Data shows SMB health plans heat up market competition

As the U.S. health insurance market continues to transform, there is a growing need to better understand the market landscape and its various segments and players.

It isn’t a secret that the U.S. healthcare insurance marketplace has become more consolidated in recent years as health plan giants acquire smaller plans. However, recent research shows the U.S. healthcare market still has more than 400 small and medium-sized health plans that account for 83 percent of all insurers nationwide. Although large insurers like UnitedHealthcare, Humana, Kaiser Permanente and others cover more than 290 million lives, small and medium payers serve a substantial 36.4 million people.

While there is no shortage of studies and data available about the “large” insurance businesses, until now there has been little market research for small to medium-sized businesses (SMB) in the payer market. According to a recent data analysis and white paper, “Insights into the Small & Medium Health Insurance Market,” large healthcare insurers (defined as those covering 500,000 or more) only represent 17 percent of the 493 health insurance businesses in the country. Conversely, small and medium payers (defined as those covering fewer than 50,000 lives and between 50,000 and 500,000 lives, respectively) represent 83 percent of all organizations in this market. Why does this matter? Trends within the SMB market gives us better insight into overall industry consolidation, market growth and competition.

Technology and consulting firms tend to cater most of their resources and solutions toward larger payers, but a one-size-fits-all offering doesn’t work for the rest of the marketplace. SMB payers require a more tailored approach. Enterprise-grade solutions can be costly and require dedicated implementation resources. Without an off-the-shelf scalable solution, many SMB health plans have been forced to build their own solutions internally as they are challenged with narrow resources coupled with intense pressure to integrate and share data. Thus, there is a growing need for technologies that can be expedited through the procurement processes, reduce implementation time and are easily customizable to address specific business functions. As these technologies come to market, the SMB sector will only continue to grow and do so with greater flexibility and agility.

This research evaluates the small and medium business markets (including SMB plans that fall into the provider-sponsored health plan and Blue Cross Blue Shield plan categories) over a five-year period – Q1 2013 to Q1 2018 – against lines of business, regional distribution and growth.

Lines of Business: This research focuses on four major lines of business: Commercial Risk, Self-funded/Administrative Services Only (ASO), Medicare and Medicaid (managed, fee-for-service).
Combined, Commercial Risk and ASO payers make up 51 percent of SMB payers but account for only 13 million lives. In contrast to the private sector, 87 percent of SMB payers offer some kind of government line of business (Medicare Advantage, managed Medicaid, dual-eligible plans, SCHIP). Altogether, government lines of business account for 23 million lives (64 percent of total SMB). Of all SMB lines of business, the most prevalent is dual-eligible plans – offered by 177 plans (43 percent).

Regional Distribution: The SMB market is pretty evenly distributed across the country geographically. The western region has the most payers with 126 (31 percent), while the central region has the fewest with 103 (25 percent). Distribution at the state level is relatively proportionate to state population, with the more populated states having more SMB plans. For example, California, the state with the highest population, also has the most SMB payers with 62, while Alaska, the least populated state, has the fewest with 11. However, we did note that Wisconsin and Oregon have an unusually high presence of SMB plans relative to their overall populations.

Growth: Between 2013 and 2018, the total number of SMB payers increased from 402 to 409, while membership decreased by nearly 100,000 lives. Despite this relatively stagnant growth, the SMB market actually experienced significant churn in terms of payers moving in and out of the market and fluctuations in lines of business. Although the net increase in SMB payers over the last five years was a meager seven, in actuality, there were 111 new entrants in the SMB market during this time frame who were offset by the 104 payers who exited. Of these 104 exiting payers, 50 were consolidated into or acquired by other payers and 41 ceased operations altogether. The SMB market also experienced several shifts in lines of business offered since 2013, the most notable being in the Medicare Advantage line of business, which saw a 40 percent drop in participants.

This research confirms what we believed - the SMB market is constantly evolving and shouldn’t be ignored. However, based on current patterns, we can make some assumptions about the future landscape of this market. As more provider groups embrace value-based care, we can expect this number to continue to grow in the coming years. Additionally, we can expect to see more consolidation of plans and shifts in lines of business offered as payers attempt to meet growing market demands and accommodate changes in government regulations. And finally, what this certainly confirms is that health information technology vendors and consultants should cater to this segment of the market. This includes offering scalable solutions designed to meet SMB payers’ unique needs and enabling them to quickly implement cost-effective integration solutions without incurring revenue leakage caused by regulatory requirements and rules.

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