Business Model Innovation

Business Model Innovation for the Health Insurance Provider : 

Business Model Innovation for the Health Insurance Provider

Of the many causes said to be contributing significantly to the defragmentation of the U.S. healthcare system, none is more obvious than the inherent limitation of the generic for-profit health insurance provider business model. : 

Of the many causes said to be contributing significantly to the defragmentation of the U.S. healthcare system, none is more obvious than the inherent limitation of the generic for-profit health insurance provider business model.

Simply put, this is a business model which proposes to help underwrite the costs of healthcare consumption, by betting against the likelihood of a pervasive need for that consumption across a random but 'balanced' pooling of consumers. : 

Simply put, this is a business model which proposes to help underwrite the costs of healthcare consumption, by betting against the likelihood of a pervasive need for that consumption across a random but 'balanced' pooling of consumers.

Going by the (dated) presumption that, under normal circumstances, only a fraction of the people within a randomly selected group will experience the need for healthcare consumption in a given period, insurance companies assume the risk of offering their customers insurance coverage for the event of their being in need of health care, at a cost of minimal periodical payments. : 

Going by the (dated) presumption that, under normal circumstances, only a fraction of the people within a randomly selected group will experience the need for healthcare consumption in a given period, insurance companies assume the risk of offering their customers insurance coverage for the event of their being in need of health care, at a cost of minimal periodical payments.

With a large enough group of carefully selected customers making these periodical payments, and only a (fairly predictable) fraction of them experiencing the need for healthcare consumption, an insurance firm is then in a position to not only meet the costs incurred by the few, with the funds contributed by all, but to also retain the rest of the funds as income for itself and its shareholders. : 

With a large enough group of carefully selected customers making these periodical payments, and only a (fairly predictable) fraction of them experiencing the need for healthcare consumption, an insurance firm is then in a position to not only meet the costs incurred by the few, with the funds contributed by all, but to also retain the rest of the funds as income for itself and its shareholders.

and directly sets the interests of the firm and its shareholders at extreme odds to the interests of its customers. : 

and directly sets the interests of the firm and its shareholders at extreme odds to the interests of its customers. Needless to say, this limited approach to value creation has afforded the insurance companies little capacity for adapting productively to inevitable changes in the healthcare system,

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As costs in health care have continually been on the rise - driven up, in part, by the high rates of advancement in medical science and medical practice in recent decades, and increased healthcare consumption by increasingly aware consumers - this conflict between shareholder and policyholder interests has only gotten worse.

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Strapped with this business model limitation, yet still needing to sustain their bottom lines on an upward trajectory - so as to gratify their shareholders and retain the confidence of the financial markets - insurance companies have, over the years, been forced to employ various obstructive measures to mitigate against the pressures of increased consumption and higher costs of treatment.

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Increased cost burden on policyholders through rising premiums, higher deductibles and costlier co-pays; Stricter underwriting rules, Increases in denials of authorization, Stringent treatment protocols, and other bureaucratic provisions imposed on the value chain, have been the instruments of first resort for insurance companies working with a business model that limits their ability to continually improve on their value creation.

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The impact, over time, of the insurance companies use of 'obstructive strategies‘, has been to exacerbate the defragmentation of the health care system, provoke further escalations in the rise of costs, and severely hamper the discovery of efficiencies as the system and society as a whole advances.

The Opportunity : 

The Opportunity

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The continued enhancement of online interaction and engagement, JavaScript Flash Ajax Wikis P2P XML DOC … as through the widespread adoption of so called web 2.0 technologies, has served to greatly increase the possibilities for dynamic and collaborative value creation across large networks of actors.

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In health care, these possibilities have been demonstrated through online platforms where consumers can access health information and engage each other, and health professionals, around health matters.

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On these platforms, consumers and business and knowledge actors from across the industry converge to interact and engage in ways that generate great benefits for all. Information/knowledge exchange and dissemination, Consumer feedback, Marketing audience, Sales, Research, etc

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Commercially, many of these platforms are successful, and in some instances have even defied market trends and shown growth in online advertising and sponsorship; thus not just underscoring the unique and vital utility of the online health consumer platform, but the healthcare consumer’s willingness and readiness to engage.

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The Pew Internet Life Project, for instance, estimates that 61%, or some 122 million, of adult American internet users, use the internet regularly to access health information. (Of these, 60% reported that the information and advice accessed through online search and engagement had had a significant impact on how they managed their health or that of others in their care.). All data available show that American consumers are increasingly engaging online with one another, and with health professionals; and the only ones not fully on board with this convergence are the insurance companies.

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That notwithstanding, the clear fact on this online convergence by diverse actors from across healthcare, is that it heralds great possibilities for the realization of new and exciting synergies in value creation, leading to an improved and invariably more productive alignment of interests and strategies in the system.

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All that is needed to make these possibilities fully realizable, are greater incentives for consumers, and a robust basis upon which this online engagement can be more collaborative, more systematic, and more productive, within the framework of value chains; and no one can provide this more readily and more effectively than the health insurance companies.

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As the underwriters of healthcare consumption, insurance companies have just the leverage with which greater convergence can be incentivized, and are ideally positioned within the value chains, to make their participation in brokering and coordinating this convergence a critical element in ensuring that it yields real benefits with measurable impact.

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That leverage is of course insurance, which the insurance companies can use to incentivize the most important actors in the value chain (and in all of healthcare), i.e. the consumers, to engage and collaborate more actively with the business and knowledge actors in the industry. This would in turn serve to strongly attract these business and knowledge actors themselves to the platforms, on the prospect of greater collaboration in value creation from consumers. And with the insurance companies’ participation in brokering and coordinating this collaborative dynamic of online value creation, the conditions will be set that will ensure that the benefits realized will be real, tangible and significant for all the actors, and that the full advantages of the internet as an avenue for network value creation, are delivered to value chains across the entire healthcare system.

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Unfortunately, the insurance companies have as of yet shown little or no indication that they appreciate the unique competitive advantage that their leverage in the industry affords them with respect to this opportunity, and consequently have made no effort to exercise it in the manner that we wish to propose here.

The Idea : 

The Idea

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Our proposal, in a word, calls for health insurance companies to set-up and operate commercial online health consumer platforms, where their policyholders will be incentivized to engage and collaborate with each other, and with other actors in healthcare, in the creation of value.

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This incentive will be in the form of an insurance-based revenue sharing arrangement, wherein policyholders will stand to earn a share of the revenues generated from the business transacted on the platform, and get to have that income applied towards enhancing their insurance coverage.

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This revenue sharing arrangement will be implemented through a points system, where points will be awarded for different levels of participation and engagement, which are linked, directly or indirectly, to the generation of revenue. 15 points 20 points 30 points

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These levels of participation will range from: Logging onto and engaging generally in platform activities. Posting of user-generated content that draws audiences. Active engagement and collaboration with business and knowledge actors from across healthcare (and beyond). Making purchases and transacting business with vendors on the platform. E.T.C. 15 points 20 points 30 points 40 points

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In some of these cases, the value of points awarded will be directly linked to a share of the revenue that will be generated from a specific activity, for example, the fees assessed on an online vendor for transacting a sale on the platform, or the charges that other business actors pay for each instance of user collaboration. In other cases, points will be awarded on a general basis, i.e., as a measure of overall user participation; and their value will be determined as a share of the platform's overall profits.

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The value of all points earned will be determined at the end of a set financial period, similar, in principle, to a determination of dividends, thereby serving to ensure feasibility and protect the insurance firm from risk. Further protection from risk will come from the application of carefully devised engagement and pricing models, and the use of dynamic activity tracking techniques using interactive technologies.

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It is, however, essential to recognize that feasibility for the entire innovation will largely hinge on how well the chosen points system matches up with measures of actual productivity, thereby accurately foreshadowing actual revenue gains and enabling practical revenue sharing. For this, it is important to select the right engagement and pricing models, particularly for instances where there is no direct user collaboration in value creation, and points are to be earned only on a general basis.

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Ultimately, still, what must be emphasized, is that with the right engagement and pricing models, points based online revenue-sharing systems are entirely feasible; and like other revenue sharing systems, such as Google’s Ad sense, are a manifestation of the ways in which the internet can enable better benefit distribution and the realization of more productive configurations of interests within value chains and entire value networks.

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Some Notes on This Idea in Practice The potential that this innovation holds with respect to revenue generation cannot be in doubt, given that it incentivizes user-collaboration, which none of the existing platforms do, and yet many still manage to turn a tidy profit. WebMD, for instance, a publicly traded platform, reported annual revenues of $383 million in 2008, an increase of 15% over the previous year. EBITDA earnings for the same period were reported at $78 million, a 30% increase over the previous year; and the impact that this income potential could have on the business of insurance (together with the other benefits) is hard to ignore.

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Some Notes on This Idea in Practice On these platforms, income is generally earned from a restricted number of sources - in most cases mainly from advertising and sponsorship. But with user-collaboration, the potential for robust income generation exists across a much wider scope of activities. That of course is because incentivizing user collaboration presents a world of value creation possibilities to a wide range of business and knowledge actors from within healthcare (and beyond), thereby serving to incentivize their participation as well, and creating opportunities for transacting business across a wide range of areas.

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Some Notes on This Idea in Practice And with all these different actors interested in the business possibilities of consumer collaboration, the opportunities for income generation, for both the insurance firm and its policyholders, will be numerous and significant, as can be gleamed from the following slides. These actors will range anywhere from hospitals, physicians, caregivers, nursing and retirement homes, pharmaceuticals, research institutions, medical device manufacturers, vendors, natural health advocates, health fitness programs, advertisers and marketers, etc.

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Some Notes on This Idea in Practice In Research where industry actors carrying out medical research studies, pharmaceutical trials or market surveys (etc), will be offered a depth of choice in incentivized participants, together with the added benefits of internet capabilities for better data collection, screening and analysis. In Advertising & Promotions where marketers will be offered the benefit of an engaged and participatory audience for their marketing campaigns, allowing them to devise strategies that take advantage of user-engagement to maximize on the benefits of viral and network effects.

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Some Notes on This Idea in Practice In Product Development where producers and providers of healthcare products and services will be able to successfully solicit for consumer contributions that help them to improve on their products and on their approaches to value creation. In Online Sales where vendors of healthcare products will be offered the benefit of an incentivized consumer market, together with the added advantages that the internet provides for enhanced customer relationship management strategies and for value addition.

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Some Notes on This Idea in Practice In Rating & Referral Systems where providers of healthcare services like physicians, hospitals, hospices and retirement homes (etc) will have the benefit of a directory system that incorporates consumer generated ratings and recommendations to promote quality and value-based competition.

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Some Notes on This Idea in Practice Fundamentally, this innovation, will serve as an avenue through which the insurance companies can productively exercise their immense leverage in healthcare to catalyze, broker and, in a word, guarantee online value creation in the healthcare system.

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Some Notes on This Idea in Practice In operation, it will not only provide for the adaptability of the insurance companies in the face of rising costs and increased consumption, it will also greatly enable the streamlining and modernization of insurance business processes and operations (and those of their business partners), by effectively delivering the internets’ advantages for value creation, to both the insurance companies and their value chains across the entire healthcare landscape.

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Some Notes on This Idea in Practice It is an avenue that holds many real and proven business opportunities for the insurance companies, at the same time that it is highly feasible, offers minimal risk, and comes with proven potential for earnings. The possibilities, too, are real and entirely conceivable today, and hold breakthrough implications for the entire system.

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Some Notes on This Idea in Practice The benefits that will be generated from the collaborations that this innovation incentivizes, are real and significant, and will not only have major impact on both efficiency and quality in healthcare value creation, but will also help enhance value-based competition, and provide for the realization of an improved, and invariably more productive alignment of interests and strategies across value chains.

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Advantages The following is a summary of the advantages of this business model innovation. As already stated, it provides a robust basis for the convergence of diverse interests around a collaborative dynamic of online value creation, where tremendous benefits will be generated for all, and that will, in the long run, help bring about a better and more productive alignment of interests and strategies across the entire U.S. healthcare value network.

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Advantages It provides the perfect basis on which all the actors in value chains across the healthcare industry can collectively exploit the internet for better information communication, exchange and coordination, and for more effective interdependence.

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Advantages It provides great business incentives for the insurance companies to become more proactive brokers and catalysts of value creation in the healthcare industry. The opportunities and benefits that insurance companies will gain from this innovation will help to extend the limitations of the generic insurance business model and help wean them off their obstructive tendencies.

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Advantages It incentivizes consumer engagement and collaboration in online value creation (and the channeling of healthcare purchases through the platform) in a way that effectively provides a dynamic and innovative basis through which consumerism can become a more productive force in the healthcare industry.

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Advantages It provides an alternate mechanism for financing health plans by exploiting the internet advantages for collaborative value creation and proportionate benefit distribution.

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Benefits: Insurance Firms A wealth of business opportunities in line with their enhanced role as a brokers of online value creation. Increased income from new multiple revenue streams, which will help subsidize the cost of health plans and add substantially to the bottom line. Opportunities for developing efficiencies for insurance business operations, processes and strategies, as a result of greater internet interaction with policyholders and healthcare business partners. Improved relations with consumers/policyholders and industry business partners, and improved profile in society.

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Benefits: Insurance Firms Greater flexibility and adaptability in the face of rising costs and increased consumption. Increased insurance business as a result of lower costs of health plans, and also as a result of the viral and network effects that the online platforms and incentive schemes will help generate. Significant cost-savings as a result of all this, and particularly as the insurance firms take advantage of the various opportunities that will be provided by this innovation for streamlining and adapting their business structures and operations, as well as strategies.

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Benefits: Policyholders Top of the list, off course, is the opportunity to earn a share of the revenues from their engagement and collaboration in value creation, monies that will be applied towards enhancing their insurance coverage. Opportunities to influence value creation and to get the producers and providers of healthcare products and services to respond more readily and more effectively to their needs and interests. With greater efficiency and more value-based competition in the system, consumers will stand to gain from increased quality of health care, lower costs and more value added benefits.

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Benefits: Policyholders Opportunities to engage with other consumers in raising awareness of health issues and promoting healthier lifestyle choices in the larger society. This, too, will have the inevitable effect of influencing quality and value-based competition in the system. Opportunities to engage with others in influencing and contributing in important ways to the advancement of medical science.

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Benefits: Business & Knowledge Actors Greater potential for impact and better results for advertising, marketing and promotion campaigns as a result of having an engaged and participatory audience. Quality and dynamic feedback from consumers. Quality market and societal information. Quality research as a result of incentivized consumer participation and collaboration. Numerous opportunities for uncovering efficiencies and achieving greater quality in value creation with incentivized consumer collaboration.

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Benefits: Business & Knowledge Actors Better online sales for vendors like online pharmacies, health books and information publishers, natural health product vendors, health fitness programs etc. Quality opportunities for developing effective CRM strategies as a result of incentivized consumer engagement. Better value-based, consumer driven competition in the industry. Cost savings with the uncovering of efficiencies and the shift away from less successful online strategies.

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The End. © Distant Drums Consulting 2009