Health insurance's digital, integrated future

The health insurance industry is bracing for disruption from two powerful constellations of forces: the newly combined CVS Health and Aetna, and Haven - the joint health-care initiative of Amazon, Berkshire Hathaway and JPMorgan Chase.

Health insurance is highly regulated, demands deep financial backing, and requires large provider networks and operational scale. However, both Amazon and its partners and the CVS-Aetna combination have the motivation and the staying power to fundamentally reshape the industry. These organizations also have the resources and capabilities to overcome the challenges the industry might present. Changes are already underway. In February CVS Health launched HealthHUB, a new store format where more than 20% of the retail store is dedicated to health services including one-on-one counseling to manage chronic conditions, dietitians, health kiosks and digital tools. Meanwhile the Amazon, Berkshire and JPMorgan Chase partnership unveiled a website and name for their new, non-profit independent company headed by prominent surgeon, researcher and author Dr. Atul Gawande to address the fact that even with insurance, many Americans do not have the basics to get the right care for their needs.

What will the health insurance sector look like if either of these enterprises succeeds?

We can expect a redefinition of the relationship between payers and providers. Both Amazon and CVS enterprises have the clout to demand new approaches from care providers. Amazon, Berkshire Hathaway and JPMorgan Chase together have more than 1.2 million employees; while the combined CVS Health-Aetna entity has nearly 10,000 pharmacy locations and 22.2 million health insurance members.

Another outcome: a frontal attack on the administrative costs of delivering health insurance. Adjudication and processing claims, and the blizzard of documents moving between payers and providers add substantially to the price tag for health insurance. Digitization and artificial intelligence can radically streamline the entire claims management process, reducing operational costs and introducing greater efficiencies.

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A shopper enters a CVS Health Corp. pharmacy in Council Bluffs, Iowa, U.S., on Saturday, April 30, 2016. CVS Health Corp. is scheduled to release earnings figures on May 3. Photographer: Daniel Acker/Bloomberg

Health care consumers may benefit from these changes: Monthly premiums will not rise as rapidly or they may decline, claims will be paid more quickly and require less effort. We can also expect a new experience in terms of how health insurance is consumed, offered and priced.

At its core, health insurance is a tool for managing and allocating financial risk between the insurance carrier and the policyholder. Imagine what an Amazon could do to redraw the value proposition. This can include an Amazon marketplace of care providers, analogous to what Amazon has done for countless retailers, where consumers can compare alternatives, make a choice and book an appointment, all based on their individual needs and preferences. Another approach could be the equivalent of Amazon Prime for health care, where consumers might sign up for a bundle or package of health care services.

The CVS-Aetna combination offers opportunities for product redefinition as well. Imagine every Aetna health insurance policy offering priority access at favorable rates to CVS’ Minute Clinics and HealthHUBs. Aetna might win on two fronts, offering an attractive benefit to policyholders, and lowering the cost of primary care through a more cost effective channel.

The current state of product presentment in health insurance also makes it ripe for disruption: policy descriptions and explanations are confusing and make it difficult for consumers to compare options objectively and fairly. If Amazon were to borrow from the product comparisons in its marketplaces, consumers can easily assess product choices across a range of selectable and filterable criteria, and also see reviews from others who have previously purchased and used those products. This approach could be applied to policies and to provider choices.

CVS is adept at effective use of display and shelf space in retail environments. Imagine if consumers could walk into CVS stores and find next to the rack of gift cards, another display featuring streamlined and targeted pre-boxed health care packages available for purchase. Sounds far-fetched? To make bank products more tangible, Deutsche Bank Trendshops, a bank branch prototype, have started displaying financial products in off-the-shelf boxes similar to how goods are displayed on retail store shelves.

Product pricing presents another opportunity for innovation. Up until now, health insurance pricing has typically been the province of actuaries, who measure risk and set premiums to cover it, and regulators, who ensure that a carrier both justifies its premiums and earns enough of a return to stay in business and pay claims. What if Amazon created transparent price comparison tools by requiring carriers and care providers in a health marketplace to standardize and simplify their pricing structures? This would make comparison-shopping for health insurance dramatically easier. What if Amazon offered subscription pricing for primary care? This could mean patients will be less likely to defer needed care until medical conditions have become urgent and expensive to treat, because of out-of-pocket charges.

CVS is remarkably effective at using price incentives and rewards to motivate behaviors and choices. Store shelf space features special pricing to encourage use, multiple or repeat purchase, and CVS receipts are famously long to accommodate rewards personalized for customers based on their purchase patterns. Imagine if Aetna policies could be tied to the CVS rewards programs such that policyholders earn discounts and rewards for regular checkups, prescription adherence or other positive behaviors.

None of these potential changes in product, pricing or presentment will occur overnight. But they won’t take forever either. That means the rest of the health insurance industry has a window of opportunity to anticipate and stay ahead of the curve. On the surface, CVS and Amazon are completely different. One is a retail store driven giant and the other is a digital juggernaut. Yet both have built their businesses off of intensely analytic approaches to mining mountains of customer level data. They are patient and determined. And they are just getting started.

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