Xuber's Zeki Tezer discusses global innovations in health insurance.
The health insurance industry is central to any nation's economy. However, as change becomes the new norm for the global health care sector, the implications for products and services, costs, and innovation in the market are worth a closer look.
The health insurance ecosystem has undergone a dramatic and fundamental shift in business in the last five years, fuelled by a perfect storm of rising medical costs, the era of the digital natives and state retrenchment in the provision of healthcare.
According to a recent report from Deloitte - 2016 Global healthcare outlook; Battling costs while improving care - these dynamics are also exacerbated by aging and growing populations; the proliferation of chronic diseases; heightened focus on care quality and value; evolving financial and quality regulations; informed and empowered consumers; and innovative treatments and technologies.
All of which are leading to rising health costs and an increase in spending levels for care provision, infrastructure improvements, and technology innovations.
Meanwhile, pressures to reduce costs, increase efficiency, and demonstrate value will continue to intensify.
Global health costs
The Economist Intelligence Unit (EIU) projected that global health care spending will increase by an average of 4.3% during 2015-2019 - more slowly than it did before the 2009 recession, according to Deloitte.
Average spending as a percentage of GDP is expected to decline from a forecasted 10.3% in 2015 to 10.1% in 2019.
This means that healthcare costs are increasing for both insurers and individuals. Increased life expectancy - up from an estimated 72.3 years in 2014 to 73.3 years in 2019 - will bring the number of people aged 65+ worldwide to over 604 million, or 10.8% of the total global population, according to Deloitte.
Unfortunately, health quality is not keeping pace with longevity, nor is the development of age appropriate health policies and services.
Healthcare is one of the largest industries in the world, at close to 10% of global GDP and governments fund much of its operations.
However, governments are struggling in challenging economic environments to devote the necessary funding to handle expanding and expensive healthcare demands.
Rising costs are coupled with an added difficulty of pressures on budgeting - and healthcare is no longer immune from government cuts.
In the UK, the NHS is seen as being in terminal decline, while the US is experiencing a number of challenges with the Affordable Care Act (better known as ObamaCare), with United Healthcare threatening to pull out from exchanges in 2017.
This has resulted in an increase in the burden on health insurers to fill that gap. However, health insurers are under their own pressures.
The wider health care market is going through a period of defragmentation. We have seen heightened M&A activity and also a merging of supply chains - with providers almost becoming health insurers in their own right.
Even hospitals are merging with each other to form large health organisations that can leverage economies of scale to negotiate through the constant economic and regulatory pressures.
The sector is also seeing a rise in independent risk-sharing schemes and government organisations looking beyond their traditional health care models for new and modern ways to manage and deliver care.
This integrated ecosystem has put further pressure on health insurers - especially those that do not fundamentally understand their core data set, compared to these newly merged health care entities who now boast compelling data networks that can help improve care quality and pricing.
A major part of the drive to embrace technology in the health insurance sector is the impact of the millennials, the internet and how the population now interacts.
Today's consumers are now more informed and involved in their health care decisions. They also have higher expectations for the services and products they receive - looking for Apple or Amazon-like customer service experiences - a ‘digital health' attitude if you like.
Changing consumer attitudes and behaviours have prompted investment in new and expanded mechanisms to better engage with customers - for example, data captured by wearable devices, mobile applications, integrated mobile health apps or social media, are all being used to transform aspects of health care.
Some 62% of respondents to Deloitte's 2015 Survey of US Health Care Consumers feel comfortable consulting with a provider via email or phone; 52% of consumers would like access to technology that enables review of quality and satisfaction rankings; and 36% of consumers have no concerns about using mobile technology to pay their medical bills, compared with 23 percent that have done so in the past year.
A key theme we are seeing is health insurers becoming less of organisations that simply pay claims and more of health managers because it is in their interests to manage the health of their customers.
Rather than waiting for claims to happen, they are more interactive with their clients. These insurers are very interested in having a dialogue with their customers about their health and their lifestyles and will try to engage with them through things like questionnaires.
What we are also seeing are new entrants that are disrupting the established order, by using technological advances to grow, address and take advantage of these new market dynamics to avoid becoming outdated and ineffective.
Lessons from a start-up
Take Oscar Health Insurance, a New York-based start-up. The way Oscar competes with the established markets is pretty straightforward: customers in New York and New Jersey can buy their coverage from the marketplaces created by Obamacare. What Oscar is doing is not particularly revolutionary.
Their website and marketing is slicker than the competition and they are targeting a younger digitally-savvy audience. The fact that these customers are very comfortable doing everything online and that they are less prone to disease than older people, allows Oscar to keep their costs down.
Other examples include Discovery in South Africa or Vitality in the UK, with their model of ‘life managing', which effectively means they are trying to manage the health and well-being of an insured person.
They are not just providing insurance, but rewarding customers with lower premiums if they are healthy - for example, using a mobile health app to record the number of steps taken in a day, or simply joining a gym.
This is where the market is increasingly moving towards: insurers gradually integrating that wealth of information from individual consumers into an insurance perspective.
The combination of data and analytics is now the key for health insurers to tap into new sources of value, particularly against a backdrop of shrinking margins, tightening budgets, and evolving payment models. Analytics can assist with the transitions in how health providers are expected to deliver care and how customers want to receive it.
As more data becomes available from sources like electronic health records, claims, medical devices, and patients, analytics can help with personalised patient care and more effective payment methods. The Deloitte report backs up, noting: "In the future, such insights are likely to play a major role in helping health systems improve costs and quality, identify at-risk populations, connect with consumers, and better understand performance".
One of the major challenges for insurers who are become health managers is how do they manage to integrate all these different data systems?
They talk about having a 360 degree view of their customers but how do they bring it all together so that they can make truly informed insurance decisions? A lot of people talk about it, but very few are actually executing that vision. In addition, the industry needs to share information a lot more - not just between providers, but between health professionals and insurance providers.
The challenge for health insurers is to take on board the lessons from these other industries and begin to adapt to the new normal or face a challenge from a Netflix, Spotify or Uber. We are still at the early days of the cycle, but the signals are clear, we are seeing venture capital focus on health technology, the growing role of the consumer, new market entrants and perhaps most importantly data driven business models.
For health insurers to move forward and innovate, they need to utilise all available forms of data and use that in a more integrated way.
It is no longer just about providing health insurance, but actually managing the end-to-end chain. It's now about the health and wellbeing of a consumer and providing a tailored cover that suits the needs of that individual.
Zeki Tezer is VP Health Practice at Xuber
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