7 steps How to prevent Thalassemia : Dr Sharda Jain & Vandana Gupta
Future of health insurance
1. Perspective Gary D. Ahlquist
Paolo F. Borromeo
Sanjay B. Saxena, MD
The Future of
Health Insurance
Demise of Employer-
Sponsored Coverage
Greatly Exaggerated
2. Contact Information
Chicago San Francisco
Gary D. Ahlquist Paolo F. Borromeo
Senior Partner Principal
+1-312-578-4708 +1-415-627-3387
gary.ahlquist@booz.com paolo.borromeo@booz.com
Ashish Kaura Sanjay B. Saxena, MD
Principal Principal
+1-312-578-4838 +1-415-263-3729
ashish.kaura@booz.com sanjay.saxena@booz.com
New York
Gil Irwin
Partner
+1-212-551-6548
gil.irwin@booz.com
Joyjit Saha Choudhury
Principal
+1-212-551-6871
joyjit.sahachoudhury@booz.com
Booz & Company
3. EXECUTIVE In the United States, the new healthcare reform law empha-
sizes expanded coverage through health insurance exchanges,
SUMMARY
leading many analysts to project a rapid decline in the tradi-
tional employer-sponsored insurance market. But a time of
more ambiguous change is approaching, with new opportuni-
ties as well as many challenges. Booz & Company research
suggests that traditional employer-based insurance will
remain a significant market that will erode more slowly and
less steeply than commonly thought. Our analyses indicate
that employers, though concerned about rising premiums, are
unlikely to abandon employer-based health plans and force
workers to find coverage on exchanges. Some small employers
may do so, but the majority will continue to offer coverage
for a variety of reasons ranging from a sense of moral respon-
sibility to the need to attract and retain talent.
As health insurers respond to the (employer group) market to a more
evolving healthcare environment, retail-like market and the emergence
they must tend their core employer- of relatively focused health plans with
based business to secure the margins specialized capabilities that target
and cash flow needed to develop and customer segments more coherently.
enhance new capabilities that will In the future, companies will evolve
help them adapt. They must also toward one of four primary business
take a proactive role in working with models, including low-cost standard
employers and brokers to innovate plans and highly diversified compa-
and provide value that will sustain the nies. Depending on the customer,
group market. insurers may adopt any one of a
range of approaches and capabilities.
Historically, health plans have Ultimately, employer-sponsored plans
maintained a broad presence across will serve as the foundation for insur-
customer segments. Going forward ers’ future growth no matter how
we anticipate a shift from a wholesale healthcare reform shakes out.
Booz & Company 1
4. MASSIVE is recognition that Republicans in
Congress and, perhaps more impor-
extensive research to understand the
evolving needs of employers and how
UNCERTAINTY tant, in governors’ offices around the they are likely to respond to the new
AHEAD FOR nation could seriously undermine,
slow, or whittle away at the law.
law. We interviewed more than 150
executives and managers at employ-
HEALTH ers across sizes, industries, and
INSURERS Nonetheless, no matter what hap-
pens next, some permanent disrup-
regions; association members; and
policy experts. We also conducted
tive changes will take place in the employer focus groups and surveys to
U.S. healthcare system as a result of gather additional input from nearly
the passage of the Patient Protection 300 small and large employers. In
and Affordable Care Act (PPACA). particular, we conducted in-depth
Heinz
While the new law puts a strong studies of employers in Massachusetts
PepsiCo
The healthcare industry is entering emphasis on making healthcare more and Utah, two states where reform
Kimberly-Clark
a period of even greater uncertainty, accessible, many provisions—such as efforts, most notably around health
driven by regulatory, political, and small-business tax credits, employer insurance exchanges, resemble the
Nestlé
economic unknowns (see Exhibit 1). “pay-or-play” penalties, and health system called for by the federal health
The results of Bubble = Revenue
Size
of the 2010 midterm elec- insurance exchanges—are spurring reform legislation. Finally, we inte-
tions have made it much more diffi- significant debate over the viability of grated these inputs into a proprietary
60 cult to discern the pace and extent of
80 100 the private health insurance industry, model incorporating health plan
oherencefuture healthcare reform. The legisla-
Score particularly the employer-sponsored premium data and estimates of likely
tion is not likely to be undone, given (or group) insurance market segment. consumer and employer decision-
Democrats’ veto-proof hold on the making behavior, to evaluate the eco-
Senate and the public popularity of In late 2010 and early 2011, nomic impact of various scenarios.
most reform elements. However, there Booz & Company conducted
Exhibit 1
Drivers of Post-Reform Uncertainty
- 2010 elections: What will be the impact of a divided Congress?
- How much will political polarization impede implementation?
- 2012 election: Will President Obama be reelected? If not, what happens to reform?
Political Uncertainty
- How will federal and state
- Will there be unprecedented shifts regulators interpret the newly
in healthcare industry profit pools? passed legislation?
- Will there be a potentially massive - Will there be state (and federal?)
impact on health plan business Legislative/
Economic MASSIVE rate caps on insurers (as in
model and profits? Regulatory
Uncertainty UNCERTAINTY Massachusetts and Maine)?
Uncertainty
- Is it time to make “big bets” on - To what extent can stakeholders
repositioning? influence this?
- Is it time to save capital and - Can health plans reposition their
financial strength to navigate image, given criticism by
turbulence? legislators/regulators?
Stakeholder Response Uncertainty
- How will key organizations in each stakeholder group respond to reform?
- How will industry dynamics change across stakeholder groups?
- Will there be shifts in roles in the healthcare value chain (e.g., who manages risk)?
Source: Booz & Company
2 Booz & Company
5. - Is it time to make “big bets” on
Kraft Foods Heinz PepsiCo repositioning?
Kimberly-Clark - Is it time to save capital and
financial strength to navigate
ConAgra turbulence?
Foods Nestlé
Unilever
Size of Bubble = Revenue
Sara Lee
A SIZABLE Unlike many prognostications fore-
casting rapid decline in the employer-
enrolled through company health org
- How will key
benefit programs. By 2016, when
- How will industry
0 20 40 60
EMPLOYER
80 100
sponsored insurance market, our most of the major reform Will there be shif
- provisions
GROUP MARKET research suggests that employer
groups will remain a significant cus-
are scheduled to be implemented,
employer-sponsored insurance
POST-REFORM tomer segment for health insurance will still constitute more than 50
plans. Today, employer-sponsored percent of the market, with 152
insurance makes up 62 percent million members enrolled in group
of the insured market, with 158 plans (see Exhibit 2). Indeed, even
million employees and dependents in Massachusetts, where health-
National Membership Mix Shift with Reform
Exhibit 2
Projected Membership Shifts, 2009-2016
NATIONAL MEMBERSHIP MIX SHIFT WITH REFORM
(IN MILLIONS OF INDIVIDUALS)
2009 CAGR: ’09-’16 2016
20
-10%
Uninsured 40
61
6%
Medicaid 41
Medicare 2% 42
37 4
Other Public 3
Individual 16 8% 27
Small Group 33 -4% 25
(<50 employees)
Midsized/Large Group 56 0% 56
(50-1,000 employees)
Jumbo Group 69 1% 71
(1,000+ employees)
2009 2016 w/Reform
Notes: Does not include illegal immigrants. Uninsured estimates from CBO, and employer estimates from Booz & Company intellectual capital. Aggregation may not
sum to total U.S. population.
Source: Kaiser Employer Health Benefits 2009; Census 2007; Congressional Budget Office; Booz & Company analysis
Booz & Company 3
6. care reform was enacted in 2006, through new health insurance to participate in the exchange will
employer group coverage programs exchanges, and the remainder will switch from the group market. Some
continue to make up 64 percent of enroll in existing employer group observers expect that the introduc-
the health insurance market, down plans. tion of exchanges and significant fed-
only three percentage points since eral subsidies for individuals (earning
reform went into effect. The eventual size and long-term as much as 400 percent of the federal
viability of the employer group poverty level) will lead a significant
More generally, healthcare reform market will be determined chiefly by number of businesses to “dump”
will unquestionably lead to a larger the success of new state and regional employees by dropping coverage or
overall market for health insurance. health exchanges. These will inevi- to “switch” them into employer-paid
Based on our scenario modeling, tably attract not only the uninsured, exchange plans.
nearly 25 million uninsured people but also some people currently cov-
will obtain coverage after 2016. The ered by employer-sponsored insur- Our research findings and simula-
majority, nearly 60 percent, will ance. There are open questions, such tion analysis reveal that only a small
enter a vastly expanded Medicaid as whether smaller employers (those portion of employers will do so. As
program, about 28 percent will with fewer than 50 workers initially, a result, we project that 5 million
get individual insurance primarily 100 eventually) that are eligible to 7 million individuals will exit
The eventual size and long-term
viability of the employer group market
will be determined chiefly by the
success of new health exchanges.
4 Booz & Company
7. the employer-sponsored insurance drop employee coverage. Yet our and jumbo-sized companies also
market by 2016. An estimated 3 feedback from extensive interviews report a moral obligation to retain
million to 4 million will be dumped with benefit managers, chief human employee health insurance coverage.
because firms decide to stop offering resource officers (CHROs), and chief
coverage, and 2 million to 3 mil- financial officers (CFOs) indicates Midsized Employers May Shift
lion small-group employees will be that larger employers will adopt a to Self-Insurance
switched. The overall propensity for long-term “wait and see” approach Midsized companies are also unlikely
employers to change coverage will be that is unlikely to result in significant to drop their current employee
low, and the velocity of change will dumping or switching. Similarly, the healthcare coverage, for many of
be rather slow. For the most part, vast majority of large employers in the same reasons as their larger
employers’ response to reform will be our Massachusetts employer survey counterparts. There is significant
guided by cost and other factors such plan to continue providing health interest among these employers in
as the potential risk to their reputa- insurance. Moreover, our economic moving from fully insured to self-
tion and their ability to attract and modeling suggests that employers funded products (where the employer
retain talent. that consider dropping coverage and assumes direct risk for paying
paying the associated penalty will healthcare claims), as most large and
Large and Jumbo Employers Unlikely need a significant cost–value differ- jumbo employers have progressively
to Drop Current Coverage ential to offset the risks to employee done over the past decade. The
Recent press coverage has high- morale and retention. Although some anticipated shift is primarily driven
lighted concerns about healthcare employers might save money by drop- by the desire to avoid costly reform
insurance raised by certain major ping coverage and paying penalties, provisions that introduce health
employers, including AT&T, Verizon, many report that the savings may insurer premium taxes and medical
Caterpillar, and McDonald’s: not be worth the potential downside. loss ratio constraints on fully insured
namely, that new regulations and Many large employers, particularly products, both of which insurers are
added costs would lead them to those with more than 500 workers, likely to pass on to employers in the
Booz & Company 5
8. form of higher rates. In addition, only a tiny portion of the group ees, because of the variance in
some midsized employer focus group market—are the most likely to wages, the number of subsidy-eligible
participants say self-insuring offers drop coverage altogether, leaving employees, and employee expecta-
greater flexibility and creativity in their employees to obtain insurance tions of healthcare benefits as a con-
areas such as benefit design, health through exchanges. Focus groups dition of employment. In principle,
and wellness incentives, and care suggest that—if exchanges offer a they may explore exchange products
management programs. Again, viable alternative—those microbusi- in hopes of reducing costs, but most
while most midsized employers seem nesses with relatively low average of them feel obliged to continue pro-
inclined to continue offering health wages and a high proportion of viding coverage for their employees
insurance, some companies, such as employees eligible for individual after 2014. Even among companies
a local 250-worker factory, a private subsidies will be the most tempted this size, massive exchange switch-
equity–owned firm, and a financially to drop coverage and direct employ- ing will not happen overnight. Focus
distressed business, are considering ees to purchase through exchanges. groups reveal that microgroups will
dropping coverage altogether. Indeed, membership in existing pri- closely evaluate the option to switch,
vate small-business exchanges indi- and even for today’s private small-
Smaller Firms Most Likely to cates that a large majority come from business exchanges, adoption has
Drop Coverage groups of fewer than 10 employees. been slow.
Microbusinesses—those with fewer Larger and well-established firms
than 10 employees, which represent have less incentive to dump employ-
Microbusinesses—those with fewer
than 10 employees—are most likely to
drop coverage, leaving their employees
to obtain insurance through exchanges.
6 Booz & Company
9. CHALLENGES TO magnitude of the impact will depend
on a given insurer’s book of busi-
Congressional Budget Office (CBO)
estimates of the future size of the
PROFITABILITY ness (see Exhibit 3). For instance, post-reform insured market are overly
insurers with more business in the optimistic, potentially overstating the
jumbo and government segments will 2016 insured market by as many as 7
see more stability. Conversely, those million individuals. A weak individual
catering primarily to the individual mandate (or no individual mandate,
and small-group markets will face if the Virginia court ruling is upheld
significant uncertainty as exchanges by the U.S. Supreme Court) will yield
Although the employer-sponsored are introduced. even lower enrollment levels. Finally,
group business is unlikely to erode federal reform legislation has intro-
as rapidly as widely predicted, health While reform provisions will result duced significant constraints, such as
reform will unequivocally diminish the in sizable membership growth in the minimum actuarial value thresholds,
financial viability of the health insur- Medicaid and individual markets, underwriting restrictions, and medical
ance industry. Indeed, every segment margins will be considerably lower loss ratio requirements, limiting how
will experience declining profitability than in the employer group busi- insurers can operate and profit from
between now and 2016, though the ness. Our analysis also indicates that their core health insurance business.
Will there be shif
Exhibit 3
Healthcare’s Bleak Outlook
EXPECTED MEMBERSHIP GROWTH AND CHANGE IN MARGIN
(2009-2016 PROJECTIONS, IN MILLIONS OF INDIVIDUALS)
10
8
6 Medicaid (61M)
Medicare (42M) Government
4
Expected Jumbo Group (71M) Individual/Small Group
Membership 2
Growth Midsized/Large/Jumbo Group
(% CAGR, 0
2009-2016)
NOT SHOWN:
-2 Small Group Non-Exchange (22M) Midsized/Large Group (56M)
Projected On-Exchange
Individual/Small Group
-4 Market (19M-22M)
-6
Individual Non-Exchange (10M)
-8
-3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0 0.5 1.0 1.5
Expected Change in Margin
(%, 2009-2016)
Source: Membership projections based on Booz & Company analysis; margin projections based on Goldman Sachs’ 10-Year Industry Model for Managed Care
and Booz & Company analysis
Booz & Company 7
10. STRATEGIC The movement to direct-to-consumer exchanges eventually shift employer
healthcare benefits may be slow, but group membership into a more
IMPLICATIONS it will also be persistent. Every insurer retail-like environment, health plans
FOR HEALTH will need to establish a new strategy will experience a steady erosion of
and capabilities system to accommo- their fully insured group business.
INSURERS date this shift. This will mean getting Uptake in the exchanges will likely be
used to a more retail environment, in gradual and vary by state, beginning
which exchanges increasingly allow with microgroup segments. As such,
consumers to “shop” for healthcare it is imperative for health plans to
plans in the same way that they cur- carefully manage their group business
rently shop for life insurance or other to ensure that it generates sufficient
financial services. margins and free cash flow to enable
reinvestment in the new capabilities
Managing the Core Employer that will be necessary to compete in
Group Business the post-reform era.
Overall, our research suggests that
health insurers have a longer runway As part of this transition from a
to derive benefits from their tra- wholesale (employer group) to retail
ditional employer group business market, health plans need to pursue
than some analysts have projected. a number of strategies. First, they
Nonetheless, as health insurance should take a more proactive role
Health insurers have a longer runway
to derive benefits from their traditional
employer group business than some
analysts have projected.
8 Booz & Company
11. in working with employers to help Second, health plans should partner could more directly advise companies,
sustain the viability of the group more closely with their key brokers a role traditionally held by benefit
market. Our research shows that most to jointly manage and support the consulting firms.
employers are aggressively looking for group business. While brokers can
alternative ways to manage costs, but expect volatility in the microbusiness Third, given the likely shift to self-
have not seen health plans as partners segment, larger companies are likely funded arrangements, particularly
in these efforts. It is up to the insurers to maintain their long-standing among midsized employers,
to give them reason to do so. relationships with brokers, whom health plans should introduce
they perceive as trusted advisors. more administrative-services-
Moving forward, the most success- Our research also suggests that, only (ASO) packages to serve this
ful insurers will be those that help given the complexity and importance segment. Today’s ASO products are
employers manage costs to increase of the health insurance purchasing characterized by a high degree of
affordability and enhance employee decision, health insurance brokers complexity and customization for
productivity. For instance, through will continue to provide a service large and jumbo employers. In the
more innovative payor–provider to companies by helping them sort future, as ASO moves downmarket,
collaboration and care management through the complexity to find value. greater standardization will be
programs, leading plans are already In this role, they will be more akin to required to profitably serve the new
engaging with employers to jointly real estate agents, who have retained groups. Finally, while the shift from
address costs. Others are design- a place in their industry, than to risk-based revenues (in fully insured
ing benefits for employers based on travel agents, who have been largely products) to fee-based revenues (in
a limited network of providers tied disintermediated by online solutions. ASO products) will have significant
to local accountable care organiza- Health insurers should redefine their financial implications, insurers should
tions (ACOs) with bonuses aligned to broker engagement strategy from develop complementary add-on
encourage member engagement. Plans today’s transaction-based model to offerings (e.g., specialty products,
will also need to work with employ- a strategic partnership model. For health and wellness, work-life
ers to co-design low-cost alternative example, top-performing brokers, services) to enhance their share
products that still adhere to standards armed with the proper incentives, of wallet.
laid out in the reform regulations. tools, and other support mechanisms,
Booz & Company 9
12. Rethinking the Traditional Health capabilities required to deliver services model. A company could also institute
Insurance Business Model to that market, and the full lineup of a hybrid of these various approaches,
Post-reform, health plans will need to products and services. This will rep- as long as the same system of a few
consider a number of important ques- resent a change for many companies. key capabilities were used to serve
tions with respect to their key capa- Historically, health plans and other all of its customers. If insurers take a
bilities and future business models, insurance companies have maintained more diversified path, they will need
including the following: a presence across as many customer to reconcile the cost and culture issues
segments as possible, marshaling sepa- that may arise in attempting to pursue
• What is the future role of the rate products and capabilities for each a hybrid model. For example, can the
health plan? Will it continue to if necessary. Going forward, they may new low-cost products needed to suc-
focus on administering health ben- feel compelled to serve fewer segments ceed in exchanges be supported on the
efits, or will it play a larger role in in a more coherent way, by focusing same higher-cost, flexible operating
enhancing medical value? on just one primary business model— chassis plans used for large or jumbo
or “way to play”—that applies to all accounts?
• What business models and capa- of their chosen customers. This will
bilities will be required to serve allow them to gain efficiencies and Low-cost standard plans will dif-
different target segments coherently invest more effectively by applying the ferentiate themselves based on retail
in the future? same system of capabilities to all their marketing, network management,
products and services. and price. Their capabilities will
• Given the need for critical new be retail excellence, low total cost,
capabilities, what steps can health There will be several viable business and regulatory relationship manage-
plans take to streamline costs in models to choose from (see Exhibit 4). ment required in the predominantly
less critical functions and secure Some of them will be relatively “pure government-sponsored (Medicare
funding for new investments? tone” strategies: being a low-cost and Medicaid) and exchange-based
standard plan, a higher-cost custom segments. In contrast, higher-cost
Looking ahead, we see the emer- plan, a medical value healthcare custom plans, aimed at midsized and
gence of health plans with special- plan, or a broader-service company, large group segments, will differenti-
ized capabilities to target segments expanding beyond health insurance in ate themselves on product design,
coherently—in other words, with a some coherent way. In each case, the analytics, and complex administra-
high degree of alignment between company would serve only the cus- tive capabilities. The third pure-tone
a company’s market strategy, the tomers that would benefit from that approach, aimed at providing better
10 Booz & Company
13. turbulence?
Kraft Foods Heinz PepsiCo
Kimberly-Clark
ConAgra - How will key organ
Foods - How will industry d
Unilever - Will there be shifts
medical Size of Bubbleinnovate on prod-
value, will = Revenue of products and services—possibly base. It may also explore business-to-
Sara Lee
uct, member behavior, and provider including some that have tradition- business opportunities to monetize
0 20 40 60 levers 80 achieve superior outcomes,
to 100 ally been outside the health insurance its capabilities by marketing them to
lower costs, and improved employee domain, such as other insurance prod- other companies, including its health
productivity. Finally, the broader- ucts or even the delivery of care—to plan competitors.
service company will follow a retail- capture a greater share of spending
like approach to offering a range from its core health plan customer
Exhibit 4
Future Health Plan Business Models
Customer Segments
Business Model Medicare Medicaid Exchanges Midsized Group Large Group
1. Low-Cost Key Capabilities
Standard Plan - Consumer segmentation and marketing
- Low-cost standardized/modularized health benefits and loyalty programs
- Exchange-based distribution
- Lower-cost, high-performance provider networks
- Extremely lean administrative infrastructure
2. Higher-Cost Key Capabilities
Custom Plan - B2B and B2B2C segmentation
- Flexible/customized benefits
- Broader provider networks
- Advanced administrative
capabilities/tools
- High level of support
3. Medical Value Key Capabilities
Healthcare Plan - Ability to manage utilization by “high risk” populations Could serve a broader market
- Value-based benefit designs including midsized and large groups
- Dramatically reduced medical cost through transformed if risk-adjusted reimbursement for
provider relationship managing higher-risk populations
- Integration of care across local community services (e.g., psycho/social) takes hold
- Diversified portfolio of health solutions effectively targeting healthy,
at-risk, and chronically ill
4. Broader-Service Key Capabilities
Company - Cross-selling of ancillary health products to existing customers
- Greater expansion outside health to offset the risk in the core health business
Source: Booz & Company
Booz & Company 11
14. CONCLUSION Ultimately, the employer group
business of the past will serve as
Employers will maintain a huge
stake in healthcare and will be
the foundation for growth in the valuable partners with health
future, as insurers devise strategies insurers in addressing the critical
to compete in new markets. Insurers issue of medical costs. From what
will need to renew efforts to capture we see in the early exchanges, costs
as much value as possible from the and premiums remain difficult to
current core business. They should manage. To initiate change, insurers
focus on managing employer costs need to work with employers—
and healthcare affordability, and along with providers, government,
differentiating on medical value, as and consumers—to develop new
they search for diversification and structures and capabilities that will
opportunities to expand market create medical value. Without new
share. Savings from these efforts and innovative approaches to this
will provide capital for investment central problem, the promise of
in new capabilities supporting new reform will remain only a promise.
business models.
12 Booz & Company
15. About the Authors
Gary D. Ahlquist is a senior Sanjay B. Saxena, MD, is a
partner with Booz & Company principal with Booz & Company
based in Chicago. He in San Francisco and leads
specializes in strategy and the firm’s West Coast health
organization development for practice. He advises healthcare
insurance companies, health clients on strategy development
plans, and health providers. and capability building,
specializing in payor–provider
Paolo F. Borromeo is a collaboration, next-generation
principal in Booz & Company’s payment models, and care
health practice based in delivery innovation.
San Francisco. He is a core
member of the firm’s healthcare
reform team and specializes
in developing post-reform
business unit strategies for U.S.
health payor clients.
Booz & Company 13