The CVS Effect on American Health Insurance

When drugstore goliath CVS announced its $69 billion bid to buy Aetna in November, it was largely seen as a ploy by CVS to stave off Amazon, which seems to be planning an incursion into the pharmacy business.

But for the health insurance industry, there’s something far different—though equally momentous— going on here. The presence of a sophisticated retailer like CVS in the health insurance marketplace will undoubtedly push the industry farther down the road of consumerization. CVS will bring a powerful array of technology, especially data analytics, as well as marketing savvy to a business that traditionally has been slow to change and inattentive to customer service.

If regulators allow the merger to move forward, the combined entity will possess massive amounts of data about Aetna’s members. I expect CVS to quickly deploy technology that will help Aetna members manage their prescriptions and steer them toward CVS’s in-store clinics. I also anticipate that we’ll see vastly improved tools for providers to manage members’ care and insurance online.

As a result, executives at other health insurance companies will have to upgrade their offerings. The entire industry will need to redesign a frustrating, convoluted user experience so it is convenient and efficient—and much more like customer experience that has become standard in the retail, banking, and other industries.

Innovation peaked in ’15

This is no small challenge. Health insurers are closer to cable television than retailers on rankings of customer satisfaction. That’s largely the result of a deeply ingrained tendency toward conservative decision making and incremental change among health insurance executives. If they hope to compete with the likes of CVS, let alone Amazon, they’ll have to embrace change, act decisively, and make bold investments.

I know they can do it because I’ve seen it happen. In the course of 15-plus years advising health insurance executives on technology, I’ve certainly bumped up against the industry’s conservative tendencies. But, especially in the last three years, I’ve also seen progressive health insurance leaders make bold investments in innovation. The result was always a more agile, consumer-oriented organization—and those insurers are now in stronger positions to compete with CVS.

For many of these insurers, the shift started with the passage of the ACA—which forced them to market policies to individual consumers rather than exclusively to employers. And while the ACA absolutely drove the development of new technology, its most profound impact was to inspire a new line of thinking among insurance executives.

Unfortunately, ACA-driven innovation peaked around 2015. What’s needed now is putting the smart people who tackled the ACA to work on the challenge of helping information flow efficiently, both within insurance organizations and outward, to providers and members.

This starts with untangling the jumble of software and systems that accumulated as insurers grew and added new divisions and functions through acquisitions. Insurers largely built these systems themselves. But the next, bigger challenge is to overcome the industry-wide trepidation about buying new technology. Every insurer needs to be pushing toward aggregating relevant data so that it can be presented to employees and customers on individual screens and on intuitive, elegant interfaces. For their employees, that means a single login to quickly find the information they need to help customers. And for their customers it means managing their accounts, getting questions answered, and conducting transactions in a single personalized interface.

These investments promise tantalizing returns. More engaged consumers with more tools for managing their health will help insurers stem rising health costs, freeing up funds to reinvest in products and services that drive better health outcomes. Engagement requires investment in technology, pure and simple. But once they have the right platforms in place, insurers can layer on predictive analytics, digital medical records, and other innovations that promise to make health care costs more manageable—and in the process make health insurers more competitive with the likes of CVS and maybe, eventually, Amazon.

Mark Nathan is the CEO of Zipari, a company in Brooklyn, N.Y., that creates consumer-experience technology for the health insurance industry.

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