Critics of health care reform—that’s the Patient Protection and Affordable Care Act (PPACA) if you’re being technical—have voiced myriad reasons why the act won’t achieve its goal of extending affordable, quality health insurance to millions of Americans. Chief among them is that the individual mandate provision, which would require that everyone purchase health insurance or face tax penalties, is being challenged by 26 states as unconstitutional—a view upheld last month by the 11th Circuit Court of Appeals. But without a mandate, many argue that people just won’t sign up.
But a far bigger threat to the goal of insuring more Americans than any pending court case is whether health insurers can adapt quickly enough to take advantage of the tremendous new market opportunity that the PPACA hands to them. If they can’t, they’re going to be surpassed by the more innovative companies that can pivot faster. Starting in 2014, the United States for the first time will have a viable market for individual health plans. According to the Congressional Budget Office, the size of this market will jump initially from $1.9 billion in 2013 to $18.8 billion in 2014 and grow larger each year.
Here’s the catch: a robust and competitive individual health plan market will forever change the balance of power between health insurers and consumers. Today, that relationship is skewed in favor of health insurers. In most states, insurers have little incentive to offer attractive and affordable health plans to individuals. So instead they focus the majority of their time and resources on employer-sponsored group health insurance, a market that is easier to reach and serve with a lot less perceived risk.
When health insurers do offer individual plans, coverage and premiums are based on the individual applicant’s personal profile and health history. Pre-existing medical conditions are routinely excluded, lead to much higher premiums or denial of coverage altogether. Even in the few states where regulations demand that insurers offer coverage to every applicant, there are no restrictions on premiums, and pre-existing conditions can still be excluded. No wonder so many Americans do not have health insurance.
Beginning in 2014, no individual can be denied health care coverage, have pre-existing conditions excluded from policies or be charged excessive premiums. Standardized plan designs and summary plan descriptions will make it easier for consumers to understand what benefits are offered under each plan they are considering. States must build and operate health insurance exchanges where consumers will be able to compare plans from different health insurers side by side, and calculate premium and out-of-pocket costs for certain medical conditions or procedures before they purchase a plan.
So while most health insurers say they want to participate in this new $60 billion individual health plan market, it’s understandable why they have concerns.
For starters, health insurance in America has been primarily a business-to-business opportunity. Large corporations (health insurers) have sold their products directly to other large corporations (employers) and to smaller organizations through networks of regional and local brokers. In contrast, health insurance for individuals is primarily a retail business, where individuals call the shots. To be successful, health insurers will have to change their product offerings, channels of distribution, and even their core competencies.
On the product front, health insurers are used to creating "one-size-fits-all" group health plans for specific employee populations. To serve the estimated 12 million new individual purchasers of health plans, health insurers will have to get to know them, define new market segments, determine their needs and preferences, and design new products. This will be complicated by the fact that many of these new purchasers might never have had health insurance before and will have little or no experience making informed product decisions.
While health insurers are not required to offer plans on state-run exchanges, it’s likely that any other channel of distribution will be far less efficient at reaching and serving such large numbers of new customers. The fact that there is an online component to health insurance exchanges will pose additional challenges. According to a 2011 PriceWaterhouseCoopers Health Research Institute Consumer Survey, about half of Americans have purchased airline tickets, hotel rooms, books and clothing on the Internet. In contrast, just 5% have purchased health insurance online. Health insurers will have to do their part in helping consumers feel more comfortable buying health plans online.
Perhaps the biggest shift health insurers will have to make is to develop new skills geared toward engaging and winning the hearts and minds of empowered consumers. This will require not just new products that are easier to buy and use; health insurers also will need to provide efficient service as a baseline and then go beyond that to deliver consumer experiences that build trust and loyalty. The health insurers who can make this transition will reap huge rewards. Those who cannot will, over time, fade away from the retail market.
Either way, a new and improved individual health plan market will unleash the most powerful force in the American economy—knowledgeable consumers with the ability to buy the coverage that is right for them and switch plans should they get an unacceptable rate increase or receive poor service.
Empowered health care consumers will pave the way for tackling our nation’s next challenge: health care costs that are spiraling out of control.