Insurers adapt to market-style coverage approach

This article is Trend No. 4 of 5 in Drug Store News' overview of the current state of the healthcare market.

Call it the retailization of healthcare coverage. With the rise of the public insurance exchanges sponsored by federal and state governments under the Affordable Care Act, more Americans — and employers — are shopping around for their healthcare coverage options. In essence, they’re turning the health insurance industry into a retail-style marketplace as they search among dozens or hundreds of coverage plan options for the best premium rates, deductibles, provider networks, out-of-pocket cost caps and benefit packages, including preventive-care services offered. And the rapid adoption of health exchanges and demands for transparency and clear coverage choices by millions of individual Americans are gaining ground among employers, too.

Health insurers are responding by “changing their fundamental business model,” PwC’s Health Research Institute noted in its report on U.S. health industry trends in the wake of the Affordable Care Act. Spurred by the growing use of public and private health insurance exchanges by millions of Americans and employer-sponsored health plans — and by new demands on insurers for a clear, menu-style list of coverage choices through the exchanges ­— health insurance is transforming from a wholesale to a retail model, HRI noted.

“Rapid enrollment in the ACA’s public exchanges has demonstrated the potential of retail-style health insurance and spawned renewed interest in private exchanges,” HRI reported. “For insurers, the shift from the business-to-business model of the 20th century toward a post-ACA business-to-consumer model is already under way.”

Health reform is driving the change. “The ACA required the development of a health insurance marketplace, mandated that insurers sell coverage to all, removed health status as a pricing component and made subsidies available to those with financial need,” the HRI report noted. And despite early glitches with the 2013 launch of the exchanges, the report said, “the technology platforms that support the ACA’s public exchanges allow, and even encourage, individuals to shop around, comparing coverage options based on price and benefits.”

“In doing so, the exchanges are helping to create a market of active consumers,” HRI continued. Nearly 12 million Americans enrolled or re-enrolled through the exchanges in 2015, researchers noted, and that number is expected to reach 22 million over the next few years.

Hit with a steadily rising spiral of costs to fund their employee health coverage, U.S. companies also are driving the shift in insurance industry practices. “Employer-based coverage remains the core of the U.S. insurance market, but the business model is changing rapidly as employers explore alternatives — including private exchanges — to more cost-effectively deliver benefits that improve consumerism and enhance choice for workers,” the HRI report noted.

A 2014 survey of U.S. corporations by PwC found widespread apprehension about the ACA’s “Cadillac” tax, which in 2018 will require employers to pay 40% of an employee’s total health insurance costs above $10,200 for individual plans and $27,500 for family plans. In response, HRI said, roughly one-third of companies surveyed said they were considering moving their workers to a private exchange.

“Even those that choose not to pursue a private exchange will begin adopting a more employee-centric and integrated benefits design, increasing employee choice and engagement in making benefit selections,” the HRI report noted.

Given this rapidly shifting landscape, the report noted, “insurers must continue to refine how they deliver this retail experience … simply providing choice is not enough. Insurers, as part of their retail strategies, will need to invest resources into educating consumers about the complex world of retail health.”