The Restructuring of the Health Insurance Industry
Christine, Brian, Risk Management
With the Clinton administration leading the attack on health care reform, the business community is anxiously waiting to see what form these changes will take. Meanwhile, a recent study by Towers Perrin reveals that health insurance company chief executive officers (CEOs) foresee enormous changes in their industry - and an inevitable competitive shake-out. "To prosper in the future, health insurance industry executives will have to challenge the conventional wisdom as to what the industry is all about," declares Donald J. Santoski, a Towers Perrin principal. "We're going to see a fundamental restructuring of the industry."
The survey, which contains the responses of CEOs from commercial health insurers with health premiums in excess of $10 million and those from Blue Cross and Blue Shield plans, reveals that the respondents believe their industry will face a multitude of complex challenges over the next five years. When asked to identify the three most crucial issues facing the industry, 86 percent of the respondents listed regulatory and legislative changes, 85 percent mentioned the control of health care costs, and 63 percent named financial performance, notes Mr. Santoski.
A majority of the respondents believe that companies must make a significant investment in managed care in order to prosper in the increasingly competitive marketplace. "About 75 percent of the CEOs believe that investing in network-based managed care is absolutely essential for growth," says Mr. Santoski.
As a result, many of the CEOs predict that smaller firms and traditional indemnity companies that have yet to make these investments will have trouble adapting to the new industry environment. Mr. Santoski adds that many of the participants believe that preferred provider organizations (PPOs) will be the most popular managed care program over the next two years, but that point of service (POS) programs will assume the lead position in five years. The CEOs also expert a variety of new managed care products to be developed.
To prosper in the emerging market, health insurers will also have to increase their investments in information systems and even develop new ways to sell and market their products, says Mr. Santoski. "As the market undergoes a restructuring, some companies will leave the business, others will consolidate and there will be spin-offs of new companies, which could result in the development of firms that specialize in areas such as information services." Many of the CEOs report that their companies are focusing on developing or expanding network-based managed care products, instituting improvements in customer service and attempting to contain claims costs while reducing overall operating expenditures.
Of the 85 percent of the CEOs who believe that controlling health care costs is one of the key strategic issues facing the industry, only 14 percent believe they will be able to achieve these reductions. "Nevertheless, the CEOs report that they are pursuing a number of cost control measures," says Mr. Santoski. "For example, 59 percent of the respondents report that implementing provider reimbursement and risk sharing arrangements is one of the most effective ways to keep costs down." Other methods include cost sharing with employees, limiting access to providers and controlling cost shifting.
Forty percent of the CEOs also report that their companies are planning to implement outcomes management programs - which are an evaluation methodology for examining quality-of-care outcomes in health services - over the next five years. …