The U.S. healthcare industry is undergoing its most radical transformation since the creation of Medicare and Medicaid in the 1960s. The confluence of rising healthcare costs and sweeping regulatory changes has given rise to new consumer-driven healthcare models that are forcing the health insurance industry to re-examine its business. U.S. healthcare spending reached an estimated $2.7 trillion in 2011, nearly 18 percent of gross domestic product (GDP). An aging population,

improving economy and the ongoing implementation of the Affordable Care Act (ACA) are projected to push spending on medical services to nearly 20 percent of GDP by 2021.1

The emerging role of consumerism in healthcare is a marketplace response to escalating costs and a regulatory lever aimed at expanding healthcare access to millions of uninsured people. New consumer-driven business models are emerging that are designed to engage

people in the management of their own healthcare spending. These business models also encourage people to pursue healthier choices and lifestyles that can help contain long-term medical costs. After decades of selling health plans to employers rather than individuals, insurers must dramatically shift gears. To thrive in an increasingly competitive marketplace, they need to augment traditional business-to-business models with new consumer-centric ways of doing business.

Healthcare Consumerism: Higher Quality Care at Lower Cost

Healthcare Consumerism

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The momentum behind healthcare consumerism has been building for years as employers and insurers have fought to contain growing costs. However, changes in the marketplace are accelerating as provisions of the ACA and related legislation take effect through 2014 and beyond. The ACA creates a variety of tax incentives, subsidies and mandates intended to bring millions of uninsured Americans into the market. The individual mandate provision of the law requires all individuals not covered by an employer-sponsored health plan, Medicaid, Medicare or other public insurance program to buy a private insurance policy or pay a penalty (with some exceptions based on religion or financial hardship). The Congressional Budget Office estimates that within 10 years, the health insurance market will swell by 33 million people who would otherwise be uninsured.2

These new insurance customers will be joined in the marketplace by 3 to 5 million people who were previously insured through employer plans, but for various reasons are expected to join the expanded pool of individual health insurance shoppers.3 Payers will have to adapt quickly as their relatively stable business-to-business operations evolves over the next 10 years into a highly competitive, cost-sensitive consumer marketplace. While customer expectations are rising in this new

marketplace, new regulatory restrictions severely limit payers’ ability to react as they have in the past.

Cost control is key. Though the lingering effects of the Great Recession and a still-sluggish economy have helped moderate the growth in healthcare costs, containing them remains a key challenge for payers, employers and consumers alike. Aging baby boomers, the steady increase in chronic illness and advances in medical technology and treatment options continue to spur healthcare costs upward. Consumerism in healthcare — particularly insurance plans that engage consumers in the management of their own spending and encourage preventative care and healthy lifestyles — is increasingly popular as a means to control costs while improving care. The new coverage mandates and the corollary rise in consumer-driven health plans emphasize preventative care and wellness programs, which can lower costs by helping people prevent illness before treatment is required.

Competition is intensifying. The influx of new customers into the market and ACA mandates put increasing pressure on insurers to be more efficient, particularly in engaging individual consumers rather than employers. A key feature of the ACA is the creation of federally-mandated health insurance marketplaces operated by the states or the federal government

New consumer-driven business models are emerging that are designed to engage people in the management of their own healthcare spending. These business models also encourage people to pursue healthier choices and lifestyles that can help contain long-term medical costs.

The marketplace is changing

Healthcare Consumerism

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(formerly known as a Health Insurance Exchange or HIX) from which individuals can purchase insurance eligible for government subsidies. While insurers must increasingly interact directly with people, those individuals have grown accustomed to doing business online, with better product selection and price transparency. Health insurance must follow the lead of retailing, auto insurance, banking and other industries that have reinvented themselves in recent years. Consumer-facing businesses must now provide customers with anytime, anywhere access to their full range of products and services. And they must deliver that access in channels those customers prefer, whether that’s at a physical storefront or online from a variety of devices.

Legislative restrictions are tightening. The ACA promises to bring 33 million new customers into the health insurance marketplace just as it is imposing new standardized reporting requirements and new pricing, coverage and privacy restrictions on insurers. Under the law, insurance companies are no longer able to deny coverage based on pre-existing conditions, and pricing latitude can only be based on age, premium rating area, family composition and tobacco use. There are limits to how much pricing may vary.

The demographics of this influx of previously uninsured new customers are not likely to be as favorable to insurers as employer-covered policyholders. Some of their traditional tools for managing risk though pricing and selectivity have been eliminated. Managing profitability in this hyper-competitive health insurance marketplace will present unprecedented challenges.

Health insurance must follow the lead of retailing, auto insurance, banking and

other industries that have reinvented themselves in recent years.

1 National Health Expenditure Projections 2011-2021, Centers for Medicare and Medicaid Services released on 12 June 2012, retrieved at: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2011PDF.pdf2 CBO and JCT’s Estimates of the Effects of the Affordable Care Act on the Number of People Obtaining Employment-Based Health Insurance, Congressional Budget Office, March 2012, retrieved at: http://cbo.gov/sites/default/files/cbofiles/attachments/03-15-ACA_and_Insurance_2.pdf3 Ibid.Product and service availability varies by country. Specifications are correct at date of publication but are subject to availability or change without notice at any time. Dell and its affiliates cannot be responsible for errors or omissions in typography or photography. Dell’s Terms and Conditions of Sales and Service apply and are available on request. Dell and the Dell logo are trademarks of Dell Inc. Dell disclaims proprietary interest in the marks and names of others. © 2012 Dell Inc.  All rights reserved. February 2013 | D193_DellHealthcareConsumerism_POV.indd | Rev. 1.0

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To compete and grow their business in this changing marketplace, health insurers need to adopt new consumer-centric strategies that will help consumers take ownership of their health and well-being. They must first develop the technology and business processes needed to engage consumers as individuals. Insurers must capture and integrate customer data on behavior and lifestyle as well as information about their health and medical treatment. Such data should help develop new interactive processes to help influence and meet the needs of individual consumers. Managing risk and profitability in the marketplace will require intelligent customer segmentation and the ability to:

• Acquire new customers: Targeting healthy people with healthy lifestyles will yield the most profitable customers, which can help insurers grow their business and capture market share

• Engage consumers: Providing a satisfying customer experience with an emphasis on promoting wellness and preventative care will be critical to attracting and retaining healthy people

• Grow profitably: Improving unhealthy choices and promoting preventative care for their least healthy customers will help insurers grow more sustainably

To this end, insurers must engage consumers using both traditional employer plans and other channels such as social media, online health information portals and the forthcoming government health insurance marketplaces. Taking a page from the auto insurance and financial services industries, health insurers need to provide trusted information for consumers in the right channels. In other words, insurers should provide what consumers want, whenever and wherever they want it. Payers must develop new insurance products and services that encourage adoption of healthy lifestyles and preventative care, and foster collaborative care environments that improve patient outcomes.

Using the trust-based relationships that exist between patients and their doctors is critical to fostering collaborative care and consumer engagement. Closing the loop between patient, provider and payer will create the data integration necessary to facilitate a consumer-centric experience at the point of care.

Consumerism in healthcare can lead to higher quality care at lower cost, but it requires better understanding and engagement of consumers as individuals. Payers need to make both business process and technology changes, bringing in digital capabilities,

social media, analytics and enterprise integration to enable the free flow of information among patient, provider and payer. It is as much a business-process transformation for insurers as a technology challenge.

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The payer response

Consumerism in healthcare can lead to higher quality care at lower cost, but it requires better understanding and engagement of consumers as individuals.