Only half of the story – why payers should focus more on the consumer, but not at the expense of their attention to employers

by Torsten Bernewitz

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Since the Affordable Care Act was signed into law last year, there has been a lot of discussion that the health insurance industry will shift from a business-to-business market to a business-to-consumer model.

The reason is that consumers are expected to take a much more prominent role in health insurance choices. More individuals will enter the market through the individual mandate of the law. They will be better informed and they will have a market place that facilitates comparison-shopping.  Engaging consumers effectively will also be critical in influencing behaviors to help manage outcomes, which in turn is an important element in containing medical costs.

Consequently, industry analysts and consulting firms (e.g., BCG), investment groups (e.g., Psilos) and service providers (e.g., Connecture) talk about the “imperative” of sweeping changes in channels, technology, and partnership strategies to move to toward consumer-oriented business models.

They are probably right – healthcare “consumers” are becoming more important, and it will be necessary to find better ways to engage with them. In fact, better interactions with the end-customer might have served the industry well all along, even before the new law. However, they are only half right, and risk missing the other part of the story, which is just as important. We shouldn’t give up on employers as key customers just yet. Here’s why:

First of all, the numbers do not really support the hypothesis of a full transformation to a business-to-consumer approach. Today, about 145 million people in the US enjoy employer-sponsored health coverage, which is 56% of all insured, and 89% of the non-government market. Even in the very aggressive scenario that 30-40% of the people currently covered by ESI would move to the individual market, this would still leave between 90 and 100 million people insured through their employers, probably more if we factor in population and payroll growth. This is still 60% of the non-government market.

In the perhaps more likely scenario that only up to 10% of ESI covered people move to the exchanges, 130 million will be in the employer market – 80% of the non-government market and still a segment that is larger than Medicare and Medicaid taken together.

Thus, the employer market will continue to matter, and falling head-over-heels in love with the consumer – if it is at the expense the employers segment - would be a strategic mistake.

This does not mean, however, that the employers business will remain at the status quo (there is more discussion of the potential changes in the employers market in this post: http://payer-strategies.blogspot.com/2011/10/to-drop-or-not-to-drop-that-is-not.html).

Employers are rethinking their health benefit strategies. Depending on specific conditions like size, hiring and retention goals, labor market conditions etc., employers’ priorities and benefit strategies will change and diverge significantly.  Health insurers must keep the pulse on their evolving needs, create stronger differentiation through products and services, tailor their offering, and become more impactful in bringing the value proposition across. In many cases this means that insurers must get much closer to employers than they currently are.

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Torsten Bernewitz is a healthcare industry analyst and management consultant.
He is Managing Principal, Healthcare Insurers and Payers at ZS Associates.

This post is the author’s own and does not necessarily represent ZS Associates’ positions, strategies or opinions.

Contact: torsten.bernewitz@zsassociates.com