(This post was written by Extend Health CEO Bryce Williams and posted this morning on his blog, Watch This.)

In early May, the Psilos Group released its third annual outlook report highlighting trends in the health care marketplace, 2011 Outlook on Healthcare Economics & Innovation. Psilos invests in innovative healthcare companies, (frank and full disclosure: Extend Health is one of Psilos’ investments), and its team has reliably insightful commentary about health care market trends.

This year’s report predicts dramatic shifts in the health insurance market. According to the report, “Psilos believes that the PPACA will accelerate sweeping changes to consumer-oriented business models and distribution channels, as well as increase the competition among insurance companies.” In a few short years, the Patient Protection and Affordable Care Act (ACA) will allow many consumers to play an expanded role in the purchase of their own insurance. State-based Health Insurance Exchanges will be places for millions of new insurance consumers to make educated, informed decisions about their insurance options, and insurance carriers will have to intensify their commitment to the consumer experience dramatically.

But as Psilos points out, carriers will be forced to compete in an entirely new business environment, as “The most likely distribution channel for the exploding individual insurance market will be a new landscape of Internet and call center-based public and private health insurance exchanges (HIXs)….” As individuals begin finding health insurance through exchanges in 2014, and businesses send their employees there over time, insurers will have to shift from selling business-to-business—marketing group plans to employers—to selling business-to-consumer. In a new world of consumer-oriented private and public Health Insurance Exchanges, carriers will deal directly with their consumers from the very beginning of the relationship. This change will force efficiencies throughout their business model, and create competition based on cost, quality and service—all of which will be newly transparent.

As I read the report, I was struck by the similarities between Psilos’ prediction for the evolution of a successful insurance company in the new dispensation, and the business model that Extend Health currently uses to help over 350,000 retirees find health plans. Our exchange allows retirees to choose the right Medicare plan for them, the first time. We are inherently a consumer-facing organization, and our ability to help retirees navigate the insurance market usually results in lower out-of-pocket costs and higher satisfaction levels.

One of our most important “secret weapons” is our unparalleled and innovative proprietary technology that facilitates a friction-less transition from group coverage to individual Medicare plans. The efficiencies gained from our significant investment in technology, including our telephone system, online insurance exchange, and back-end integration with carrier partners, improve the customer experience for our retirees, and (along with the advice and guidance of our licensed and certified benefit advisors) help them find and enroll in the best plan for their health needs.

Psilos is right that carriers who want to remain competitive in the evolving health insurance market will need to improve their efficiency dramatically. Insurance carriers today have first-rate IT systems for claims processing, but the market has not yet demanded sophisticated technology to assist with plan choice, enrollment and ongoing customer service. While some carriers will step up to the plate, this role will often be filled by private and state-based exchanges.

Exchanges will bring new transparency to the cost and quality of health plans offered, and the new health insurance market will mean greater interaction between consumers and carriers. The regulatory environment is also demanding new efficiencies. Just this week [May 19th], the Federal government finalized a proposal to require insurance companies to publicly disclose and justify premium increases of 10% or more. Carriers will have to meet these expectations, AND become much more efficient and consumer-friendly for first-time insurance purchasers, to thrive in the coming health care market environment.

Related articles

The Department of Health and Human Services (HHS) announced a new initiative on April 29th called the Hospital Value-Based Purchasing program which will, for the first time, pay hospitals based on the quality of care not the quantity of service.

The Hospital Value-Based Purchasing program will determine quality by measuring clinical best practices and how well hospitals enhance patient care. Hospitals will be scored on their performance relative to other hospitals and on improvement made over time. Scores will be used to determine payments. The theory is that following best practices will lead to higher quality of care and better outcomes for patients as well as reduced health care costs.

To learn more:

HHS News Release

HealthCare.gov – Fact Sheet

HealthCare.gov – Measures Explanation

With so much going on in Health care these days, it can be hard to keep up. Below you’ll find some articles that we thought were very interesting and thought provoking. We thought you might enjoy reading and commenting on them.

How Health Insurers Can Avoid Being Blockbuster in a Netflix World

As millions of Americans wait poised to begin shopping for health insurance via public and private exchanges, will consumers finally take their place in the driver’s seat when it comes to selecting and purchasing healthcare?

The Ryan Plan

Paul Ryan’s proposal to make Medicare a voucher system isn’t necessarily a bad idea, but such a system has to be calibrated right if it isn’t going to shift too much of the cost of health care onto the shoulders of seniors. That’s why the analysis by the Bipartisan Policy Center is a must-read to understand how the Ryan proposal would work out over the coming years.

Can Berwick Be Saved? Here’s One Possible Scenario

Berwick has announced a number of key initiatives recently. Can CMS utilize its tools to promote value effectively without his leadership?

The Partnership for Patients: The Inside Scoop on a Game Changing Safety Initiative

Secretary of Health and Human Services Kathleen Sebelius and Medicare chief Don Berwick announced the Partnership for Patients  initiative, “which aims to decrease preventable harm in U.S. hospitals by 40 percent and preventable readmissions by 20 percent by 2013.”

Launching Accountable Care Organizations — The Proposed Rule for the Medicare Shared Savings Program

As one of the first health care delivery-reform initiative under the Affordable Care Act, ACOs are just one of many initiatives under the ACA charged with achieving their three-part aim: better care, better health, and slower growth in costs. The CMS believes ACOs will be a very important tool to help Medicare beneficiaries get high quality care.

Visit Extend Health — the nation’s largest private Medicare exchange.