With few exceptions, highlights from KFF's review reveal much parity between the programs.
In a review of 62 studies comparing original Medicare and Medicare Advantage (MA), Kaiser Family Foundation (KFF) found "few big differences…on a variety of measures." These measures included beneficiary experience, affordability, service utilization, and quality. KFF noted that these results were based on "strong evidence or [findings that] have been replicated across multiple studies."
The review, summarized in a KFF press release, included studies published since 2016. Among the following findings, KFF noted that "relatively few studies specifically examine … population subgroups," including people of color, rural residents, and dual eligibles.
No real difference—across all quality measures.
It's one thing to have parity, or differences, on more detailed program components. But perhaps the most notable KFF finding was neither MA nor original Medicare outperformed on quality as a whole. In select measures for heart disease and diabetes management, quality was also similar for blood sugar control, insulin use, receipt of diabetes blood tests, and receipt of "guideline-recommended" heart disease therapies in outpatient settings.
The differences: More MA enrollees received "guideline-recommended therapies" for inpatient heart disease care and performed better on select diabetes care metrics.
A similar result for multiple patient experience measures.
KFF's analyses found no differences between original Medicare and MA on four beneficiary experience metrics: wait times, trouble finding a general doctor, and being told that their health insurance was not accepted or that they would not be able to join as a new patient.
The differences: MA enrollees were more likely to have a usual source of care and to receive needed prescription drugs as well as care transition instructions.
Equal affordability for select patient groups.
Three of the 62 studies KFF reviewed examined affordability for high-need beneficiaries, including those with diabetes or a mental illness.
The differences: Fewer original Medicare enrollees with supplemental coverage reported affordability challenges compared to MA, but these results were flipped for Medicare beneficiaries without the added benefits.
Hospital performance parity.
Across the 62 studies there were "generally no differences" in hospital days or average length of stay for more common admissions.
The differences: Findings were mixed for Hospital Services utilization, with one cluster of studies finding fewer hospital stays for MA members and two other studies finding no real distinction. Similarly, MA members had lower overall hospital admission rates, but no difference in a cluster of studies focused on a single hospital or procedure. MA hospital readmission rates were higher for heart attack, CHF, and pneumonia.
The agency embeds equity in quality benchmark payments as part of a "zero-sum game" to support the underserved.
Health equity is the lynchpin that will enable CMS' ACO REACH program to introduce upside and downside incentives, even for participants who enter the model at lower risk thresholds.
The goal? Rewarding providers for serving more vulnerable populations and addressing their social determinants of health (SDOH)—a component that largely has been missing from value-based reimbursement.
In a Q&A with Ashley Perry, chief strategy and solutions officer for Socially Determined, she highlighted how the model can help speed health equity data collection, analysis, and use. Socially Determined is a healthcare analytics company that delivers Social Risk Intelligence to organizations committed to addressing SDOH.
HealthLeaders: What's new about ACO REACH's quality benchmark approach and why is it important?
Perry: This is the first time that CMS has intentionally embedded within the economic incentives of a model an effort to adjust for providers that are disproportionately serving more vulnerable populations. I think it's an important signal in terms of what the agency is doing, both within the innovation center models [Center for Medicare & Medicaid Innovation, or CMMI] as well as potentially more broadly.
HL: What are the components of how these new incentives will work?
Perry: So broadly with ACO REACH, CMS is not only creating incentives within the program for providers to address beneficiaries' social needs but adjusting the way that they're calculating the benchmark and the risk adjustment methodology itself to financially incentivize providers to do that work.
The first component is in the post-baseline adjustments to how reimbursement is calculated. The calculation will now include the Area Deprivation Index (ADI), which is a measure of deprivation driven by a number of community-level factors that exists at a group level across the entire country.
For CMS, the idea here was we're going to adjust a benchmark for this program [ACO REACH] based on a combination of a census block group ADI and an extra bump if the beneficiary is dual eligible.
In doing so, the post-baseline health equity adjustments are taking into account the vulnerability of the community in which the providers are serving as well as the individual beneficiary. This is based on data CMS already has and doesn't require any data collection effort on the part of program participants.
HL: What is the other component that's changed?
Perry: The other is the 2% quality measure withhold that participants have the opportunity earn back by hitting their quality targets. There is up to a 10% opportunity to get a bonus or to earn back that 2% withhold by collecting [SDOH-related] demographic data.
HL: What is the significance of this?
Perry: It's the first time we've seen the introduction of a zero-sum game, health-equity-driven adjustments to the benchmark. Some providers are going to see a bonus and others are going to see a reduction, and that is tied to the vulnerability of the population that they're serving. So it's the first explicit incentive that we've seen to try and encourage providers to serve more of those kinds of beneficiaries.
It's also a signal that participants—not only in this program but really in all CMS programs—should start to expect that they're going to be asked by the agency to collect demographic and SDOH data. And that they should be prepared to apply the data collection and risk analytics methodologies that they're using on the clinical side to manage performance on the social side.
HL: How do stakeholder bridge the gap between the now-clear understanding that 80% of health outcomes are not based on clinical care and actually changing those outcomes?
Perry: There is clear evidence that the vast majority of healthcare utilization costs and outcomes are driven by factors that happen outside the four walls of a clinic or hospital. We see that every day. The more interesting question is, what do you do about that?
Socially Determined's view is that we need to think more holistically about the data and analytic insights that exist outside of enterprise healthcare data systems that we've used to date.
Part of the solution here is being able to open the aperture around the data that we're using—to be more proactive about identifying subsets of populations that are in need, but may not exist in our datasets today, and then proactively engage those individuals before they show up in your ED or get readmitted to the hospital.
Recent news from eHealth and the Purchaser Business Group on Health reinforce employer frustration with rising coverage costs as they foot the bill.
In the 1976 film Network, anchor Howard Beale—frustrated with society's ills—famously exclaims on air: "I'm as mad as hell, and I'm not going to take this anymore!"
While today's employers—frustrated with rising healthcare costs—might not word it that way publicly, they are clearly looking for options beyond traditional group coverage and even TPA-administered self-insurance.
"Some big employers are getting upset with the current system," says Ken Janda, a consultant, adjunct professor at the University of Houston College of Medicine, and 40-year insurance industry veteran.
Two announcements within the past two weeks reinforce that they are turning to new solutions.
eHealth and PBGH announcements signal growing trends
In late August, online private health exchange eHealth announced it would offer employers "ICHRA health insurance products and services." Through Individual Health Coverage Reimbursement Arrangements, introduced in 2020, employers make defined contributions to employees to purchase their own insurance and subsidize premium and other costs.
On September 12, the Purchaser Business Group on Health (PBGH) debuted new strategic goals to "redirect" member spend and purchasing toward affordable, whole-person, equitable care. PBGH, which includes nearly 40 large public and private employers, will also launch a Public Purchaser Advisory Committee to "elevate the needs of public members and help further integrate the work of public and private purchasers."
Indeed. The PBGH press release noted that its members are "frustrated by uneven quality and out-of-control spending" and that some 90% of large corporate executives "believe the cost of providing health benefits will become unsustainable" within five to 10 years. This from an April 2021 survey from PBGH, the Kaiser Family Foundation and West Health Institute. Some 85% "expect the government will be required to intervene to provide coverage and contain costs."
EVP for Health Policy, Larry Levitt, notes: "Any efforts to expand public coverage options or restrain prices will be met with strong opposition from the health care industry. Employers … could be a powerful counterweight."
Two sets of golden handcuffs
One could argue that health benefits have become "golden handcuffs" for employees and employers alike—binding people to unhappy jobs to maintain coverage and turning employers into healthcare's predominant payer as a way to attract and retain talent.
"In what remains a tight labor market, employers are absorbing most of the health care cost increases," said Debbie Ashford, North America chief actuary for health solutions at Aon. In August, the company projected a 6.5% rise in 2023 per-employee healthcare costs. Based on data from 700 employers, the increase is more than double than what employers paid from 2021 to 2022.
Defined contribution on the rise
Upticks like these need the counterweights that KFF's Levitt mentioned. ICHRA is one of them. The arrangement represents the kind of "defined contribution versus defined benefit" disruption that The Innovator's Prescription called for more than a decade ago.
And while the prediction that vehicles like Health Savings Accounts paired with high-deductible plans would account for 90% of the private health plan market by 2016 has not yet materialized, an eHealth spokesperson indicated ICHRA interest has been notable and emerged before the company had launched its dedicated website to promote it.
Willis Towers Watson (WTW) also reports a rise in defined contribution:
41% of employers currently use the strategy with another 11% "planning or considering doing so in the next two years."
These contributions often differ by employee tier.
More than 28% of companies band defined contributions based on employee wage or job class with 13% more likely to join by 2025.
This data comes from the WTW 2022 Best Practices in Health Care Survey, which included nearly 450 U.S. companies and their collective 8.2 million employees.
Employers ready to choose their adventure
It will take a while for defined contribution and strategies like direct contracting to predominate.
"Right now, employers will continue to look to self-insurance with insurance companies to support them. But some will demand lower prices, and be willing to look at different network configurations," says Janda, adding that defined contribution is likely to drive more rapid change.
If employers are indeed mad as hell like Network's Howard Beale, new coverage options will help them follow a new maxim: don't just get mad, get even.
"The ratings are a way for consumers to hold the industry accountable and for families to choose plans based on their individual needs," said NCQA's Andy Reynolds.
The National Committee for Quality Assurance (NCQA) has published its 2022 Health Plan Ratings, which evaluate "commercial, Medicare and Medicaid health plans based on the quality of patient care, how happy patients are with their care and health plans' efforts to keep improving."
Eligible plans—those that report Healthcare Effectiveness Data and Information Set (HEDIS) results to NCQA—receive a 0–5-star rating. For calendar year 2021, this included 1,048 health plans.
"With open enrollment for health plans beginning in November, the NCQA 2022 Health Plan Ratings provide timely insight to help consumers and businesses make informed decisions about their health care," said NCQA President Margaret E. O'Kane in the agency's ratings press release.
In interview with HealthLeaders, Andy Reynolds, the organization's assistant VP of external relations, added: "The health plan ratings are a culmination of NCQA values, including measurement and transparency. They are a way for consumers to hold the industry accountable and for families to choose plans based on their individual needs."
Sarah Shih, NCQA's assistant VP of research and analysis, also detailed plan rating methodology, which includes:
Patient Experience – Self reported by patients, measured by eight questions from the Consumer Assessment of Healthcare Providers and Systems (CAHPS).
Clinical – The proportion of eligible members receiving preventive services (prevention measures) and recommended care for select conditions (treatment measures).
Accreditation – Plans that are NCQA accredited (including full or provisional status receive an added 0.5 bonus points as part of their rating.
The NCQA website details complete results, measures, and methodology. Key findings from the 2022 Health Plan Ratings include:
Six plans achieved five-star ratings, including Kaiser Foundation Health Plan (KFHP) which achieved a top rating across all three lines of business.
Specifically, KFHP of the Mid-Atlantic States, Inc. received five stars in its commercial, Medicaid, and MA plans (counted as three distinct plans). The payer's MA plan in Colorado also earned five stars, with other top-rated Medicare Advantage plans including: Medical Associates Clinic Health Plan of Wisconsin; and Medical Associates Health Plan, Inc.
The NCQA ratings represent a significant proportion of U.S. health plans.
Up to 203 million Americans are represented by NCQA-accredited plans, a number that "has never been higher," said NCQA's Reynolds. More than 70% of the people enrolled in a commercial, Medicaid, or MA plan are members of an NCQA-accredited plan. Note: NCQA does not rate ACA Marketplace plans.
Patient experience is paramount, despite a decline in adult care satisfaction.
"The clear signal we all want to put forward is that patient experience matters," said NCQA's Shih. "Roughly 22-27% of overall rating weight is patient experience, which is close to CMS MA Star Ratings." The ratings did reflect, however, that adult patients' overall healthcare ratings of their plans dropped year over year for both commercial (4.2%) and Medicaid (2.2%) plans.
Patient experience will only become more important. Shin noted that there is an intent to develop additional experience measures, which could be added to CAHPS, represent entirely new types of metrics, or both.
Quality improved for Heart Disease and Diabetes Care.
Controlling high blood pressure improved the most: 6.9% for commercial plans, 7.6% for MA, and 2.7% for Medicaid. Plans improved on two diabetes-related measures: Controlling blood pressure (with an average increase of 5.5%, 2.5%, and 2.1%, respectively for commercial, MA, and Medicaid Plans) and Controlling Hemoglobin A1c (performance improved on average 4.1%, 3.2%, and 3.3% for those same categories).
Both Heart Disease and Diabetes Care had declined the prior measurement year (2019–2020).
Immunization rates show children on Medicaid more at risk.
While immunization rates were up 2.2% for commercially insured children, they declined 3% for those enrolled in Medicaid plans. In its ratings press release, the NCQA noted: "This >5-point divergence suggests a growing gap in preventive care that puts America's most vulnerable children at disproportionate risk for disease."
The immunization disparity highlights the continued importance of health equity.
Speaking on the healthcare disparities that the pandemic laid bare, Reynolds stated: "Everyone gets it: we have a problem. From there, there are a variety of responses and readiness to respond." Reynolds added that while some states are out front and others are just getting started, "there stepwise ways to get better" no matter where a state or plan currently sits.
One surprise: The number of plans not meeting reporting benchmarks.
As part of NCQA's methodology, 40% of plans must be able to report a measure for it to be used in the ratings. The organization reports that two Medicaid measures (Rating of Specialist, Care Coordination) and one Commercial measure (Claims Processing) failed to meet the threshold and were excluded from the 2022 ratings. All three are CAHPS patient experience measures.
"We're trying to understand the why of this," said Shih. "It could be continued impacts from the pandemic, that the public is just feeling over surveyed, or other reasons."
The development represented what Reynolds termed "a tale of two cities" in this year's ratings: "the reduction of plans not meeting reporting thresholds but at the same time, an unprecedented expansion" of U.S. health plan members represented.
"Particularly for payers now, you need to show economic outcomes and savings," says one company founder.
Until fairly recently, digital therapeutics (DTx) simply weren't on healthcare's shelf.
These products "deliver medical interventions directly to patients using evidence-based, clinically evaluated software to treat, manage, and prevent a broad spectrum of diseases and disorders" alongside medication. Examples include mental health applications from BehaVR (virtual reality focus) as well as Big Health, which also targets insomnia, and Pear Therapeutics, which offers additional products for substance abuse and severe persistent mental illnesses such as schizophrenia.
The epidemic nature of mental illness in the U.S. puts these and other DTx companies well on their way to addressing the Holy Grail of product fit: TAM-SAM-SOM, or the available, serviceable, and obtainable markets for new offerings.
But market demand comes in two forms: those who need your product and those who will pay for it. They may not be the same party.
Insurers, employers, and PBMs are the B2B segments that DTx companies need to grow with scale. As Big Health co-founder Peter Hames notes: the customer is "whoever economically benefits from … [an] individual being healthy as quickly as possible. That customer is, therefore, whoever pays their healthcare costs."
An innovation in search of its SKU
As HealthLeaders covered in December, Big Health is one of several companies pioneering DTx coverage and payment. This is especially important for prescription digital therapeutics (PDT), those DTx interventions that a clinician must order and that have received FDA clearance or approval.
Healthcare codes are an important part of the equation, for prescription and non-prescription DTx alike. These include CPT (Current Procedure Terminology) and HCPCS (Healthcare Common Procedure Coding System). Just as product SKUs revolutionized both early supply chain management and modern e-commerce, diagnosis and billing codes are needed to unlock DTx uptake. And while a limited number exist, there is a lack standardization—and manufacturers would argue variety—to scale DTx use.
To be fair, DTx traction is about more than product classification. It's about product efficacy. Where is the proof that 'x' not only works but is cost-effective? As Aaron Gani, former Humana CTO and now founder and CEO of BehaVR, noted in a recent interview with HealthLeaders: "Randomized controlled trials (RCT)—which are really just tables takes to demonstrate safety and efficacy—are not necessarily enough to convince the key decision makers, whether it's clinicians or payers, that your program should be adopted.
Gani said: "You have to go beyond that to real-world evidence of clinical effectiveness. And, particularly for payers now, you need to show economic outcomes and savings," adding: "It's one thing to prove some set of endpoints in an RCT. But what about outcomes over six or 12 months? Does your solution really change lives in a way that's persistent?"
Coverage categories and novel interpretation are the next frontier
Beyond efficacy, however, DTx will also succeed on its ability to be workflowed. And while progress has been made, Health Affairs notes that next-level adoption will require CMS action: "[C] considering alternative regulatory pathways in the design of future payment rails may lay the groundwork for a path to federal coverage for digital therapeutics."
The current state of DTx coverage and reimbursement could be described as limited, one-off, even creative as payers—mostly self-insured employers—strike individual DTx contracts using a patchwork of codes. These include new CPT and HCPCS PDT-related codes added in 2022.
While these additions are a step forward, Health Affairs notes that "PDT manufacturers … have long pushed for a transition to claims-based reimbursement as a more scalable and repeatable method for selling and distributing these products."
This would require "either a new Medicare benefit category or a revised interpretation of existing benefit categories to incorporate digital health technologies," both tied to evidence standards with the Health Affairs article concluding: "CMS can take advantage of infrequently utilized regulatory pathways to both supplement the evidence base for PDTs and help guide the development of a fair, cost-effective fee schedule for these products in line with the level of clinical value they provide to patients."
"Extras have become table stakes in this competitive environment," says the payvider's chief Medicare officer, Britta Orr.
Focus on national Medicare Advantage (MA) headlines and you might miss some intriguing local dynamics—like what it means for a state to transition from Cost Plans to MA and how Allina Health | Aetna has become a leader in a market that didn't exist five years ago.
A great place to get those insights is from Britta Orr, Allina Health | Aetna's chief Medicare officer. Orr is responsible for driving Medicare strategy, directing functional areas for the provider-payer joint venture, and managing regulatory compliance.
Minnesota's shift from Cost Plan to MA market
If you hadn't thought about Medicare Cost Plans for a while, you can be forgiven. Until 2019, MA plan presence was limited in Minnesota. Original Medicare and Cost Plans ruled, causing what Allina Health | Aetna's CMO calls "an acute shift" in market dynamics.
Per a Congressional update in contract year (CY) 2016, service areas "where two or more competing local or regional Medicare Advantage (MA) coordinated care plans meet minimum enrollment requirements" must terminate their Cost Plan offerings over the course of the entire prior contract year. Cost Plans, now available in only a handful of states, offer Part A and Part B coverage with both offering the option to add drug coverage.
Orr states that $0 premium MA plans in Allina Health | Aetna's service area have seen 130% state growth since the shift from Cost Plans in 2019, the same year that Allina Health | Aetna launched its plan and introduced what Orr calls "positive disruption" in the form of MA's low premiums, added benefits, and out-of-pocket limits.
The MA planning cycle
Given that its MA planning cycles run two to three years, it's still early days for Allina Health | Aetna's MA strategy. In addition to the recurring bid process every MA plan grinds through, the payvider's annual cycle includes spring product planning based on consumer market signals, benefit choices, innovation, and unmet need.
Per Orr, the plan also looks out "years ahead of current bids from benefit design, marketing, training, selling, and serving"—including trends like the young Boomer social media use that helps define consumer communication strategy.
All this in addition to pricing.
"Pricing as close to the pin as possible"
During the 2022 MA Annual Enrollment Period (AEP), Humana's stock price plummeted after the payer adjusted its enrollment projections. Only in a market as organically hot as MA can notable, albeit lower-than-expected, growth be seen as a negative. Analysts believed Humana had priced too conservatively.
When asked about this and the role pricing would play in 2023 MA dynamics, Orr answered: "With benefits and pricing, our goal is to get to as close to the pin as possible. This is extremely important from a bid perspective," adding: "We want to avoid consumer cost volatility. We don't want to underprice and surprise with higher premiums later. Allina Health | Aetna has kept a stable portfolio year over year in the face of new entrants and enhanced benefits."
Leveraging national resources
About those enhanced MA benefits, Orr notes: "The extras have become table stakes in this competitive environment."
In delivering those extras, Allina Health | Aetna has access to something few state plans do: the national resources of CVS Health, Aetna's parent company.
"We have a Goliath in our corner," says Orr.
"We can reach into CVS and leverage technology, data, and analytics for targeted care," she adds, also noting the retailer's enhanced services HealthHUB Hub model, its Resources for Living service ("an Angi's list for health"), and OTC benefits.
As part of a "whole-person health" approach, Orr also named her plan's wraparound services, including post-discharge meals and a $100-per-quarter benefit card that can be used for medical copays and other out-of-pocket cost shares."
Consumerism comes in many forms
"I am always wearing the consumer hat. Our sales motto is the best benefit with no surprises," says Orr.
Noting that Allina Health | Aetna's very first MA Star Rating was a 4.5, Orr adds: "To compete on benefits, you must compete on high quality, provider partnership, and other collaborations, especially for high-need populations."
Orr also stresses the importance of the omnichannel, "Amazon-like experience" that healthcare consumers are looking for. For Allina | Aetna, that means meeting people where they're at and communicating with them in the ways they want. Plan engagement ranges from online portals to brick-and-mortar, storefront sites with local member advocates.
Orr sees Allina | Aetna's payvider model as another consumer benefit.
"It's an exciting model to be in close provider partnership," says Orr.
A multi-organization response to CMS' proposed Physician Fee Schedule seeks to build off strong program savings but flat participation growth.
The National Association of ACOs (NAACOS) is calling for the strongest possible accountable care design as the program posts significant annual savings and quality.
In a comment letter to CMS' proposed 2023 Physician Fee Schedule, the association and 10 other provider groups called out the following rule components—expressing support for some and changes to others.
As summarized in the NAACO press release: "The regulation, if finalized, would bring several positive changes to [MSSP] … including giving ACOs more time before advancing to the highest levels of risk, providing fairer, more accurate financial benchmarks, making positive changes to quality scoring approaches, and providing advance shared savings payments to smaller ACOs that serve underserved populations."
Continued and expanded funding
Launching and maintaining successful value-based care (VBC) models requires significant funding. As such, the NAACOS group letter supports advanced payments to all ACOs with health equity objectives. The group also wants to see incentive payments continue for Quality Payment Program participants that are part of Advanced Alternative Payment Models. The annual 5% bonus expires in 2022 and can only be renewed via legislation. House Democrats introduced the Value in Health Care Act in July 2021 to extend the incentive program while making other MSSP changes.
Greater stakeholder voice and flexibility on ACO benchmarks
Support for CMS benchmark changes is varied from the NAACOS group, with their letter applauding the administrative benchmarks to support reimbursement and health equity but wanting stakeholders to have adequate opportunities to shape these changes and participate in them in a timely way.
The NAACOs letter calls for CMS to eliminate the identification of high and low-revenue ACOs, noting that these distinctions are arbitrary (e.g., Federally Qualified Health Centers, Rural Health Clinics, and safety-net hospitals are considered high revenue) and should be made instead based on an ACO's patient characteristics.
Innovation, fast and slow
CMS wants 100% of original Medicare beneficiaries to be in VBC by 2030. This will require continued innovation. The NAACOS group letter urges the agency to use "MSSP as an innovation platform … to test new concepts typically reserved for CMS Innovation Center models such as a full-risk track, primary care capitation, and other public health emergency-era waivers." In other areas, including electronic quality reporting, the group urges CMS to slow its timeline to ensure a smooth transition.
The organizations that signed the letter, in addition to NAACOS, included: America's Essential Hospitals, American Academy of Family Physicians, American Medical Association, AMGA, Association of American Medical Colleges, Federation of American Hospitals, Health Care Transformation Task Force, Medical Group Management Association, the National Rural Health Association, and Premier, Inc.
The recent acquisition will convert HCSC from customer to owner of the ninth largest third-party administrator (TPA) in the U.S in a bullish and rapidly changing TPA market.
Member lives.
While health plan business diversification means that enrollment is not the only way that payers turn a profit, capturing member lives is still a primary objective. And there are many ways to do it: organic growth, partnership, or acquisition, and by direct enrollment, health services contracts—or acting as a health benefits TPA for self-insured employers.
"With this acquisition, we're making it easier for employers of all sizes to have access to our expansive provider networks, our data-driven insights and coordinated approach to care that focuses on quality and value," states Kevin Cassidy, HCSC's president of national accounts.
"Of all sizes" refers to the growing number of smaller companies opting for self-insured benefits. It's good for payers. But are these companies really getting the best deal as health plan, TPA, and employer dynamics shift?
Payers 2.0
"Increasingly, large health plans aren't referring to themselves as just insurance companies. They rent their networks and sell disease management and population health programs. A larger percentage of their revenue is toward selling services."
This from HealthLeaders' interview with Ken Janda, a consultant, adjunct professor at the University of Houston College of Medicine, and 40-year insurance industry veteran.
But don't take only Janda's word for it. In 2021, America's Health Insurance Plans updated its trade association name to just "AHIP"—noting that payers are more accurately providers that "play a critical role in making health care better."
That role includes the big business of TPA contracts.
Speaking last fall to TRADEOFFS for another TPA analysis piece, Janda noted: "The large insurance companies like Aetna, Cigna, UnitedHealthcare … all love to act as a third-party administrator. It's safer than being in the insurance business."
For these insurers, TPA contracts represent the bulk of their covered lives: Cigna at 76%, Aetna at 59%, and United at 42%—representing a collective $20 billion in TPA services in 2020.
This is more than the 10 largest TPAs combined (inside and outside of healthcare). These numbers make TPA contracts not just a payer side hustle but a main gig.
"From an insurance company standpoint, if you can get a TPA contract that pays $50 per employee per month and have the employer take the risk, why wouldn't you do that? Even though the revenue is less, it's less risky revenue."
TPAs 2.0
TRADEOFFS notes that the percentage of workers covered by self-funded plans has risen consistently, for all employer sizes, from 1999–2020:
Small (3–199 employees): from 13% to 23%
Mid-size (200–999 employees): from 51% to 59%
Large (1,000+ employees): from 62% to 92%
As smaller organizations turn to self-insurance with the help of deals like the HCSC-Trustmark acquisition, this trend is likely to continue.
Until it doesn't.
If and when things change, a new generation of TPAs may cut into payer profits, but likely on their way to being acquired. A November 2020 report from FCA Venture Partners stresses the opportunity: "Since 2015, the TPA market size in the US has risen by over 4.8% per year … The TPA industry is $240.5 billion in revenue per year and is the 35th largest market size in the US … [C]oncentration is quite low, however, with the top 10 TPAs accounting for only 3-5% of the total."
FCA adds that it is "bullish on the potential for innovative TPA solutions to have a meaningful impact on runaway healthcare costs and be an attractive driver of value in the healthcare ecosystem."
FCA brands these solutions "TPA 2.0 … because of their superior tech, patient-focused care, and simple user interface," adding: "Realizing this, larger insurance companies have begun buying up both large and small TPA 2.0 tech startups to modernize their claims process."
But does this outweigh the risks, challenges, and the benefits of emerging options?
Employers 2.0
Payer TPA upsides are matched by a growing number of employer downsides. As TRADEOFFS notes, these include insurer contracts that may conflict with the best interests of their employer clients—who may also be restricted from accessing their own claims data and end up spending more on TPA as payers charge additional fees for bolt-on services.
"The original idea of a TPA was to save employers money," says Janda. "Most employers still believe they are doing the right thing by being self-insured because they don't have to worry about a risk pool made up of other employers or about the risk margins of pricing insurance."
Drawing from his prior experience with Aetna, Community Health Choice, Humana, Prudential Health Care, he adds that employers have a role to play as well in building a better mousetrap.
"Most large employers have not asked their insurance companies or their TPAs to go out and get them a better deal, so they are complicit in this as well."
Value 2.0
Today, however, employers have more options, including direct contracting with providers as well as ICHRA—the Individual Health Coverage Reimbursement Arrangements enacted in 2020 in which employees buy their own coverage with the help of employer subsidies.
eHealth, for example, is now offering ICHRA "products and services" on its private insurance exchange, noting that smaller businesses may find the option less risky and more affordable.
The confluence of these alternatives with TPA 2.0 will drive both more M&A activity and an employer market that looks very different in the next five to 10 years.
"Right now, employers will continue to look to self-insurance with insurance companies to support them," says Janda. "In the end, however, this will not drive better value. That will come from VBC models that are more conducive to their goals."
From the importance of composability to buy-versus-build decision paths, there is a common takeaway regarding healthcare platforms: the need for nuanced strategies executed with unrelenting focus so payers can make the most of digital disruption.
No single answer for buy versus build
The best platforms—bought or built—reflect a mature vendor API strategy and user interface, paired with openness and integration and the underlying characteristic that maximizes every opportunity: composability, the capacity for modular components to work together to form more complex systems.
Says Jesse Horowitz, chief product officer for Oscar Health: "You may say that we're going to become the best-in-class algorithmic, medical, clinical, coding, AI company, and so we want all this in house. Most payers probably are not saying that and so really what you want to have is the easiest plug-and-play with any vendor on the planet."
Horowitz adds: "What has already become very universal is the improvement of economics. The need now, more than even six to 12 months ago, is to show a tangible result. I think it's been easy over the past number of years to talk about buying capabilities, but capabilities don't translate to results."
Alex Zavgorodni, VP of Enterprise Architecture at Healthfirst, notes: "You've got to be in a position to take advantage of what's to come. If you don't have a composable way to participate in the evolving ecosystem through digital channels, you will miss out."
Integrating the three-legged stool
Just as platforms cannot be monoliths, neither can approaches to meeting payer, provider, and customer needs.
"Our platform decisions are driven by our need to ensure the connections between all three are well thought out and allow for easy integration," says Tom MacDougall, CITO for L.A. Care Health Plan. "As a payer we are accountable to the member first, followed very closely by our commitment to the provider. We have begun to place an increased focus on the data we as a payer maintain which is utilized to assess the health of our members."
Data is the tie that binds stakeholders, with Zavgorodni adding: "I would argue that any plan that is looking to build a better consumer experience based solely on the information they control within their four walls will result in a very short journey."
The Healthfirst VP adds: "Melting away administrative efficiencies on the part of providers and payers is what's going to allow us collectively to focus a more intentional and cohesive consumer experience. That's a very interesting kind of dynamic in how you think about what issues platforms can solve."
Innovation accelerators and detractors
Regulation and process approach can either help or hinder platform-driven progress.
"I think that regulation is the catalyst for other significant change, but I think there are also two other factors. Who can come up with good, useful applications that are going to play into either the consumerization aspect or drive extreme amounts of efficiency," says Oscar's Horowitz.
Zavgorodni agrees. "The shift that's unstoppable is the digital disruption around consumer experience in everyday life. What's holding us back is the notion of a human wrapper in how companies operate. An enormous amount of money is spent on administrative functions."
MacDougall added the importance of iteration. "To not stall innovation, the focus must remain on 'the need,' 'the benefactors,' and 'the delivery of V1.' There needs to be an understanding of who owns the product, what the regulations are that shape its functionality, and who makes the call. It's okay to go out early and a bit ugly as that's where the rubber hits the road and true progress begins."
Stakeholders from five countries identify critical digital transformation connections in the 2022 HIMSS survey.
"Most providers, payers and clinicians [understand] that traditional healthcare will give way to a different patient experience … When a doctor visit is warranted, they will more likely seek medical centers with digital front doors, retail based urgent care and big tech companies moving into the healthcare arena."
The implications from an August 2022 HIMSS Future of Healthcare report signal just how secondary in-person care could become before decade's end—with trackers and apps driving prevention and wellness, and advanced telehealth and remote monitoring subbing for acute care and preventing hospital readmissions.
Highlights from the HIMSS report follow, with a focus on payers but based on healthcare leader responses from five countries: the U.S., United Kingdom, Germany, Australia, and New Zealand.
A new confidence in navigating disruption?
"Almost every US and international healthcare system intends to be in some stage of digital transformation by 2026-2027." So begins the HIMSS report, adding: "[R]esponses make clear that a transition toward digitally enabled and personalized care is well underway, even as adoption rates vary."
Health systems: Roughly 90% are preparing to deliver "digital-first primary care within the next five years." For specialty care, the number is nearly 50%, up 30% from the prior HIMSS report. These numbers—this year and last—are similar for "digitally enabled contact/service centers."
Clinicians: Some 76% of providers globally and 62% in the U.S. believe patients' willingness to use digital health tools will increase in the next five years.
Payers: With big gains in their belief that nontraditional approaches will drive personalized care delivery, U.S. health plans are catching up to their global counterparts—with mental/behavioral health, retail clinics, and online-only services leading the way.
There is something about inevitability that breeds confidence.
Look back five years and fewer than half of companies felt ready to respond to digital disruption. Fast forward five years and a similar amount of health systems expect to be implementing "core clinical and enterprise digital initiatives."
While the what and the how of transformation may differ by stakeholder, HIMSS adds: "Every group in the study was encouraged by the potential for digitally transforming health systems to greatly improve current health access disparities, rather than to further isolate patients located in digital deserts."
The Garmin will see you now
The best way to combat digital deserts is to create an oasis of digital doors, consumer-friendly entry points that marry trackers and apps to telehealth and remote monitoring on the care side and to diverse digital communication on the service side.
Despite multiple advances, clinicians are confident of their place in the digital landscape. HIMSS notes: "Fewer than 15% of clinicians across different countries believed they would be working in a fully digital work environment five years from now. This reflects growing understanding that digital transformation is ongoing, and that technology's role is to augment and not fully replace human interaction."
Clinicians are bullish on general tech enablement, including "workflow improvements that free up time to spend on complex cases," as well as better personalized care in three leading areas: cardiovascular disease, mental and behavioral health, and respiratory conditions.
How payers view the path to 2027
Predictably, the HIMSS report notes that "payers are excited by digital transformations' potential cost savings," adding that they "intend to improve incentives to push both plan holders and healthcare partners toward adopting digital tools that keep patients healthy and out of hospitals."
Payers are also confident that, post pandemic, "financial and technical barriers will ease" in the coming years and that "big tech innovation will be a major driver of digital transformations." However, compared to the 75% of U.S. payers that see tech innovation as the driver, only 64% believe tech companies will take command, particularly when it comes to personalized care innovation.
Bigger and techy-er may indeed be better
There is some but not total agreement on who will lead innovation
As noted previously, providers, payers, and clinicians all understand that big tech companies will continue their healthcare power plays. The HIMSS report states that "large national plans are expected to lead the way in supporting nontraditional approaches for care delivery."
Analysis from Tom Kiesau, chief innovation officer for The Chartis Group—a HIMSS Trust Partner—notes: "Given the increased reliance on technology companies, health systems should anticipate big tech companies becoming rivals for patients.
Kiesau adds: "These new market entrants are hyper-focused on meeting consumers' needs, which has effectively raised the level of expectations for how easy and satisfying care should be to access and receive."
