BIG DATA, ANALYTICS AND THE EMERGING
HEALTH INSURANCE MARKET
Thought Leadership Series
Insurance & Wealth Management
Insurance & W 2 ealth Management
The future of Healthcare Reform promises big changes, uncertainties and new challenges for health insurers, providers and customers. Although some final details and rules of healthcare reform legislation (HCR) are still to be determined, modified or clarified, as the market evolves, certain new realities are likely to remain, affecting the way health organizations operate and interact with consumers.
Key HCR provisions, such as the formation of insurance exchanges, significant underwriting limitations, pricing limitations and the individual mandate will not only generate new markets, but also increase challenges for insurers and their provider networks. Although it is not certain that 2014 will bring immediate impacts on the insurance market, with the Obama administration in place, attempts to make the HCR work will continue. And while some details, such as covered services, might be modified, a reversal of key provisions is unlikely. Health insurers in particular will need to revise long-standing business models to evolve from being business-to-business focused to becoming a consumer-centric organization. Therefore, most have already begun the process of rapidly adopting to anticipated post-HCR challenges and opportunities by putting necessary changes in place.
While the list of challenges is vast, most can be grouped into three recognizable management functions: costs control management, risk management and growth management. Among these, cost management may be the foundational challenge that will affect future success. It is expected that most standard health insurance products, especially on the health exchanges, will be focused on providing coverage through narrow provider networks that only cover mandated services. Products will be fairly commoditized and will present limited pricing power because of it. Barring the influence of brand and small network differences, an insurer’s ability to provide a competitive, yet profitable, price will drive most long term growth opportunities on the exchanges and potentially off-exchange as well. Pricing products competitively will be directly correlated with an insurer’s (and eventually the provider’s) costs management ability.
Closely related to cost containment will be the need to manage risks. With the restrictions on health underwriting and the
“take all comers” HCR requirements, insurance marketing departments will be challenged to leverage data and analytics to identify and acquire lower risk segments to balance out the high risk segments, which are inevitably going to be added to their books.
SHIV GUPTA | SENIOR DIRECTOR, MERKLE ANALYTICS | SHGUPTA@MERKLEINC.COM
1.877.9MERKLE | MERKLEINC.COM | © 2013 MERKLE INC.
Big Data, Analytics and the Emerging Health Insurance Market
Finally, managing and fostering growth will become a critical science for most insurers in this new, highly competitive world.
With distinct margin and medical loss ratio limitations in the HCR act, the ability to grow profitably over the long run will primarily be driven by top-line growth. Effective marketing and sales strategies will become a significant focus for those insurers looking to grow in the exchange markets.
However, effectively managing growth not only entails acquiring the right risks and understanding the effects of networks on adverse selection; it also requires a strong, data-driven foundation on which to build an efficient marketing organization focused on brand, direct marketing, customer experience and retention.
Figure 1: Analytics Funnel for Payor Operations
Table 1. Role of Analytics across Marketing Functions
Targeting & Risk
Targeting & Risk