Health Plans

How health plans can confront 2021’s uncertainties

Jan. 27, 2021 | Article | 7-minute read

How health plans can confront 2021’s uncertainties

As 2021 begins, COVID-19 will still be a defining feature of the healthcare market and U.S. economy. Here are three market dynamics that will shape the health plan landscape, and thoughtful response strategies for health plans to win in uncertain times.

The employer-based market will continue to face cost pressures

Health cost containment will remain a priority as employers transition from crisis mode to recovery and growth, so for health plans to avoid disintermediation, demonstrating value to employers is crucial. Employer healthcare costs and worker contributions rose unsustainably in the years leading up to the pandemic. Since 2010, firms with more than 200 employees have seen a 54% increase in employer premiums for family coverage, hitting $22,000 in 2020, and the worker’s share of the same coverage increased 39% to $5,000, according to KFF’s Employer Health Benefits Survey.

While 2020 saw a rare leveling off of employer healthcare costs due to COVID-19-driven utilization reductions, analysts predict that 2021 will see costs move 2% higher than the previously projected view of 2021 costs. This mirrors concerns from employers about how a rebound in utilization and the consequences of deferring preventative care will affect premiums and their direct costs.

As employers face this pressure, plus a mix of COVID-19-driven market challenges and workforce needs, they’ll demand more value from health insurers than ever. They may consider adding digital startups that offer self-funded employers targeted cost savings and member engagement; or following in the wake of Amazon, which invests in primary care offerings for its employees; or directly contracting with providers, as Walmart has for select procedures. There’s significant interest around the latter, with 24% of large employers looking to directly contract with advanced primary care models in some markets, according to a National Business Group on Health survey. The new Centers for Medicare & Medicaid Services’ (CMS) direct contracting program also sets the stage for broader transformation in the employer-based market.

To maintain and grow their client base, health plans should consider product innovations that will appeal to the employer market, while also excelling at the basics. In the words of one executive, “It’s time for health plans to move from your father’s Oldsmobile to electric cars.” He recommended expanding the traditional PPO and HMO plan design offerings to include zero co-pay options; designing networks that more drastically limit choice to drive savings; or leveraging AI and analytics for advanced consumer engagement (and building foundational data sets to feed into those analytics). Health plans also can consider network adequacy and rental network options to meet the needs of employers with a newly remote workforce across dispersed geographies.


At the same time, health plans should excel at the basics to maintain their current customer base, with flawless execution around managing renewals, serving account needs and avoiding any employer or member pain points. Consider supporting direct contracting models with risk management and administration. To decide which of these two approaches to take, health plans should consider both customer needs and their competitive position in the market.

Telehealth, or multi-modality care, is here to stay

The shift to telehealth will persist, at least for some types of care, and will fuel broader innovation in new care models focused on whole-person health. A “care anywhere” approach gives consumers access to a variety of care types across many channels including telehealth, home-based care, retail clinics and digital options, along with traditional healthcare settings. Consumer-focused models will drive convenience and impact across chronic condition management and mental health—a timely opportunity because mental health is a top priority for consumers and employers as they navigate the pandemic through 2021.  

Health plans can further differentiate themselves in the market through their benefits, network design and clinical programs that drive value and manage medical costs while providing a unique member experience. As providers continue to use omnichannel models, creating a platform that makes coordination and administration easy will be key. Driving new reimbursement models to cover new care modalities, such as a provider communicating with a patient via text messages, is another opportunity.


Health plans can also focus on new product design, such as integrated models that combine virtual and in-person primary care and care coordination with remote patient monitoring, home delivery of pharmacy and health equipment and health apps, taking a cue from primary care models such as Humana Partners in Primary Care and Premera Blue Cross/Vivacity. The trick for health plans will be to design a market strategy to grow these new models without cannibalizing their traditional offerings.

New entrants and M&A activity will increase, especially in Medicare Advantage

Medicare Advantage is a growing and profitable market that keeps attracting new players and encourages existing players to expand into new geographies. According to CMS, more than 11 firms entered the Medicare Advantage market on average between 2018 and 2020. At the same time, there also is high M&A activity. On average, 11 Medicare Advantage health plans either got acquired or merged every year since 2018. Centene Corporation and WellCare Health Plans alone were responsible for four of these acquisitions. We expect more M&A activity and more new entrants coming into the market in 2021.


New entrants to the Medicare Advantage market fall into two key categories: provider-sponsored plans (hospital systems or long-term care, rehab or senior living facilities) or insurance startups backed by private equity or venture funds. The market is attractive to the provider-sponsored plans because it provides an opportunity for organizations to increase revenue, control cost and improve experience through coordinated care. On the other hand, VC-backed plans want to enter a high-growth market and capture a part of that growth through innovation and technology. CMS projects Medicare enrollment to grow to 72 million by 2025, and 45–55% of Medicare enrollees may opt for Medicare Advantage plans by 2025. We’ll see this trend continue in 2021, although some provider-sponsored plans might rethink this based on their post-COVID-19 situation.


Provider-owned plans have established customer bases, awareness within the community and a good start on the provider network, which helps with member acquisition. But risk management and running efficient insurance operations are new to them. Their success depends on how well they manage these two parts of the business. On the other hand, startups’ risk management expertise (sometimes with the backing of financial institutions) and technology know-how help them run efficiently, but their lack of name recognition makes building a network and acquiring a customer base more difficult. Insurance startups’ success depends on having a unique value proposition, either from a product and services or customer engagement perspective. For example, Alignment Health Plan’s on-demand concierge card gives customers 24-7 access to communicate with a doctor or concierge team by phone or video. Certain types of plans will become good M&A targets and keep fueling M&A activity, including provider-backed plans that can’t manage risk, insurance startups that can’t differentiate themselves or insurance startups that aspire to expand into other geographies.


Mid-to-large-size plans should focus on the potential acquisition of smaller plans as a growth driver. Bright Health, for example, acquired both Central Health Plan of California and Brand New Day in the last year. A programmatic targeting and integration approach will make these acquisitions purposeful, easier and more successful.

What the future holds for health plans in 2021

Other topics we’ll be watching in 2021 include the impact of the final CMS rule requiring price transparency by 2022–2024 and the CMS drive toward interoperability and giving patients control over their health data. We also will monitor the potential policy expansions and shifts driven by the new Biden administration.


Health plans should factor in these trends when crafting their business plans over the next year and beyond. 2021 will be a year of uncertainty, but with careful planning and an eye on what’s ahead, health plans can be ready to tackle the challenges that come their way.

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