Group Medical

Cashing in on Consumer-Driven Healthcare That’s Consumer Friendly
by Aamer Baig, Andrew Rocklin, and Srinivas Velamoor

Consumer-directed healthcare plans (CDHPs) don’t have a reputation for being particularly consumer-friendly. Consumers and employers are look-ing for a better experience, from saving and paying for healthcare to making informed choices about treatment alternatives. This is creating a flood of opportunities for financial services firms and healthcare companies.

Consumers and employers can expect a great deal of innovation in the near term from healthcare companies and financial services firms. Families should soon be able to confirm insurance coverage quickly before making a doctor’s appointment; collect information about their treatment alternatives; and then pay for service from a special account before leaving the clinic.

Some opportunities will require companies to reconsider their entire business model. But, with five-year revenue potential in the billions, banks, health plans, and technology infrastructure providers can’t afford to ignore the possibilities.

Innovations may curb skyrocketing healthcare costs, help people manage their healthcare dollars, and even improve the quality of care. When the processes of receiving medical care and paying for services become more integrated, it will be easier for consumers to navigate an increasingly complex healthcare system.
We’ve identified seven consumer and employer needs that will generate demand for new products and services over the next five years, totaling upwards of $40 billion:

Integration and Infrastructure

Consumers are frustrated with the cumbersome processes of enrolling in CDHPs. This opens the door for a new breed of companies that can provide integrated benefits administration services and enable the portability of electronic health records. This could yield a $10.4 billion opportunity.

Planning/Decision Support

There will be $6.2 billion worth of business opportunities over the next five years in guiding consumers to make the right choices about care and ways to pay for it, according to our research. Consumers and employers are looking for help in these four areas:

1. Clinical decision support and financial planning tools.
2. Ways to compare costs, quality, and treatment options.
3. Help in choosing the right health plan.
4. Tools for forecasting and saving for health expenses before and after retirement.

Payment Processing

Employees who enroll in a CDHP have hard decisions to make about investing in an HSA. The complexity affects doctors too. According to our analysis and experience, the uncollectible portion of payments from customers in CDHPs is two to three times greater than it is for patients in traditional programs. Health payment processors could expect $5.6 billion in revenue by providing integrated claims processing. These platforms enable transaction information to be exchanged among health plans, healthcare providers, employees, and consumers. Some companies are exploring advances, such as eligibility verification services, electronic claims submissions, and payer-to-provider payments.

Supplemental Healthcare Protection

The decline in employer healthcare benefits for retirees is creating a $5.1 billion revenue opportunity over the next five years for companies that provide affordable supplemental healthcare coverage. The share of large employers offering retiree health benefits declined from 66% to 35% between 1988 and 2006 according to the Kaiser Family Foundation and the Health Research and Educational Trust. Insurers will have to be creative in promoting such products, perhaps by bundling healthcare planning alternatives with long-term financial and retirement products.

Consumer Healthcare Financing

Rising out-of-pocket healthcare costs are driving demand for lines of credit, bridge loans, and new credit instruments to help consumers meet their near-term financial obligations until they can accumulate adequate savings in an HSA or other custodial account.
At $3,190 for individuals and $6,350 for families, the average annual out-of-pocket obligation for those in HSA-linked high-deductible health plans tends to be much higher than with traditional plans. These financial services firms have a $4.9 billion opportunity.
There are some opposing forces at work. Financial services firms need to evaluate the effect of additional healthcare related credit risk. They also need a thoughtful, consumer-oriented approach to billing and collection. Since access to healthcare is an emotionally charged issue, firms must avoid policies that tarnish their broader consumer brand and public reputation.

Helping Consumers Save for Healthcare Expenses

A 2006 study by Harvard University revealed that, every 30 seconds, someone in the U.S. files for bankruptcy in the aftermath of a serious health problem. This extremely alarming statistic underscores the need for consumers to save for health expenditures. There will be great demand for those who can advise consumers on incorporating healthcare concerns into an overall investment strategy. Value-added services could generate roughly $4.3 billion in revenue for financial services firms, such as funds management and brokerage accounts, HSAs, healthcare reimbursement accounts, and flexible spending accounts.

Wellness Advice

We estimate that unhealthy behavior within the U.S. population costs more than $350 billion annually in avoidable medical expenses. These expenses hit employers particularly hard, which is why so many organizations have established wellness programs. Employers that weren’t early adopters of this strategy are now creating wellness programs. This could be a $3.4 billion opportunity for wellness program designers, behavior modification programs, and wellness platform vendors.

Who Will Capture the Opportunities?

A variety of financial services and healthcare firms are pursuing these opportunities, but it’s too early to pick winners and losers. No single company is likely to capture an overwhelming share of these opportunities. But the competitive companies will have a new business model, a dedicated organization, organizational capabilities, and flexibility within their IT infrastructure. These firms will find success by partnering or acquiring new capabilities outside their traditional domains.

Perhaps, the most important point is that the successful companies will offer services that address the real pain-points of consumers and employers. These companies will provide a customer experience that engenders loyalty, which will lead to profitable and mutually beneficial long-term relationships.

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Aamer Baig is co-managing director of Diamond Management & Technology Consultants Inc.’s Financial Services practice. He is an advisor to senior executives on product and market strategies, technology strategies, operations improvement, and managing large change initiatives. In addition, he speaks regularly at major conferences on financial services issues and the emerging marketplace. He is called upon frequently as a media commentator.

Andrew Rocklin is a principal in Diamond Management & Technology Consultant Inc.’s Healthcare practice with expertise in business and marketing strategies, operational analysis, and competitive and new product positioning. He has served a variety of leading healthcare and financial services clients in capacities ranging from high-level strategic assessments of convergence to leading tactical operational improvement and technology initiatives.

Srinivas Velamoor is a principal in Diamond Management & Technology Consultants, Inc.’s Financial Services practice with expertise in operational strategy, risk analytics, product development, and information lifecycle management. He has advised several leading financial services and healthcare institutions in global payment strategies, and the redesign and architecture of banking systems.