Healthcare is stuck in a series of short-term relationships. Every 12 months, the annual renewal cycle rolls around and employers and commercial health insurers begin the negotiation dance anew. The short-term nature of annual contracts challenges insurers’ efforts to strengthen their relationship with employers and thwarts efforts to build deeper connections around long-term value.
Enter multi-year trend guarantees. Offering multi-year trend guarantees enables employers to lock-in total costs over the long-term, eliminating the need for annual renewal negotiations while driving stickiness for insurers and making space for higher-value collaboration around improving health status. A trend-guarantee product fundamentally shifts the focus from rate cards to total cost of care, meeting employers’ demand for more certainty around health-benefit spend.
So, might it be time to say goodbye to 12-month stands, break free of the annual renewal cycle, and win big in terms of differentiation, customer stickiness, and long-term cost control?
Why the time is right
Today’s market dynamics, with the ever-increasing need for cost control and predictability and the need for plans to differentiate beyond just price, offer the ideal conditions to design and launch these products. Oliver Wyman research suggests that for some employers, a strong guarantee may be as attractive as a double-digit discount on premium. In addition, more insurers now have the clinical management infrastructure that will allow them to make good on multi-year guarantees, and the rise of payer-provider partnerships and partnered-product launches is bolstering the collaborative provider relationships required to reliably control multi-year spend.
It is important to note that this is not unchartered territory: Multi-year agreements do exist in the market today, primarily in the form of multi-year network rates for large, self-insured employers. Some have taken the next step towards multi-year total cost of care. For example, a number of jumbo employers, including Boeing, have direct provider contracts with multi-year terms. Washington State’s Public Employee Benefits Board has a four-year trend guarantee to keep costs in line with the S&P healthcare claims index. And in the fully insured market, Intermountain Health offers a three-year premium proposal for employers under their SelectHealth product, taking on full upside and downside risk.
A trend-guarantee product fundamentally shifts the focus from rate cards to total cost of care, meeting employers’ demand for more certainty around health-benefit spend.
While successful multi-year guarantees represent a tremendous opportunity for insurers, careful design and execution is key to profitability and success. These four considerations are the framework for any successful multi-year trend-guarantee offering.
ID the target customer
While almost all employer segments value certainty, our market research shows that some types are more open to investing in collaborative, multi-year approaches to cost management. Amenability may depend on characteristics such as turnover, unionization, and how big a role health benefits play in helping the employer retain and attract talent.
Tailor guarantee design
Understanding the customer is paramount to designing the guarantee. Sounds obvious, but different durations, levels, and structures will better suit particular employers. How the guarantee is sold also may differ by customer type. For example, segment-specific sales strategy must determine whether the guarantee is offered as a built-in feature of the product or a buy-up that can be purchased for an additional fee.
Evaluate and control guarantee risk
In addition to understanding what will be most valuable for the customer, it is also important to understand how much risk the insurer is willing to take. Multi-year products introduce new and less-understood risks into traditional insurance products. The simple multi-year lock-in that employers want creates exposure both to trend risk and any year-over-year changes in the health status of employer groups. What’s more, any uncertainties in the underwriting processes (limited past claims history or utilization information, for example) get compounded over a multi-year period. The sharing of risk between payer, provider, employer, and potentially reinsurer, needs to be clearly understood.
A thorough risk modeling approach that appropriately accounts for these risks, as well as the nuances of path dependencies and the “fat tails” associated with typical claims patterns, is needed to ensure that the guarantee is a win-win for both the writer of the guarantee and the employer. If you’re going to be playing, you better know how the guarantee stacks up relative to your other exposures and your available capital.
Adopt a multi-year mindset and expanded population health toolset
A multi-year sale requires a multi-year mindset to deliver against guarantee targets. Offering a trend guarantee is the call to action to move away from the blunt instruments of utilization control and risk arbitrage to longer-term investments in care management and population health.
The multi-year product provides a seat at the table; winning requires close collaboration between employers, providers, and payers. That collaboration is what will drive an integrated, long-term approach to better managing the care of members to achieve guarantee targets. The multi-year relationship will also foster a longer-term, trusted relationship with members, which is necessary to nudge behaviors to improve health status and truly realize the value of a multi-year relationship.