Will digital players reinvent health insurance?

By Finney Gilbert, senior manager, and Andy Davis, FSA, MAAA, principal, Deloitte Consulting LLP

In virtually every industry—from banking to dining, from entertainment to travel—tech-savvy innovators have disrupted incumbent players and reinvented the consumer experience. Health insurance is one of the latest industries to undergo a major transformation, according to our new report, Digital disruption for health plans: It isn’t coming, it’s here.

Digital health entrants are helping many health plans reduce medical costs, increase efficiencies, and improve the overall member experience. At the same time, health plans are helping these new entrants reach customers and fine-tune their products and services. Over the next several years, we expect that both incumbent health plans and digital disruptors will benefit from this symbiotic relationship. By the end of 2022, we estimate that digital health companies will have helped health plans boost net profits by an additional $450 million. By 2025, that amount could more than triple, according to our report. However, as these digital entrants demonstrate their ability to reduce medical costs and help consumers effectively manage their health, they are likely to gain a foothold in the market. As a result, we estimate that they could capture about 25% of the estimated $1.35 billion in increased profits we expect the sector will generate by the end of the decade.

At the heart of Deloitte’s vision for the future of health is an expectation that fewer people will get sick—the result of healthy behaviors, medical breakthroughs, continuous monitoring, and the ability to detect and treat disease in the earliest stages. Digital health innovators, along with leading incumbents and technology and retail giants, are helping to move the health sector closer to this vision by building a digital health ecosystem centered around care, well-being, and consumer convenience.

Health plans are betting on digital innovators

In 2020, health care spending in the US reached $4.1 trillion, or 19.7% of the Gross Domestic Product (GDP), according to the latest data from the Centers for Medicare & Medicaid Services (CMS).¹ The treatment of chronic disease makes up a significant amount of that spending. About 60% of US adults have at least one chronic disease, according to Centers for Disease Control and Prevention (CDC).² Digital health tools, including digital therapeutics, sensors and wearables, and remote patient monitoring (coupled with coaching and education) are helping to improve the management of chronic conditions. This, combined with more focus on prevention and early detection, could help reduce  health spending—as a percentage of the GDP—over the next 20 years, according to our 2021 report, Breaking the cost curve. 

Diabetes is one of the biggest cost burdens for many health plans. Over the years, some health plans have built ad-hoc diabetes-management initiatives. Few of these initiatives, however, have had the full desired impact. Digital innovators, using new approaches (e.g., a dedicated health coach), data (e.g., for personalization), and innovative technologies (e.g., real-time monitoring and intervention), have helped to reduce diabetes member costs and improve quality (e.g., by helping members lose weight and reduce their HbA1c levels). A digital innovator included in our analysis uses digital interventions and nudges to reduce HbA1c levels among members who have diabetes. Reducing HbA1c levels resulted in an annual savings of $1,900 per year, per participating member.

Demand from employers and members is pushing many health plans to manage care and well-being, rather than just paying claims and managing medical costs. Over the past several years, we have seen an exponential increase in digital investments, particularly in the areas of chronic-condition management and behavioral health. Some health plans are investing in digital innovators, or contracting with them, in response to demands from their customers.

Consider this: Cigna Corp. recently authorized an additional $450 million for its venture capital arm. Investments will target early-stage companies focused on insights and analytics, digital health and experience, and care delivery and enablement, according to a prepared statement from Cigna.³ The nation’s 33 Blues Cross and Blue Shield companies have pledged more than $575 million across three funds to invest in companies that are focused primarily on health technology.⁴ UnitedHealth Group’s Optum launched Optum Ventures in 2017 and has more than 50 VC investments.⁵ Other health plan operators are also making investments in digital health companies.⁶

Will employers contract directly with digital innovators?

Apart from chronic-condition management, innovators can also help health plans improve care coordination and offer other digital benefits. As a result, some health plans are capturing the incremental profits due to muted claims costs and increased efficiencies. However, the profit generated by health plans is limited. Under the Affordable Care Act, health plans that participate in the large-group market must spend at least 85% of premium dollars on patient care. The remaining 15% can go toward overhead and profit. If the Medical Loss Ratio (MLR) is below 85%, health plans need to reimburse members. Digital health entrants, however, are not bound by MLR rules and can generate larger profit margins than health plans. Some digital health companies are also helping engage with and manage the health of Medicare Advantage members so that they can share the savings.

Digital innovators typically reach their customers through their contracts with health plans, across all lines of business. About 64% of US workers are covered by self-insured policies.⁷ We expect that a growing number of self-insured employers—which pay the claims and take on the financial risk—could start to contract directly with digital innovators to help keep their employees healthy and on the job. Government programs could follow a similar path of direct contracting with digital health innovators.

Digital health solutions are demonstrably improving patient outcomes and reducing the cost of care. Many health plans are investing in and/or partnering with digital health companies. This presents health plans with both an opportunity and a challenge. Health plans are uniquely positioned to optimize modalities of care and actively influence the shift toward early disease detection, prevention, and well-being. However, the ability to navigate this shift without entirely ceding customers-engagement (and eventually trust) to digital health companies could be a challenge. Health plans should consider ways to rapidly evolve their core lines of business to make the most of this opportunity and successfully convert members into long-time customers.

Acknowledgement: Maulesh Jagdish Shukla

Endnotes:

1. National Health Expenditure Data, US Centers for Medicare and Medicaid Services, December 15, 2021

2. About chronic diseases, National Center for Chronic Disease Prevention and Health Promotion, Centers for Disease Control and Prevention 

3. New $450M investment in Cigna Ventures to drive health care transformation, innovation, and growth, Cigna press release, 2022

4. Leading digital transformation services firm receives investment from BlueCross BlueShield Venture Partners, Bloomberg, March 10, 2020

5. Cigna latest health insurer to increase venture spending on startups and digital tech, Forbes, March 1, 2022

6. Optum Venture website, Pitchbook

7. Percentage of US workers covered by self-funded health insurance plans, Statista.com, November 2021

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