Change the business model to stay viable.

Between recent regulation and increased competition, insurers’ profit margins are under great pressure. These dynamics compound other challenges, including continued medical cost inflation as new treatment options emerge, demands from advocacy groups, fraud and abuse, an aging population, and growth in chronic disease.

Finding efficiencies in marketing and administrative costs will certainly be important, but the key to long-term viability will be reining in medical spending. While coverage denials have been used in the past, making meaningful changes to the cost of providing healthcare benefits calls for more significant change. Put simply, payers can no longer afford to simply be a financing mechanism; they must instead take steps to directly influence the quality of care delivered and the way that individuals manage their health.

Such a business model shift won’t happen overnight. It will require developing different relationships with providers and members, improving coordination across the continuum, understanding risks and targeting interventions, and changing incentives to reward outcomes. If insurers don’t create a path toward more cost-efficient care delivery, they will likely find the viability of their entire business model in jeopardy.

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