is the PwC expected Medical Cost Trends for 2007 and 2008:

  2007 2008
PPOs 11.9% 9.9%
HMO/POS/EPO 11.8% 9.9%
Consumer Driven 10.7% 7.4%

The Hewitt Associates analysis can be reviewed in their June 28, 2007 press release "HMOs Propose Highest Rate Increases in Four Years, According to Hewitt Analysis" at . Overall, Hewitt projects these initial 2008 rates increases to average 14.1%, compared with 11.7% in 2007 and 12.4 % for 2006. How different are the final plan rates? Hewitt notes that after plan changes, negotiations and terminations, 2007 average HMO rates increased by 8.2%. If that same differential held for 2008, final 2008 rate increases would be around 9.9%, which if you round it, does bring us back to double digits even for the final numbers.

So, let's spin the premium rate wheel of fortune and see if we're headed into pressures for change or status quo as we inch along towards the election year.


Clive Riddle's Welcome

Greetings from BlogLand:

MCOL has launched the MCOLBlog, and I'm excited to be a part of it. Actually, we've been blogging to our MCOL paid members for years, but this inaugurates our public blog for all those in the universe wishing to take part in our discussion.

I will be commenting and reporting on a wide variety of topics regarding the business of health care. By way of background, I've been running MCOL, the B2B publisher of managed care and health care business information and resources for the past twelve years. Before that, I ran a regional health plan for over a decade.

In particular, I'll be addressing issues including consumer driven care, transparency, health care reform, strategies addressing plan design and costs, convenient care, international health care issues, Medicare and Medicaid managed care, and much more.

I look forward to your comments.


Lindsay Resnick's Welcome

As Chief Marketing Officer of Finelight, I lead business development and strategic advisory services. In this role, I make it a point to stay currenton health care trends and innovative approaches to marketing to insure our clients success in the competitive landscape.

I am excited to be a contributor to the MCOL Blog. With 25 years of professional experience in the health care and insurance industries, I will be discussing such topics as consumer directed health plans, product branding, Medicare, direct-to-consumer selling and how to achieve a dominant position in segmented markets such as young invincibles, boomers and seniors.

There is much to talk about. I encourage you to participate in the comments section as we work together to tackle these issues.

Thank you,
Lindsay Resnick