Startup vs. industry titan: The new world of health insurance

With yet another open enrollment period in the books since the implementation of the Affordable Care Act, consumers, employers and insurers are all taking a critical look at what has changed, what has stayed the same, and what the future of the health insurance world will be.

The ACA continues to increase the number of US consumers with health insurance coverage: 2016 enrollment was up from 2015, with 12.7 million people signing up for coverage between November and January. Close to 85% of customers who signed up for coverage on the public exchanges received federal subsidies to reduce the cost of health insurance coverage.

As insurance coverage has increased among consumers, so too has attention to the space from outside industries and entrepreneurs

And as insurance coverage has increased among consumers since the introduction of the law six years ago, so too has attention to the space from outside industries and entrepreneurs. New competitors have cropped up and the question remains, what challenges do these new companies face and how can large brands respond?

Oscar Health

Oscar Health is one example of an outsider that has continued to generate substantial buzz over the past few years.  Founded in 2012 and with a current valuation near $3 billion, the company capitalized on addressing common consumer pain points: complex products, outdated systems, and confusing explanations. Initially focused on New York and New Jersey, in 2015 the company expanded into Texas and California, growing national enrollment from 40,000 in 2015 to 145,000 members in 2016.

While gaining recognition in the industry, Oscar has had its fair share of challenges. Growth in terms of enrollment has been moderate. And while the company recently received $400 million in funding from Fidelity Investments, the most recent state regulatory filings indicate the company lost $105.2 million in New York and New Jersey, mainly due to costly health network contracts. In recent months the company has changed their strategy from large, comprehensive networks to focus on more narrow hospital networks that will allow the company to remain price-competitive in the marketplace.

Oscar’s shift in strategy could help the company maintain its mission of making choices easier and more streamlined for consumers who are willing to give up a comprehensive range of options, but the simplification of its messaging can make the explanation of coverage and benefits vague. While they have experienced some growth, the big industry players continue to dominate the discussion.

UnitedHealth: Harken Health

On the other hand, UnitedHealth Group, a company with 42.3 million customers nationwide, and traditionally focused on large employer groups, is exploring ways to reach that same individual consumer that Oscar Health hopes to gain.

But as different as the two companies are, UnitedHealthcare has faced similar losses in revenue, with a $475 million loss from ACA-compliant plans in 2015 and an additional $500 million this year.  Most recently UnitedHealthcare announced they would only operate in a handful of state exchanges in 2017, exiting most of the 34 markets it previously offered coverage in 2016.

Still, the individual market is one that is important to insurers, and UnitedHealthcare has developed a new approach to reaching these consumers: Harken Health is a subsidiary of UnitedHealthcare where customers insurance includes unlimited access to primary care and no co-pays. The purpose, as defined on the brand website, is to “restore the relationships and connections between people who need care, and those who care for people,” by “reimagining health care.”

While the digital presence is reminiscent of other startups aimed at challenging the status quo, what is different about Harken Health is the company’s ability to meld the positives of both new models in the industry with those that have been around for quite some time.

A company within a company

Millennials are three times as likely as Baby Boomers to say they would consider buying insurance from a start-up company

This isn’t the first “white label” concept from an insurance company in recent months. MassMutual also introduced an in-house startup company called Haven Life in 2015. Both MassMutual and UnitedHealthcare recognize that some consumers are buying into the notion that new brands can offer the same value as longstanding ones. In fact, Mintel found that only three in 10 consumers prefer to know policies are backed by a major brand when shopping online. Furthermore, Millennials are three times as likely as Baby Boomers to say they would consider buying insurance from a start-up company.

What UnitedHealthcare and MassMutual provide is the financial stability and longevity in the marketplace to weather many of the nuanced challenges of the insurance market. By offering a new brand to operate in a niche of the market, they can capitalize on some of the user experience lessons that startups provide, while still having the industry knowledge that often takes time for new entrants to acquire.

2017 enrollment

The next enrollment period is a short seven months away and if trends continue, more current customers will actively shop for new plans. In 2016, 70% of existing Healthcare.gov customers shopped for new plans instead of passively re-enrolling vs. 50% the year prior. Current insurers should embrace the idea that the health insurance user experience is set to be refreshed, or risk challengers in the space that could quickly overcome initial barriers to entry and gain further momentum in a rapidly changing market.

Stephanie Roy is the Director of Insights, Insurance at Mintel, focusing on all insurance sectors for Mintel Comperemedia. She is responsible for providing internal and external stakeholders with insights and analysis on trends in the Life, Health and P&C insurance industries.