A Perfect Storm Sparks Disruptive Innovation

By Nicole White - November 05, 2012

While the East Coast prepared for Hurricane Sandy, it struck me that the confluence of a sluggish economy, increasing healthcare costs, high unemployment, stagnant wages, and high rates of foreclosure and bankruptcy, places us at the precipice of a perfect storm.

It brings to mind the classic Dickens quotation from A Tale of Two Cities…

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us…. “

You see, I believe these may just be the best of times--the best time for change through disruptive innovation. Why? Because when the going gets tough, the tough get going.

Companies are reinventing themselves; their organizations are lean and employee productivity is at an all-time high. Yet they are still grappling with many challenges... in particular, unsustainable increases in health care costs during a time of significantly lower increases in employee wages. Health insurance premiums have grown 172% since 1999. During the same period workers’ contributions to those premiums have increased by 180% while wages only grew by 47%.

To manage these costs, employers have started to take more aggressive steps with greater emphasis on employee accountability, while investing in programs and emerging technologies that promote a healthy and productive workforce.

But wait. There is more. The Affordable Care Act (ACA) addresses access not cost. Provisions like continuing coverage for dependent children to age 26, 100% coverage for Preventive Services, waiving the pre-existing condition limitations for individuals up to age 19 (thereafter all individuals in 2014), that went into effect starting in September 23, 2010, increase cost.

The next two to five years will bring about significant change and added cost considerations not just for the insurance industry but for health care providers, employers and employees alike. This is because of the individual mandate, employer Pay or Play and other provisions that go into effect in 2014. Then the big ticket item, the Cadillac Plan Tax that surcharges insurers and self-funded plans by imposing a 40% excise tax on the value of coverage exceeding $10,200 for individual coverage and $27,500 for family coverage, to be indexed annually starting in 2018. Herein lies the smoking gun—revenue generator!

Suffice it to say, insurance carriers, health care providers, self-funded plan sponsors, employers and employees alike will be hard pressed not to heed the Call to Action.

For employers and employees the call is a Change in Strategic Direction.


1)  Status Quo (Do Nothing) - no longer financially sustainable.
2)  Traditional Approach - Employee's cost share increase YoY--begs the question of employees rewards deal
3)  NextGen Strategy - strategic plan design that engages employees as consumers--proven and sustainable

The “New Employee Total Rewards Deal”

Employers will need to step back and put health and other benefits into a total rewards context—revisiting their entire rewards portfolio in order to balance employees need for health benefits, a secure retirement, and a competitive salary. Some are increasingly adding reward programs including health benefits that tie employee behaviors and actions.

In light of looming changes to the ACA, total rewards programs that include health benefits with a defined contribution strategy, particularly Account Based Health Plans (ABHPs), will become increasingly more popular over traditional defined benefits programs. If implemented and incentivized correctly, these new total rewards programs can bend the health care cost curve.

The shift is already occurring. We are seeing a sharp uptick in the rate of adaption of ABHPs, and in certain industry verticals and regions of the country ABHPs have totally replaced PPO and HMO plans. This trend is due to the proven results--reduced health care trends, lower claims costs and employee satisfaction--where participation is significant.

CIGNA’s 6th Annual Choice Fund Study that consists of 1.12 million customers, over a 24 month period and data adjusted for an apples to apples comparison, concluded that when compared to customers in traditional plans, CIGNA Choice Fund customers:

*  Are more engaged in health and health spending
*  Spend less on overall medical services
*  Receive equal/better quality care
*  Are more satisfied with health care experience

Additionally, ABHPs can be designed to meet retiree health needs and can address ACA actuarial value plan requirements when included in an employers’ portfolio of health plan choices, to minimize or avoid the Cadillac Tax.

Integrated Health Strategy – Disruptive Innovation

Given the great debate on health care, it is well documented that health care as an industry is not efficient and that consumers do not know the cost and quality of a service before they purchase it. The most commonly cited example is the cost of an MRI. This lack of transparency has led to price disparity for the same procedure across and within geographies—even within a single health plan.

The growing consensus leads us to this conclusion: when employees are encouraged to act as a consumer, spending their own dollars to access health care, costs fall. Why not therefore place the employee (consumer) at the center, encouraging healthy lifestyles through education, coaching, and financial incentives -- and by covering 100% of preventive services? This will improve health and productivity and free up dollars for wages and growing the business. This model is very different from the current yet passive approach to benefits (with copays, deductibles and coinsurance)—disruptive even.

As the stakeholders embrace the premise of 1) better outcomes and 2) satisfied consumers of health care, they have started to:

Transform

Insurance Carriers – have transformed themselves into health care companies and initiated discussions with health care providers to offer narrow networks, revisit/brand Centers of Excellence and explore Accountable Care Organizations (ACOs)

Collaborate & Partner

Health care providers (physicians, hospitals and allied health care providers), have started collaborations and will enter into partnerships with the least likely entities--health insurers--to develop Accountable Care Organizations, as well as, to embrace the value of electronic medical records.

Educate

Employers – have stepped up Health, Productivity & Well-Being Programs and are ramping up participation in ABHPs by reducing plan options over a 2-3 year period. As a result, employers are pressing for data and are willing to explore flexible funding type contracts (e.g. minimum premium, experience rated fully insured contracts, self-funded plans), if not already in place, to harness the data and benefit financially (i.e. refunds, cash-flow, etc.) from these newly integrated plans.

Empower

What about the employees? Employees will see a level of engagement, from each of these stakeholders -using technology, social media tools, and online discussion groups and gaming software - to support their health and productivity strategy. The most effective technology tools personalize the health experience and establish communities to promote health workplace culture.

This is where disruptive innovation comes in—the fun stuff. So now, we begin…

Nicole White
Senior Vice-President & Founding Principal