Healthcare is becoming a retail business. The exchanges created by the ACA (1) and other forces are making consumers responsible for choosing health plans and providers. Major retailers see this, and they are deepening their health care value add, becoming healthcare providers and more. Someday soon, when you launch your Bitcoin wallet on your smart watch to pay for a prescription, the salesperson will ask, “Do you want the insurance with that?”
Since World War II, when employer-sponsored health insurance became the principal way Americans access insurance, health care has been business-to-business. Employers choose health insurers, and increasingly insurers choose providers, who choose specialist providers. And that’s accepted because the employer pays the bill, or used to. Consumers did not know, or need to know, much about purchasing health care. The system told them what to do.
This is now changing fast, for three reasons.
1. The ACA subsidies on the exchanges will drive growth of direct (i.e., “retail”) purchase of health insurance from ~6 million Americans in 2013 to ~75 million in 2020. 15-20 million currently uninsured people will enter the retail market via the exchanges. And, many analysts expect that about 45 million people who are now on employer-sponsored plans will move to retail plans purchased on exchanges, usually with a stipend from the employer. Many who remain on employer-sponsored plans will buy health insurance on an employer-sponsored “private” exchange: the employer will give them a fixed allowance and an array of choices. In a short time the “retail” insurance market, which has been a niche, will become huge (see chart below).
Data via US Department of Commerce, Urban Institute, Aetna.
2. Consumers are becoming progressively more exposed to the cost of their health care. Employers are hollowing out health plans. High deductible plans are growing fast, now covering 15 million employees and families. Employers are moving to “defined contribution” health benefits: the employee receives a fixed amount of money to pay for health benefits and must cover any shortfall. The popular plans on the exchanges, bronze and silver, cover only 70% and 80% respectively of expected healthcare costs. When consumer have more skin in the game, they behave more like consumers.
3. Retailers are moving up the healthcare pyramid. Walgreens and CVS (2) are aggressively growing their networks of in-store clinics. CVS took the big step last week of removing tobacco products from its stores. Why? Because it’s strategy is to be a healthcare company, not a discount retailer (and selling tobacco is not consistent with healthcare).
Three forces drive the opportunity for retailers. Primary care doctors are in short supply due to decades of neglect and rapid growth in the insured population; drug store clinics staffed by nurse practitioners can help fill the gap. Improved information technology (“the cloud”) makes it possible to deliver healthcare in multiple locations and pull the information together when needed. And a big, growing market attracts the major retailers: as CVS CEO Larry Merlo said at the JP Morgan conference, “We’re going to get a bigger share of a bigger pie.”
4. Government funded healthcare is growing, too, and ironically that also leads to “retailization”. While Medicaid is becoming a top-down managed program that offers clients little choice, Medicare Parts A , B, and D are “retail” in many ways. Consumers can choose almost any provider, and they choose from a vast array of commercial Medicare-supplement and Medicare Part D insurance products. Medicare.gov offers a useful “exchange” web site that helps consumers choose (3). Medicare Part D is a complex on-line shopping experience: dozens of offerings and fairly complex analysis to determine which plan is best on the basis of each individual’s medication needs. Medicare Advantage (Part C) is a managed program once you enroll, but it too has many plan offerings among which consumers have to choose. Anyone who has clicked the button for “more information” on a Medicare web site and given a phone number knows that this is a direct-to-consumer marketing business: the phone calls never stop.
We will all need to become smarter healthcare consumers, and we will need help to do that: information, shopping tools, ways to track health care spending (a healthcare equivalent to Quicken/Mint?), tools to monitor our health status and communicate with our providers. Employers need tools to enable “retailization” of health care: platforms for private health exchanges, platforms for employer-sponsored healthcare savings accounts, cloud services to link these platforms and integrate the data, etc. This creates many opportunities for big and small companies alike. And just about everyone in the healthcare ecosystem needs to consider how this shift in buying behavior, distribution channels, and value added structure will affect them.
So we’re entering into a new era of retail healthcare. Drug chains are embracing this market, and insurers are charging in too (the silver lining for them is much higher value added per customer versus self-insured corporate plans). It can’t be long before Walmart rolls out a retail health plan. But I’m not ready for that.
- The “Patient Protection and Affordable Care Act” of 2010, often called the ACA or “ObamaCare”.
- CVS Caremark Corporation.
- Ironically, before the October 2013 federal exchange debacle, the CMS division of the Department of Health and Human services built complex shopping web sites for Medicare supplemental insurance and Medicare Part D (prescription drug) insurance that have operated quite successfully.