Major Economic Challenges Reshaping the U.S. Health Insurance Market

This year’s America’s Health Insurance Plans (AHIP) Institute 2015 will take place one and a half years after more than 10 million Americans gained healthcare coverage for the first time. Among other things, delegates will certainly be focusing on how the healthcare insurance industry is beginning to assess this population, its health status and consumer preferences. In this context, it is important to look at the major economic challenges and events reshaping the landscape of the U.S. health insurance market.

by Boris Rachev, Global Health Economist, CSC

doctor with device 3According to the Department of Health and Human Services (HHS), about 6 million young adults between age 19 and 34 gained coverage – the largest increase of any age group. The previously uninsured / newly insured, are using their benefits. A recent analysis by PwC1 found double-digit increases in Medicaid admissions among the three largest health systems in states that expanded the program, despite only slight increases, or decreases in overall volume. Primary care physicians, surgeons and other specialists saw measurable increases in the proportion of patients with Medicaid in expansion states. In 2014 insurers also reported higher-than-expected usage of oncology, maternity, musculoskeletal and other specialty services, possibly reflecting increased demand. This population will grow and change in 2015, as more states expand their Medicaid programs and the individual mandate penalty takes effect. Early research suggests that the remaining uninsured are, on average, younger and healthier than those who have already purchased coverage, and may help insurers balance financial risk. They are also less financially secure and may find it difficult to buy coverage and pay for healthcare, especially if they are in high-deductible health plans. As payers learn more about these new customers, they are beginning to develop more nuanced strategies and to focus on product positioning, network sharpening and clinical management program partnerships with providers. PwC predicts that in 2015 the number of payers offering insurance on the ACA’s public exchanges will grow by 25% compared to 2014.

Since the mid-1950s, employers have paid most of the costs for employee coverage while not being very prescriptive on how their employees should use the benefit. The role of employers in the health insurance market has changed. Employers are becoming much more involved in choosing alternatives regarding health insurance coverage for their employees. According to the Congressional Budget Office (CBO), around 10% of employers, mostly smaller companies and organizations, have dropped coverage altogether in the last decade. For those that have kept the benefit, a three-pronged strategy has become the norm:

  • Shared financial responsibility and shifting more of it to employees via high-deductible and defined contribution plans that replace previous benefit programs are increasingly the norm. And employees are being encouraged to pay attention to prices for the services they use.
  • Employers are contracting with fewer providers and provider networks to negotiate better prices and drive volume to those that deliver higher quality and lower costs. In some cases, larger employers are contracting directly with providers; in others, they are pooled through arrangements with health insurance companies to get better pricing in their contracts.
  • Focused efforts in employee wellness and prevention: employers believe wellness-related activities are strategic investments in their workforce and in health cost containment. Bad habits and chronic diseases contribute to 75% of health costs in the United States.

Over 100 million people today are enrolled in Medicare, Medicaid, the Federal Employee Health Plan, Children’s Health Insurance Plan (CHIP), state & local government employee health plans, Veterans Health Administration (VHA), TRICARE (DoD), etc. Enrollment in federal and state insurance programs is increasing, and so is the influence of the government as a sponsor of health insurance programs. Sometimes government agencies, such as the Center for Medicare and Medicaid Services (CMS), purchase insurance coverage through private insurance companies – more than 13 million Medicare enrollees have a Medicare Advantage Plan (Part C), which is purchased through a private insurer. Another 32 million have a Part D Prescription Drug Discount Plan also offered through private payers, and private plans are routinely offered to federal, state and local employees. The size of government involvement determines the significance of its increasing role as a sponsor in the U.S. insurance market. It allows the government the ability to purchase health insurance for large numbers of enrollees and gives it considerable leverage to negotiate terms and conditions with private insurers who want to enroll and manage a plan on the government’s behalf. The growing role of the government as a purchaser of coverage for employees from private health insurers is an important dynamic in the U.S. health insurance market.

Finally, the health insurance industry’s value proposition for the foreseeable future is in managing health costs without compromising safety and outcomes. The escalating costs of healthcare call for innovative solutions and the health insurance industry has an opportunity to balance these goals and deliver on this value proposition, leveraging its unique competencies in partnerships with providers.

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[1] http://www.pwc.com/us/en/health-industries/top-health-industry-issues/index.jhtml, Accessed on May 17, 2015.

 

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