Health plans are transitioning away from health insurance to being service providers

Recently, Cigna sold its Medicare Advantage business to HCSC, creating a stir across the industry regarding the changing dynamics of the healthcare payer business. We recently published a point of view on how Cigna is bailing on Medicare to focus on healthcare services. For our in-depth analysis, we analyzed the last five years of revenues and membership across the different service lines of the six largest publicly traded health plans. We identified some major trends:

• Growth in self-insured employer enrollment: In 2020, self-insured enrollment by employers surpassed the enrollment in health plans underwritten by health insurers, becoming the single-largest market segment for healthcare. There has been an increase in commercial services offered by insurers, where they handle the administration for self-insured employers without assuming the risk. As more employers self-insure, reliance on health insurers will continue to decline.
• Vertical integration to drive influence: Healthcare payer firms are shifting toward higher-margin commercial services through vertical integration, where payers will have more control over their healthcare services. This will make payer firms align their offerings with traditional insurance offerings for better profitability.
• Demand for risk-based services is declining: Due to decreasing profitability, healthcare payer firms are moving away from lower-margin businesses like Medicare and Medicaid toward higher-margin commercial services, reflecting a declining demand for traditional risk-based services.

The Bottom Line: Health plans continue to jostle for relevance as they battle revenue pressures, regulatory burdens, and evolving consumer expectations. All these attributes have shifted the payer market significantly.

Various evolving business models are disrupting health plan firms. The legacy ecosystem of health plans, benefit administrators, and healthcare providers is fraying rapidly. The health plan industry is experiencing significant disruption, with firms becoming predominantly services businesses instead of risk management businesses. Firms have been seeking to maximize profitability by moving away from traditional, lower-margin insurance businesses like Medicare and Medicaid.