Talking with the industry about the future of health care in America

Below are the remarks as delivered by CMS Acting Administrator Andy Slavitt on October 5, 2016 at the forum on Marketplace Year 3: Issuer Insights and Innovations at the HHS Humphrey Building in Washington, D.C.

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Thanks a lot Kevin and I really want to thank you all for being here today and for those of you watching on live stream. And as you return from lunch, I’m sure you’re ready for a good speech about SEPs and DMIs and other acronyms and other changes we are embarking on to keep improving the risk pools. Or the very exciting young adulting campaign.

But instead I’m going to talk about my commute to work.

When I fly into D.C. every Monday morning, there used to be long lines of us waiting for yellow cabs. More recently now, what I often see long lines of yellow cabs waiting as people walk, heads in their phones, across the street and directly into Ubers. In a short time, my experience was improved and a whole industry has radically changed. I saw something parallel happen in the early 2000s with online banking and brokerage. You used to need a broker to buy a stock, so only people who were really well-off really did it. As soon as E-Trade started offering trades for $8, it changed for better some might say for the worse– because everyone can buy stock now.

What’s been interesting is not just to see the innovation, but to see how incumbent players who have spent decades as undisputed leaders in their industries, make up their minds to adapt.  Big companies like Fidelity followed the online companies and brought their own unique scale and services into the mix. The biggest taxi company in Minnesota where I live that I used to use to get to the airport just put together an app called iHail so now I have two better choices.

For a lot of us, service has rapidly improved in our day to day lives and affordability has increased as industries have been disrupted by events– events like the digital and cloud based-economies—has seen new competition and new innovation.

It’s not just digital. There’s been regulatory disruption as well, which is a little closer to what we are talking about here. In 2003, when the FCC mandated mobile phone companies allow for phone number portability, this was considered a really big deal at the time, one industry executive predicted it would doom the industry as customers would become fickle and change mobile phone carriers every month for even slight decreases in price.

But you know that didn’t happen, the rampant churn and race to the bottom that many predicted ended up not happening as one carrier after another built loyalty programs– buying iPhones and Android upgrades for their long-term customers and integrating new “stickier” services and entertainment packages.

Another example, as emission standards moved up on American auto makers, the very demise of the auto industry was predicted. There was even a New York Times article written in 2009 entitled “Does the U.S. Need an Auto Industry?” There were similar headlines in other places.

Yet, just two years later came the story “How Ford went from losing $30 billion to posting big profits.”

Fast forward to today. If you look at the most recent auto sales from 2015 in the area where U.S. manufacturers have been historically least competitive– high end luxury sales– here’s what you’d find. Overall, industry sales were about flat, but it wasn’t a good year for a lot of companies.

Audi, down 8%
BMW, down 5%
Jaguar, down 16%
Lexus, down 16%
Mercedes, down 13%
Porsche, down 13%

So if sales were flat, where did those car buyers go?

The luxury brand that grew in 2015 was actually an American company– Tesla, which grew by more than 50 percent, and moved to #1 in market share. How? They brought a new vision of environmental consciousness to the luxury market. In fact, for those who thought the auto industry was doomed, we have seen that companies have come along and reinvented it, 2015 was U.S. manufacturers’ best year of sales ever, with a Chevy winning car of the year and with another all-electric Chevy one of the most anticipated new cars for 2017.

So, the answer to all the newspaper headlines is indeed, yes. American companies can transform and lead.

Over the past four decades, we’ve seen over and over again how new regulatory systems, new technologies, and new approaches change industries in America. And dating back to when the airlines were deregulated and the baby bells were broken up to the examples I just talked about, virtually every industry has under gone this type of a transformation– lowering costs in the end, expanding markets in the process, and delivering better services to people — now often out of necessity, but eventually leading to real success.

Now going through the process wasn’t necessarily easy and there was turmoil, but as any of the headlines that have alternatively doomed the auto industry, the financial services industry, Internet companies, and many others have proclaimed. But the thing we know is when the rules of the game change, winners emerge. It’s not just the “disrupters”– the Southwest’s airlines, the Tesla’s, the E-Trade’s of the world that have been successful.

The incumbent companies who saw that what was coming or adjusted to the new environment by bringing their own strengths turned out to be big winners. There are plenty of examples we know of that history can point us to that are fairly well known. Fidelity opened retail outlets and used its asset base to take on e-trade; H&R Block went on line and used its bricks and mortar to take on TurboTax. Wal-Mart used its buying power to adjust to Amazon and online retail.

Ok, why am I giving one of my last speeches of this term about industries in transformation instead of the more topical topics like the risk pool, Special Enrollment Periods or Open Enrollment? It’s really just to ask the question . . . Has health care’s turn to transform finally come?

Let’s start with what is the major disruption to American health care. Major disruption is this, for the first time in our country, we are promising our fellow citizens that even if they get sick or even if they have ever been sick, even if they lose their job, even if they have a lower income, we will insure them against their future care needs. And, by the way unlike in the auto industry, where we had dramatically shrinking markets and under-capitalized companies, what we see here is the opening up of a new $40 billion and growing market with lots of capital. So we are taking better care of people, we got the wherewithal to do it.  As disruptions go, this is a pretty great one.

We’ve chosen to address the need to transform in most traditional American way possible– through the private sector. Which means we’re relying on innovation and competition to serve consumers best. And as a country, we will all have to figure out what that looks like–what needs to change and what needs to stay the same. If critics want to pretend it happens automatically, just looking at other industries tells you that it doesn’t. If critics think we should abandon consumers and go back to the old way because it’s not all figured out just yet– the same way some that many predicted the demise of the auto industry– that misses the fundamental premise of: 1) how progress is actually made in our country; and, 2) your ability to innovate.

What are the biggest sources of current angst in the media? Rates are increasing. Many plans in many markets were underpriced over the first several years of the exchange. Why? What can we learn from this? I think it’s pretty simple. Nobody knew what it would cost to cover sick people. We’re still learning that.

Intellectual honesty requires us to say that rates are right now about 18 percent below what was originally projected. Would we all have preferred to be 10 percent higher say from the start with more gradual increases? Of course. You bet we would. But rates will adjust, and as they do the ACA will protect consumers with tax credits and with rebates if rates go up too much.

It’s also important to know that new disruptions require us to learn and adjust. If anyone’s premise was that by passing one law, we would fix the affordability of health care all at once, that’s just not how it works. We’re here because the law sets a path in motion.

Can things be improved with the law? Can we and the Administration and Congress continue to make the Marketplace better? Without question. But while some will want to spend their time hoping to roll back the rules or go back to the old way, leaders– many in this room, many who we have visited with– are looking at this time as an opportunity of competitive advantage; they are spending this period scrupulously experimenting– and profiting.

So forgive me if I’m not persuaded by the headlines or the Wall Street analysts predicting doom and gloom for the health care Marketplace.

I’ve had conversations with senior leaders at some of the companies I have talked about at Fidelity Investments, Delta Airlines, Intuit and others about that time in their lives in their industries when things were changing rapidly. And as you would expect, these were uncertain times with pressures from boards and Wall Street; a lot of uncertainty, the only certainty came from the doom and gloom they read about in the media.

Now the Secretary, Kevin Counihan, Mandy Cohen and I have also made it a point to personally talk to many of the CEOs and management teams about your experiences– what’s working, what’s not– and what both the data and your  own leadership instincts are telling you. Through this, we’ve compiled a list of five questions that I would suggest every organization might want to ask to be successful in this space.

First, what’s your vision and cultural reference point for serving this population?

It may seem like a strange question to start with, but in almost every conversation with the highest performers in the Marketplace, they start the conversation with an explicit reference to how this business relates to their mission and to what their employees believe. The missions aren’t always the same– some describe a focus explicitly on meeting the retail needs of consumers some see this as a transitional moment ahead moving from a business-to-business world to business-to-consumer world, some are focusing on providing care to under-served populations, others have a data-oriented culture, some deep community relationships that they know how to work through and some pride themselves on having nimble culture. The cultural focus in all those cases allows them to not only perform well, it’s actually helped them to galvanize their employees from across their organizations to meet the new opportunities of the Marketplace far more easily.

Second, how well do you know your customer?

Universally, we hear more than ever before, that you have to microscopically understand how consumers choose to buy, pay, seek care, and decide to persist. We all tend to think we know our customers’ needs, but do you know their health needs the same way Google knows your search needs? Do you know who’s most likely to misuse the ER because they have never had primary care relationships? Do you know what millennials want in a health care relationship? Do you know which diabetics are compliant and do you know which ones are most likely to respond to interventions.

An emerging best practice in the Marketplace from a number of you is to conduct health risk assessments at the time ID cards are activated to begin the relationship and the segmentation and stratification process that is so crucial to answering these questions. Now I would remind you, these skills that require you to do this exist everywhere in our economy they are the same consumer skills that have made each and every one of the industries I have talked about successful.

Third, can you build a relationship with consumers around things they need and value?

Particularly if you see churn in your book– as people move in and out of jobs and struggle with affordability, how do you build loyalty? Are you building on-boarding processes, monthly touch points, and other initiatives that create “stickiness.” Remember, consumers don’t like churning any more than you do. They are asking for reasons to stay in everything they do consumer have demonstrated they want to build relationships. We have to give them a reason.

Progressive Auto Insurance famously measures how safely people drive and allows them to earn points for safe driving which lowers costs and creates loyalty. I think there’s a misconception that you can’t have loyalty programs in the exchange. Not true. There are a number of successful ones. Using best practices is also delivering real bottom line results. Let me give you some rough numbers here, for most companies, something on the order of 25-30 percent of consumers don’t make timely binder payments.[1]

But for the top five companies in this category that number looks more like 10-15 percent.[2] What do they do differently? Well starting with they ask people why they weren’t paying. In many cases, a concern with credit held them back. One company began offering a program call Cashtie so payments could be made at local drug stores; one added a MoneyGram option; one added a smartphone app. And when one customer showed up at a company’s corporate headquarters with a check in hand, they started taking checks.

Fourth, have you created a product that meets the needs of your customers both for service and affordability– not a commercial product, not a Medicaid product– but a Marketplace product?

That’s not just a question of a tiered network and formulary or the question of broad or narrow network. It’s also how that network is engaged. Southwest Airlines had far fewer destinations than other airlines, but they turned that into a distinct advantage, turning “narrow” into “focused” as they targeted specific customers for the unique experience.

One area I have heard about from a number of plans is that some newly insured members continue to use the ER four or five times a year for services that they should get elsewhere. So here is an example, do you have your first tier hospitals contracted to manage aggressive ER utilization so people can get care in the right setting? Have you set up telemedicine, nurse lines, and other convenient forms of both coaching and steerage? Is there free primary care and other incentives to detect health concerns early? How financially engaged can you make your physician network to manage and reduce bed days? The broader point her is that if we think people many of whom have gone without insurance for years and years and years to automatically know how to use the system or behave like any of your other members, we are learning that is just not true.

Fifth, and finally, when you find what works how do you replicate it into a growth strategy?

A number of companies have told us they went too headstrong into too many markets and grew too fast before they had the opportunity to see how things were really working. Before they landed on consumer targeting, network and product strategies. Before they had models to replicate. Almost everyone, including those who are contracting this year, have told us they want to find a way to grow into this market and are still committing significant capital to getting their models right. One commercial plan is using Medicare Advantage physician collaborative to grow. Another, their Medicaid contracts. A third told me that step by step they see this as a chance to become a more national plan.

Mission, understanding the new customer, building relationships, designing the right products and turning that all into a growth strategy. These are some commonalities that we are hearing emerge in this Marketplace. But there is something else that I’ve observed the great companies in this room do well—and that is really simple.  It’s appreciate the joy and the meaning of delivering health and security to people. They tend not to describe people as “populations” or “pools” or “diabetics”; they understand that in the new world, the job is taking on sicker people and doing it better. They are not only committed to making people healthier every year, but they actually see greater financial opportunity in reducing acute episodes, in getting individuals to the right clinic, in making sure babies are born healthy, in bringing peace of mind to families, and in helping people get health issues  diagnosed early. They are actually winning because, in the new world, they see how to replace underwriting with care management.

No, none of this is not to take away from challenges that remain, as the President has said, in the “growing pains” of this new enterprise. The President specifically pointed to the “real problems” that remain to be addressed in making the ACA work better. Now it’s not because he’s pessimistic, but because he’s optimistic that the “growing pains” would actually be the time when we Americans make great progress. We at CMS and in the Administration are committed to taking these problems head on with you in what I see very much in the context of the classic American story of innovation and renewal.

Thank you all for your leadership. I look forward to an exciting open enrollment season.

[1] 2016 CCIIO Effectuation Rates
[2] 2016 CCIIO Effectuation Rates