Health Insurance Market conditions
Health care inflation rates are unsustainable. Costs are now growing four times faster than wages, driven primarily by hospital pricing and drug utilization. The average family of four with health insurance now pays over $12,000 in health care related costs each year; their health insurance premiums alone are just under $11,000. The cost of health insurance has forced employers and employees to forgo heath insurance, causing providers to shift costs to their insureds, thereby raising premiums by $922 per family.
I have been speaking with several knowledgeable individuals about these issues, trying to puzzle out when the crisis will reach a point where it will be addressed in a meaningful way. One of the conversations has been with Bob Laszewski, one of the nation's leading experts on health care policy, the insurance markets, cost drivers, and pragmatic approaches to all. In a recent conversation with Bob about health care cost drivers, he pointed out that the "leveling off" of the health care inflation rate is now affecting pricing for health insurance. Indeed, early indications are that large employers and health plans buying reinsurance (insurance to cover unexpectedly high losses from their members) are keeping rate increases somewhat lower than overall trend rates.
How is this happening? Simple, really. The ‘invisible hand" of the market is at work. There is intense competition amongst health plans for market share, share that is harder and more expensive to come by. It is no secret that the equity markets demand growth from the publicly-traded health plans, and the not-for-profits are affected by the twin influences of competitive pricing and a need to maintain share. The growth imperative is coming up against a difficult market reality; with health insurance presently in a near-oligopoly state, the only avenues for growth are:
-- acquisition (getting very expensive to buy revenues),
-- organic growth (also very expensive as it requires under-pricing),
-- diversification into other lines (workers comp is attractive for now, but this will fade quickly as total WC medical expense nationally is under $30 billion, thus market is too small),
-- brand differentiation although the vast majority of health plan marketing is pathetic in comparison to consumer goods (compare Kaiser to Nike…)
The fallout from this dynamic is already being felt. Aetna's purchase of HMS Health, CalPERS' success in keeping increases for HMO plans to under 9%; Coventry's First Health acquisition; the rise in stock prices of mid-tier health plans, and Aetna's expansion into workers comp are all indicators that the market is reacting to present conditions.
We are approaching a period of hyper-competitiveness. Health plans must grow top lines, and will do so by buying other businesses, slashing rates, diversifying, streamlining operations, and cutting costs.
What does this mean for you?
Time to think creatively and not just buy, cut, and pray. Branding may be helpful, but the larger opportunity is to step out of the commodity market of health care and into the "health care as productivity driver" industry.