A new model for the insurance industry

At this point in time, the health insurance industry provides a valuable piece of the health care industry to provide consumer choice in the system, by allowing selection of provider networks. However, as a pure risk adjustment mechanism for catastrophic illness, it falls short because of the strong incentive to cherry pick insurees. A larger role could be created for this industry which would alleviate the need for a government plan that would compete unfairly wiith private industry.

There is both a prepaid care component and a catastrophic risk adjustment component in most plans available today. At present, the cost of plans and availability is unacceptable to achieve the level of coverage that our nation should be able to provide for the percentage of GDP that we spend.

With the health care reform bill to expand coverage there is an opportunity in having additional subscribers that are mandated by government regulation, but unless the insurance industry adapts to the new circumstances and takes a more proactive stance in creating value rather than just making predictable returns as a pure insurer in the end it will be replaced by a government payer system.

But there is not a business model established yet to take advantage of incentives for reduction of expensive chronic disease. With the reform plan requiring insurers to cover more of the population and eliminate pre-existing conditions, it creates a powerful incentive to control these costs through new business structures outside of the traditional insurance company P&L. In other words, insurance companies would benefit from a reinvention of their role in the system to capture more value at the wellness and prevention level by incentivizing people for their wellness and behavior. This is in contrast to having government mandate or penalize behaviors as we are seeing in some other countries.

Some companies are starting to do this through their websites by providing and consolidating medical information, but the efforts so far are fairly weak and don't split out into a different business model. So they are measured according to the traditional metric for an insurance company rather than an internet service business for disease management for example.

Intrapreneurship efforts at these companies could succeed if they are split off and given different incentives and funding. Also, there are some new internet businesses that could be acquisitions targets by insurers. But the idea is that rather than an inefficient government insurer with deep pockets, we could be better served by private enterprise taking advantage of profitability carved out from the end to end management of the costs of chronic disease.