“Retail” is one of the hottest buzzwords in health care right now. With CVS, Walgreens, and Wal-Mart all investing in health care delivery models, it sometimes seems like there’s a new retail clinic on every street corner, and my colleagues and I often get calls from Health Care Advisory Board members who want to talk about their “retail strategy.”
The way we look at retail health care, though, it’s far more than those in-store offerings that have gotten so much attention lately. Our research team is seeing two more profound applications of “retail” in health care—the emergence of a new retail insurance market and growth of retail shopping for care. For hospitals and health systems, these versions of retail prove much more disruptive than the clinic variety.
What the retail insurance market could look like
The retail insurance market was ignited by the launch of the public health insurance exchanges and continued growth of private exchanges across the past year. These exchanges give individual consumers substantially more control in selecting their health insurance coverage. Historically, employers have made coverage decisions on behalf of their employees. But the advent of health care insurance exchanges is putting these decisions directly in individuals’ hands.
Just think of how this could play out for in the case of just one individual—me.
This year, as an Advisory Board Company employee, I had four options for my health insurance coverage, all from the same insurance company: an HMO-like plan, a PPO-like plan, a high-deductible plan, or no plan at all. This is similar to what many private-sector employees who get employer-sponsored health insurance experience—at most, a handful of plan options.
But if our company moved to a private health insurance exchange model—similar to Sears, Darden Restaurants, and Walgreen Co.—or if I decided to buy my coverage on a public exchange, then I’d have a much wider choice in insurance plans, with a range of features and prices. I would be comparing plans from several insurance carriers instead of just one. And, as an exchange shopper, I would be able to select a plan with the price, benefits, and provider network that suits my personal health care needs. After all, I’d be selecting coverage for one employee instead of nearly 3,000, so I could behave more like a retail purchaser.
This is a fundamentally different approach to purchasing health insurance than the traditional employer-sponsored model. It’s not just a theory, either; retail insurance shopping is already happening with 8 million individuals on the Obamacare exchanges and another 3 million in private exchanges so far this year. We expect that this retail insurance market will continue to grow dramatically, with projections of reaching 87 million individual buyers by 2018.
The other ‘retail revolution’—out-of-pocket purchasing
The retail health care revolution isn’t just an insurance market phenomenon, however.
More and more, patients are “retail shopping” for health care services, as they are increasingly likely to pay for those services out of their own pocket. Two related trends are driving this out-of-pocket spending growth: more enrollment in high-deductible health plans and rising deductible levels. We are already hearing from members in many markets about greater price sensitivity as a result.
Our analysis suggests that the growth in health insurance exchanges will result in even more out-of-pocket price exposure. The process begins when individuals pick their coverage at the start of the year, since they typically seek plans with low premiums—and are willing to accept high deductibles in return, often higher than $5,000. These high deductibles expose individuals to the cost of care across the year. In essence, the retail insurance market is fueling more retail shopping for care.
How market dynamics will change
So what’s the big implication for health care executives? Simply put: health care providers are no longer insulated from market forces. We see five major market changes as health care moves retail, highlighted in this graphic that we’re sharing with chief executives at the Health Care Advisory Board’s 2014 CEO Special Sessions.
1. Growing number of buyers: Employers historically acted as “wholesale buyers,” selecting coverage on behalf of their employees; individuals are increasingly shopping for both coverage and care, resulting in more buyers and more intense competition.
2. Proliferation of products: While carriers previously offered plans with broad, open networks, they’re now turning to narrow networks to help keep premiums low. And individuals can choose among a wider range of plans to find one that fits their needs.
3. Increased transparency: Health insurance exchanges allow individuals to compare plans side-by-side, helping buyers make their decision based on premiums, benefit design, and network composition. Individuals are also asking about the price of care, especially for services that fall within the deductible level, such as outpatient imaging.
4. Reduced switching costs: Health insurance exchanges enable individuals to evaluate their coverage decisions each year. Individuals can switch carriers and networks much easier than large employers.
5. Greater consumer cost exposure: Individuals are now paying more of the health care bill—both for insurance and care. Newfound price sensitivity will continue to drive retail purchasing behavior at the point of coverage and point of care.