Big Data and the Future of the Health Insurance Market

While the Affordable Care Act’s individual mandate was naturally expected to drive the previously uninsured to non-group plans, it has become increasingly clear that the individual market is also bracing for a potentially significant influx of currently insured enrollees who are driven there both by choice and necessity.

Some will be employees at companies that have decided to stop sponsoring plans and instead contribute to their workforces’ purchase of insurance on the individual market. In other cases, the advent of health insurance exchanges and new subsidies for insurance purchases could drive some to forgo employer coverage and shop for themselves. The impact may not be substantial right away, but over time, it almost certainly will be. According to a model from Deloitte, for example, the low end estimate for growth in the individual market through 2020 is 85 percent, and the high end projection is 400 percent.

While this may seem like a boon to the insurance market, there are plenty of challenges that come with the opportunity. As the individual market grows and the exchanges become a fixture of the health system, the managed care market will be confronted with a market disruption of historic proportions.

At the moment, managed care organizations (MCOs) are able to focus solely on sales through business-to-business relationships with large employer groups. Soon, however, they will have to accept anyone that applies, and the characteristics of the population of expected new entrants to the individual market are a possible recipe for adverse selection. In addition to the influx of previously uninsured individuals who are likely to want services quickly, the employers could be most apt to send their employees in high risk groups or those that previously offered insufficient coverage to the individual market. In all of these cases, it is probable that the most unhealthy or underserved individuals will sign up and begin accessing services.

All of these challenges boil down to a couple of key imperatives. First, MCOs will need to get a better understanding of the new population of individuals with access to their plans. This means identifying high-risk individuals as they enroll so that they can effectively use disease management services and programs. Introducing preventative services with a targeted approach will be key to improving the overall health of their populations.

Second, they need to find ways to offset the risk that will come with those high-risk individuals by attracting healthy enrollees.   How can they identify potential purchasers that fall into the category known as the “invincibles” – individuals who have not previously carried insurance because they do not utilize the healthcare system?

With less than a year to go before this potential tidal wave of change first hits the shore, MCOs are smartly working to get ahead of these challenges. And, in keeping with a theme that seems to have taken the business world by storm over the past year, they are turning to “big data” and smart analytics as one part of the solution.

Knowing that they will have to revamp their approach to targeting the markets they serve, some MCOs are working to develop predictive models that will help offset some of the risk associated with adverse selection. To do this, they are looking beyond the historical claims information they have generally turned to for analytics and are exploring ways to correlate that data with more broad-based demographic and financial information. While that may not seem revolutionary at first blush, it represents a significant step forward in the health industry’s use of analytics.

Moreover, it demonstrates that health plans recognize that we are about to enter an era of unprecedented consumerism in the health insurance market. It is a future in which the broker-centric and B2B-focused approach will no longer be sufficient to retain a competitive edge, and one that will require health plans to assess and target subpopulations of potential “customers” in much the same way that retailers have done for years.

Because of the nature of their business, insurers have been well ahead of the provider side in adoption of digital systems and analytics. But the future that lies ahead of them will require more than just being up-to-date; they will need to innovate and adapt more quickly than ever to beat the competition. When the dust clears five, ten or fifteen years from now, the winners will have big data and analytics to thank, at least in part, for their success.

Jim Bohnsack is Vice President of Transunion Healthcare LLC.