Three Triggers For a New Business Model in Health Insurance

Story by Steve Wunker.
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Radical change is scary. A revolution in business model brings forth images of Robespierre and the guillotine. Understandably, companies are hesitant to move radically when there are more conservative options. 
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Yet there are times when firms need to at least scope out how this change could occur, because they find themselves tied to the tracks with a locomotive fast approaching.
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American health insurance firms may now be in just such a situation. Health reform threatens to wipe out traditional sources of profit — Medicare Advantage, individual policies, and small group insurance — while imposing many restraints on pricing and plan design. Moreover, it may lead to commoditization of these payers’ offerings, and do little to address the long-term cost increases which have employers aggressively cutting back on the coverage they provide. To add to these challenges, in just four years the law will push insurers to become far more consumer-centric than ever before if they are to compete effectively on the forthcoming health insurance exchanges. American consumers report that health insurers are the third least-trusted industry they deal with, just behind tobacco and oil companies. It’s bleak.

In this environment, I spent the day at a large healthcare conference full of insurance executives. One might expect a brew of intense discussion and deep reflection. Not so. An example of innovation lauded in the conference was how one firm re-designed their forms to have more plain English. This is of course a good thing, but not much of a new business model.
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We often see denial in the face of fundamental industry change. Pharmaceutical firms understood a long time ago that they would face a cliff of patent expiries around 2010, yet took years to charter new drug discovery programs, resulting in a substantial gap in their development pipelines. Oil companies are just now coming around to the realization that the electric vehicle is a major threat to their business. It is easy to find comfort in what our peer firms are doing, even when a gnawing feeling grows that we are all marching together to doom.

For me, the situation was made transparent today in a forgotten corner of the exhibit hall, where a bunch of posters had been placed on boards no one was examining. The posters explained dozens of initiatives in developing countries to create new models of care. There is radical thinking in these markets. Grameen Health in Bangladesh, for instance, has created a network of 51 health centers across the country which served over 300,000 people in 2009. The centers are highly standardized around a staff of a dozen people, and are augmented by a “Community Health Assistant” that works with households to refer the right patients to the clinic, deliver post-natal check-ups, and provide other basic services best done in the field. The patients buy their insurance for these services directly from Grameen. Annual premium? No more than $7. THIS is business model innovation!

​When change agents need to build the case for radical thinking, three tactics prove especially useful.

First, they should look not just to what their familiar peers are doing, but at what is happening overseas. For instance, our work has found some of the most innovative financial service and health businesses in South Africa, and some of the most unusual consumer products in Japan

Second, do some math. For a publicly-traded firm, the share price will reflect assumptions about revenue and earnings growth a few years out. Compare those figures to what you know about the growth of the core business, and your success rate in launching new projects. What does this say about the pipeline that you need?

Last, consider what your customers are looking to get done in their lives, rather than what you sell. For health insurers, this might include things like avoiding discontinuities due to illness, tending to a child’s health while doing 30 other errands, or looking fit. Create the full map, and then step back to ask what could be your business. Obviously not all offerings will be viable, but this approach can open up a world of new opportunities
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Very seldom do firms need to embrace radical change overnight. There is usually time to think a bit, experiment, and scale up the ventures that work very well. Health payers have four years to invent new business models before they feel the most far-reaching effects of the new law. But it is essential to get started quickly on some deep thinking, particularly given that health reform has provided such a clear trigger for action. If a country as poor as Bangladesh can produce exciting healthcare innovations, surely the United States can too.