Rocketing costs put Swiss health insurance companies at serious risk
“Dying, Surviving or Thriving 2 – Health insurance market”
- Health insurance premiums are set to more than double by 2030, making them unaffordable for a large part of the population
- Health insurers need to come up with innovative solutions to cut healthcare costs and focus on adding value for the customer
- Digitalization and health data are key factors in the innovation drive
- 60% of the insured are willing to share their health data if they receive benefits from the insurer in return
- Companies from other sectors are positioning themselves as healthcare partners, while health insurance companies take a more hesitant approach
ZURICH, 31 JANUARY 2017 ‒ Healthcare costs look set to rise by 60% to a total of CHF 116 billion by 2030, according to a recent health insurance study by the audit and advisory company EY Switzerland. While the Swiss healthcare system does provide an excellent standard of care, it is expensive compared with other industrialized countries. Healthcare costs have more than doubled in the last 25 years. This is due to a combination of factors such as disincentives and inefficiencies, for which the industry itself is to blame, and external developments like medical progress, the increase in chronic diseases and the ageing of the population. This trend is likely to continue.
Health insurance premiums to double by 2030
The hike in costs will hit private households hard: if the general environment remains unchanged, monthly basic insurance premiums are expected to rise from an average of CHF 396 per person at present to well over CHF 800 in 2030. “This massive cost increase significantly reduces the purchasing power of private households. It means a large part of the population can no longer afford compulsory health insurance premiums. And very few people will be able to afford supplementary insurance. Unless drastic countermeasures are taken, a financial collapse of the basic insurance system in the medium term cannot be ruled out,” says Yamin Gröninger, Head of Insurance Business Development at EY Switzerland and co-author of the study. “Further government intervention is on the cards, and even a revival of the debate over unified health insurance.” It is, then, in health insurance companies’ own interests to help improve efficiency in the healthcare system, not just by reducing their operating costs.
Health insurers facing strategic challenges on several fronts
However, this is far from the only strategic challenge facing health insurance companies: the sector is marked by predatory competition, profits are prohibited in basic insurance and only allowed within narrow limits in supplementary insurance. Moreover, the sector is exposed to unprecedented political, regulatory, demographic and medico-technological changes. Not only that, companies from outside the sector – Google or Migros, for example – are also breaking into the health insurance market (known as “disruption”). “Looking at all these factors, it soon becomes clear that the current health insurance business model is at risk in the medium to long term,” says Alexander Lacher, co-author of the study and Co-Head of Health Insurance at EY Switzerland. “If the health insurance companies are slow to redefine their strategic position, they are jeopardizing their market position in the medium term and their very existence in the long term.”
Health data as an opportunity
Digitalization has a key role to play in future-oriented strategies: health insurance companies hold extensive data which can be used as a basis for radically improving the prevention, early detection and treatment of diseases. “The data protection regulations currently in force give health insurers sufficient scope to use the data. They are already able to use the insured persons’ data for personalized consultations, provided the insured parties consent to this. But companies have to maintain the highest standards of security to protect sensitive health data,” says Yamin Gröninger.
Incentives for sharing health data
The amount of usable health information available is growing rapidly thanks to wearables, apps and sensors. An EY survey found that around half of insured persons already voluntarily record health information. The information most often recorded is step counts and fitness data. However, other medically relevant information like blood pressure or cholesterol levels is rarely collected. Most of the insured use these tools to measure their sporting achievements or achieve a fitness target. The willingness of the insured to share their data with the health insurance company is striking: if offered an incentive such as a discount on their premiums or individual health advice, around 60% of those surveyed said they would pass on their health information. “It means the insurance companies could launch innovative offerings and position themselves strategically as a healthcare partner,” says Yamin Gröninger.
The business model: a question of evolution or revolution
Given the many opportunities and risks, health insurance companies are being called on to rethink their strategies and business models: either they develop their strategic position by evolving within their existing fields of business, allowing them to survive (“surviving”), or they radically transform their business model (“revolution”), opening up new potential sources of income for the medium to long term (“thriving”). “Analyzing and processing health data, for example, can offer growth and value-creation opportunities. The introduction of the electronic patient dossier is encouraging this. Becoming a health partner to the insured and actively helping them have a healthy lifestyle is another strategy with potential. This includes data-based prevention programs and giving advice in health and nutrition matters,” explains Gröninger.
Threat from competition outside the sector
Time is of the essence, though, in terms of establishing strategies: the health insurance companies have access to extensive health data and control the interface to customers. But this lead is evaporating: rapid technological advances are enabling technology companies like Apple and start-ups to collect and process health data. Health insurance companies, however, have until now been slow to embrace digitalization. “Any digital offerings have mostly been for marketing purposes. The health insurers might fail to capitalize on their initial advantage and miss the opportunity to evolve from health insurance schemes into innovative health partners,” warns Alexander Lacher.
About the study “Dying, Surviving or Thriving 2 – Health insurance market”
EY analysts and sector experts examined a vast amount of data for this study, including health insurance companies’ annual reports, and statistics from the Federal Office of Public Health (BAG), the Federal Social Insurance Office (BSV) and the Swiss Financial Market Supervisory Authority (FINMA). Between September and October 2016, EY asked over 400 people in German-speaking Switzerland whether they would be willing to record health data and share it with health insurers. EY audit and advisory mandates in the Swiss health insurance market provided further input and findings. Interviews with senior managers from leading Swiss health insurance companies also yielded important findings.
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EY’s organization is represented in Switzerland by Ernst & Young Ltd, Basel, with ten offices across Switzerland, and in Liechtenstein by Ernst & Young AG, Vaduz. In this publication, “EY” and “we” refer to Ernst & Young Ltd, Basel, a member firm of Ernst & Young Global Limited.