Disrupt Yourself or Be Disrupted: Insurers’ Role in Changing the Business Model

Rita E. Numerof
Michael N. Abrams

Let’s face it: Insurers are the one segment of the health care sector that everyone has loved to hate. Employers blame insurers for rising premiums; physicians and hospitals blame them for their declining reimbursement rates; consumers blame them for lack of sufficient coverage; and policymakers think they make too much money.

As if being at the center of scorn isn’t enough, the health care insurance business model itself stands in the crosswinds of market and nonmarket forces. Between the standardization of benefits and other regulations imposed by the ACA and employers’ laser focus on price, commercial payers have found themselves in a commoditized business. Competition is coming from unexpected places—even providers—as employers contract directly with “centers of excellence” and integrated delivery networks. Consumers, feeling the increasing burden of out-of-pocket costs and high deductibles, are more focused than ever on getting their money’s worth.

Rita E. Numerof

What payers must do

Most insurers have responded to these circumstances with incremental changes. But relying on tweaks to the fee-for-service model (like many pay-for-­performance structures do) won’t get the industry—much less the entire health care system—where it needs to be. Changing the basis for reimbursement is the only path to achieving the kind of behavior changes that will improve quality and reduce cost in a sustainable way. Working closely with providers, payers need to lead the efforts that will make different models for care delivery and payment a reality.

Michael N. Abrams

Let’s take the case of a provider that’s trying to negotiate a bundled price with payers and employers on a direct basis. The provider is willing and able to offer a predictive price and assume risk. It has comprehensively defined what will be included with deliverables and metrics on the back end. Employers—who care about their employees—are very excited and open to this model. But conventional insurance companies have infrastructure that focuses on processing claims, so too often insurers don’t know what to do with this kind of “exception” and reject it.

To move to new models of health care delivery and payment, bridges must be built. The health insurance executives who are leading their organizations must connect with the people in the trenches who carry out agreements with providers on a day-to-day basis. An insurer’s senior leadership may be ready to embrace new models of care. But if the systems, incentives, and capabilities in sales, operations, and analytics are organized around old models of health care delivery and paying for the care, that embrace could wind up being an empty gesture. Results will reveal the difference between the flashy burst of enthusiasm and the disciplined work of leading true organizational change.

Making progress requires partnerships with innovative providers that can take on accountability for outcomes and are also willing to accept payment outside the typical adjudication system. To create the necessary infrastructure, insurers will need to step out of their silos and the usual method of doing business. They’ll need to allow for work-arounds in order to prove the concept before any systematic redesign.

Private health insurers are in a perilous position these days. But along with peril comes the opportunity to make disruptive changes and seize substantial market share. Leaders throughout the health care insurance industry must be proactive about initiating business model innovation and guiding its effective implementation. New winners—and losers—will emerge based on who can deliver genuine value economically and as measured by health outcomes.

Are you ready for that contest?

Rita E. Numerof and Michael N. Abrams are president and managing partner of Numerof & Associates, a health care consulting firm headquartered in St. Louis.

Excerpted and adapted from Bringing Value to Healthcare: Practical Steps for Getting to a Market-Based Model, R. Numerof and M. Abrams, CRC Press.

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