How do you set a business strategy in a highly-regulated market in which you don’t have complete control over what you can charge a segment of your customers, in which funds promised to your business by government agencies may be taken away, and in which rules governing what products you can sell can change at any time? Such is the life of strategic planners in U.S. health insurance companies.
It’s not exactly breaking news that health insurance markets are in a high state of uncertainty, even more so today after Republican attempts in Congress to repeal and replace the Affordable Care Act seem to have breathed their final breath. Even though the ACA will remain the law of the land – for now – the White House is signaling it may actively work to undermine the law, by cutting off subsidy payments to insurers, not enforcing the individual mandate that requires consumers to carry health insurance or face tax penalties, or by pulling resources from year-end open-enrollment advertising that encourages individuals to use the exchanges for their health insurance purchasing.
This unprecedented level of uncertainty is making it extremely difficult for health insurance carriers to plan for 2018, let alone engage in any kind of longer-term strategic planning. The California healthcare exchange, for example, may not complete registrations with insurers and announce 2018 premiums until August – about a month later than normal. Quoted in an article by the Kaiser Family Foundation, John Baackes, CEO of L.A. Care Health Plan – which has about 26,000 customers on the California exchange – said, “It’s insane . . . Here we are in the middle of July and we don’t even know what rules we will be operating under for open enrollment. It is not how you want to run a business.”
Some 20 million Americans purchase health insurance on the individual market, including the ACA exchanges, making this segment a substantial component of insurance companies’ market planning (most Americans get health insurance from their employer or from government programs such as Medicare). What, then, can health insurance executives – now under the gun to set and submit rates for the state healthcare exchanges for 2018 – do to create business plans that account for uncertainty surrounding revenue sources and forecasts, product design, and marketing and advertising needs? “We are running out of time and we need a resolution on what we are charging for 2018,” said Gary Cohen, vice president of public affairs at Blue Shield of California in San Francisco, the largest Covered California insurer by enrollment, according to the Kaiser Family Foundation.
First, insurers should look at the entirety of their business, not just the turmoil surrounding the individual market. Most businesses hedge against the risk of market uncertainty by pursuing a diversification strategy and operating in a variety of markets and segments. If one segment experiences an unexpected downturn, the impact on the larger business is minimized by the firm’s presence in other, healthier segments. To be sure, insurers have a limited number of segments in which to operate, but executives should explore moves they can make in the group and public sector markets to shore up their positions to balance a downturn in the individual market.
Second, health plans should intensify their efforts to keep tabs on competitors. With the uncertainty in Washington intensifying competitive pressures in the individual market, health plans can ill afford to be out-maneuvered by competitors that have found more effective ways to weather the market turmoil. And let’s be clear, the goal of good competitive strategy is not to enable a firm to mimic the strategy of its competitors; instead, it should be used to anticipate competitor actions and seek ways to achieve or maintain superior competitive positioning.
And finally, given that the narrative around government healthcare policy is changing by the day, a structured and robust program for early warning monitoring and analysis has never been more important. Firms should define a set of observable indicators or signposts and critically assess their implications with frameworks such as Indicators of Change Analysis. Tying indicators analysis to contingency plans generated by techniques such as scenario-based strategic planning brings a degree of strategic flexibility that can be highly valuable in times of extreme market uncertainty. Indicators related to anticipating future government policy, for example, can be highly diagnostic and valuable.
Matching the complexity of political and market factors, businesses need to employ equally comprehensive strategies to maintain, if not grow their revenue. This set of strategies includes portfolio management and internal diversification; competitive analysis and ongoing monitoring of external events, consumers, and competitors as well as the politics; and contingency planning using advanced scenario-based planning techniques. We all recognize that it’s no longer business as usual, and players that employ such an array of enhanced strategies will be in a better position to compete.