Blurring of the Lines: Hospitals as Insurers

The trend of hospital systems getting into the full-risk insurance business is here to stay as they seek control of the complete patient lifecycle. A recent survey from The College Board found that 28 percent of hospitals hope to launch their own insurance plan within five years. According to the American Hospital Association 2015 guide, there are more than 400 hospital systems in the U.S. Combining these two data points indicates the potential for the launch of more than 100 hospital system-owned health insurance plans.

Market Entry

Launching a health insurance plan is difficult. It requires niche expertise and considerable foundational investment. Direct-to-consumer marketing — getting an individual to raise their hand — in an expression of engagement, is a craft unto itself. For hospitals, leveraging proven DTC “best-in-class” marketing to acquire health plan members means new skills.

Acquiring and retaining insurance members is very different from traditional hospital patient marketing. To accomplish it efficiently (i.e., cost, timing, resources) and effectively (i.e., measurable results), proven methods are critical to success. It takes a delicate balance of local brand leverage with tested direct response marketing practices. Marketing and sales of insurance products is a unique and challenging undertaking. Direct-to-consumer health insurance marketing in a heavily regulated environment requires experience and insight to be successful.

Five keys to a successful launch:

  1. Use data to find your best customers
  2. Optimize multi-channel selling
  3. Build direct-to-consumer marketing capabilities
  4. Deliver superior customer experience
  5. Create relevant brand connections

Market Survival

As a new health insurance player, successfully balancing premium adequacy, growth strategies, and expense structure is a daunting challenge. As a startup, it also means going in with your eyes open, particularly with government as your business partner (i.e., ACA, Medicare, Medicaid). That’s a world of “unknown unknowns,” which we’ve seen change markets such as risk adjustment rule shifts and program funding, or rate promises never realized… it’s all part of the game.

New health insurers must labor to achieve critical-mass economies of scale and manage medical claims risk, so that sustainable profitability is a reality, not an illusion. Here are a few essential areas of focus:

Pricing discipline

It’s been the demise of many an insurance company – low first-year pricing that “we’ll make up on renewals,” which never happens. You can’t sell a dollar loaf of bread and expect to make it up later. Rate adequacy is essential to a workable insurance endeavor. Actuarially sound pricing and risk management is the ultimate key to success. It may mean slower growth, but it will mean profitable growth.


Knowing your prospective customers better than your competitors do will go a long way toward attracting — and keeping —profitable customers. Collect, ingest, and analyze customer data to inform strategy by market, product line, and sales channel. Where do you find them? What’s important to them? What’s their path to purchase? Why should they want to do business with your brand?


A “build it and they will come” attitude because your innovative startup is the next best business model is a false growth platform. It takes leveraging knowledge and insights about potential customers and building a cost-efficient, omni-channel distribution machine to give your prospects multiple options with consistent, seamless experiences to shop, engage, and purchase your benefit plan.

Customer experience

Let’s face it, tomorrow’s healthcare customer is in control. They want experiences to be on their terms, not yours. They have an abundance of choice and their experiences as your customer will determine how they define your value and your brand. Every “touchpoint” throughout the lifecycle must be managed to drive an integrated communication stream that empowers, engages, and promotes loyalty (and for you, maximizes LifeTime Value).

So, whether we call it the retailization or the consumerization of healthcare, startup, provider-owned health plans can succeed with strategic discipline, operating excellence, and a commitment to superior customer experiences. Reality also tells us that success requires stakeholder commitment and financial backing significant enough to achieve the short- and long-term market advantage necessary to go head to head with tough, mega-plans that in many instances are creating their own innovative startup health plans.

August 23, 2016
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