Looking back on health plan sector developments in 2017, much media attention focused on efforts to repeal and replace the Affordable Care Act (ACA). While the continuing ACA political drama is certainly newsworthy, it’s important to stay focused on larger, abiding trends that are reshaping the health plan sector – and the US health care industry overall.
Here are five trends that I expect will likely have major implications for health plans in 2018 and beyond:
Trend 1. The influence of public policy grows
Each year, the implications of federal and state policy proposals and changes become more important to the strategies and business performance of health plans. This influence extends well beyond the ACA debates. From an industry perspective, the role of the ACA individual insurance market — including issues related to the individual mandate and cost-sharing reduction subsidies (CSRs) – can seem overstated. Individual health insurance products sold on and off the public insurance exchanges account for just 6 percent of enrollment and 10 percent of the sector’s fully-insured revenue, as noted in our new Center for Health Solutions research on health plan financial trends. Much more critical to the fortunes of the sector in 2018 and beyond are likely Medicare Advantage (MA) and Medicaid managed care.
These government lines of business account for an expanding share of the industry’s revenue and margins. For many health plans, the implications of the US Centers for Medicare and Medicaid Services’ (CMS) MA payment-rate updates, risk-adjustment changes and Star ratings are far more consequential than CSR policies. The same can be said for state Medicaid payment and coverage policies. That said, I anticipate that 2018 (with federal mid-term elections on November 6) seems likely to bring another round of ACA political battles and accompanying health plan business uncertainties.
Trend 2. Insurance margins stabilize
The US health insurance market has experienced financial turbulence since the 2010 enactment of the ACA. The sector has seen high growth in both revenue and enrollment from fully insured products – but it also has experienced dramatic decreases in underwriting gains and margins. These trends are displayed in the figure below, from our recently published Health Plans Financial Trends 2011-2016 research. We see the 2016 margin stabilization depicted below continuing in 2017 – and prognosticate continued sector progress in remediating post-ACA unfavorable margin trends in 2018.
Trend 3. Affordability crisis drives incremental business model and operational efficiencies
Cost pressures on employers, families, consumers, and governments will likely continue to mount as the affordability crisis remains the preeminent challenge in the health care industry. Health plans are apt to continue to pull every lever within their reach to address the affordability challenge. Some levers that have been exercised aggressively in recent years – such as raising member out-of-pocket costs – don’t offer as much leverage moving forward. How much higher can deductibles be set when family income growth remains sluggish? Health plans will likely focus greater attention on escalating drug costs – particularly high-cost specialty drugs. Health plans are likely to pull available levers including pharmacy network design, formularies, benefit tiers, and mail order programs. Some health plans will do more pioneering work in the area of value-based contracting with pharmaceutical manufacturers. But the great promise and positive impact of paying for how well a drug works, rather than by the number of doses, will likely not be fully realized in 2018. Similarly, 2018 should see steady progress in the number and impact of health plan value-based contracts and payment models with delivery systems. The tipping point toward value-based care – and away from volume-driven medicine – will hopefully occur in the next several years. But 2018 will likely shape up to be a year of incremental and fragmented progress.
Trend 4. Exponential technologies enable health plan innovation
Compared to many other industries, health plans have a digital deficit. But cloud-based applications, cognitive analytics, robotic process automation, the Internet of Things, digital finance, and other emerging solutions are poised to disrupt and transform the health plan business in 2018, as they have in other industries. Other emerging technologies – such as blockchain and virtual/augmented reality – will likely follow over the next couple of years. The promise of exponential technologies extends across the full breadth and depth of the enterprise (front office, middle office, and back office). Some health plans will, for the first time, have the opportunity to leverage new technologies to leap frog traditional competitors and gain competitive advantage by jettisoning inflexible, inefficient legacy systems in favor of next-generation solutions.
Trend 5. Sectors converge and partnerships multiply
The siloes in the US health care system have been softening in recent years. That is a good thing. No single sector in isolation can materially address the cost, access, and quality challenges we face. Perhaps most importantly, the convergence of the health plan and provider sectors is likely to accelerate in 2018. This willingness to come together reflects the growing recognition across the health care industry that better synchronization between the financing and delivery of health care services and products is likely a necessary condition for systemic change. In many cases, this convergence will be facilitated by various partnership vehicles, including joint ventures, alliances, and a host of contractual arrangements. In other instances, we will see asset mergers and acquisitions. The 2018 appetite for merger and acquisition (M&A) deals across the health plan sector should be strong, particularly after the 2017 failure of major proposed mergers involving four of the nation’s largest health plans due to antitrust concerns. I anticipate an exciting year of M&A and partnership deals (including both horizontal and vertical plays) involving major national brands as well as specialized, smaller-scale players.
My Take: While 2018 appears likely to reprise some of the ACA-driven health policy drama that characterized 2017, I suspect that what plays out beyond the Beltway will have a larger and more meaningful impact on the direction and performance of health plans in the year ahead.