- Increased taxes
- Minimum loss ratio
- Increased competition
- Greater price transparency
- Standard benefit requirements
Tuesday, January 20, 2015
Using Ancillary Benefits to Battle Margin Compression
In a recent post, we examined some of the key drivers of margin compression in this new era of health care reform:
These factors, combined with the substantial costs associated with member churn, are driving a business truism within the health care industry: to effectively battle margin compression, health plans must strive to be present in multiple markets, and they should consider how ancillary benefits can be used to maintain and grow their business.
Of course, our industry is not the first to face game-changing legislation similar to the ACA. Following the attacks of September 11, 2001, airlines grappled both with stricter regulations that were costly to implement and shrinking demand as travelers responded to the tragedy.
Around the same time, websites like Expedia and Orbitz emerged as one of the primary sources to purchase airline tickets. These sites facilitated greater price comparison and increased price transparency, much like we are seeing today within the health care marketplace. Clearly, this kind of comparative shopping can significantly impact consumer behavior and choice.
The airlines that most successfully navigated these challenges attracted consumers with competitive base pricing and used optional amenity costs - such as added leg room, luggage fees, and food upcharges- to bring in additional revenue. Following a similar model, health plans can use ancillary benefits that appeal to consumers who are interested in purchasing supplemental care, thus preserving a significant portion of their customer base and the associated revenue stream.
Expanding into multiple markets to offset the effects of member churn can be similarly powerful in the fight against margin compression. Offloading members is costly and the movement of members between Medicaid and health exchanges can threaten the overall stability of a health plan by compromising its ability to predict its financial risk. Health plans that have a presence in multiple markets can preempt the negative impact of member churn and better preserve and protect their bottom line.
As is often the case with landmark legislation that impacts such a fundamental part of our daily lives, the Affordable Care Act has brought vast improvements and interesting challenges to the healthcare industry. Health plans have a unique opportunity during this watershed time to explore how ancillary benefits and market expansion can grow and protect their business and membership base.
Posted by DentaQuest