There’s a Clear Message in Sebelius’ Health Plan ‘Labeling’ Requirements

On Tuesday HHS Secretary, Kathleen Sebelius, announced proposed rules to provide consumers with “clear, consistent and comparable information about their health plan benefits and coverage.” This announcement—the de facto labeling requirements for health insurance providers—officially confirms the complete severance of any remaining human connection to the industry’s customer base, freeing it to focus full-time on developing ever more complicated benefit structures, reworking premium pricing models, and refining its Washington lobbying efforts. This development also marks the industry’s official admission to the exclusive club of service and product providers so backward in their pricing and marketing practices as to require government labeling standards—think pharmaceuticals, sun-block, nutritional supplements, and cigarettes.

Congrats, guys. Keep up the good work.

Kidding aside, the fact of government intervention here should sound a clear alarm bell among health insurance executives—you are not communicating effectively to your customers.  Furthermore, given the expected growth in the small group and individual health insurance markets mandated by PPACA, now is the time to fix that in a big way.

It’s a product design issue.

In industrial design circles, great thinkers are recognized for their ability to marry the simplest possible form with required functionality. Consider the success of Jonathan Ive at Apple.  At almost every turn—the iPod, the iPad, the iPhone—Ive has been able to distill what his competition demonstrates can be a clunky and overly complicated user experience into one that instead makes Apples customers nothing short of disciples. That can happen in service industries too. Southwest Airlines sells a clearly defined and highly branded service experience. So does Disney. And yet, for some reason, we assume that those rules somehow don’t apply in healthcare.

But maybe they should. In a recent survey we conducted of almost 500 health insurance purchase decision makers fully 44% of respondents considered the products or policies they buy from health insurers to be moderately or extremely difficult to understand. That trend was consistent across demographic, gender, and ethnic lines as well. Almost 30% of those same consumers don’t feel confident in their ability to choose the right plan for their needs. And, 48% of them agree that policies are “too complicated for a normal person to understand”.

This fact is part of what underlies HHS’ impetus to define label rules for health policies. Their goal is to make the products easier to describe such that consumers can easily make apples to apples comparisons. Isn’t it ironic, then, that the simple “label” they’ve developed is almost 6 pages long and written in miniscule type? Doesn’t it suggest that even the experts find the products confusing? It does.

It’s a language issue.

Another issue complicating the relationship between health insurers and their customers is language. The industry uses insular terminology to describe relatively simple concepts to no particular consumer advantage. Consider just a couple in the table below.

These five terms just reference the flow of money. It’s no wonder that the guidance Secretary Sebelius issued yesterday included a standard glossary of terms. It does make you scratch your head. Why would the health insurance industry continue to use language whose only effect is to create an information gap between seller and customer? It’s true that this language evolved within a healthcare ecosystem that has traditionally been isolated by technical specialization and education. But if the reality is that consumers are having a hard time understanding what you’re talking about, shouldn’t the impetus be on you to explain yourself better?

Consumer intimacy is something you need to get good at.

But really, who cares? Healthcare is complicated, always has been, and always will be. Even if there are more consumers, they’ll learn the lingo and adapt just like everyone else, right?  Wrong.

One of the most important findings in our survey was the general disposition of our consumer sample to the health insurance industry writ large. Baby boomers are not happy. Fully 80% of them in our sample reported that “something needs to be done to improve the industry”; that sounds suspiciously like more, not less beurocratic mess coming from Washington down the road. 

More importantly there also seemed to be an issue of trust—especially among Gen Y respondents (remember them, your most important growth demographic?). Almost half of them, 48%, don’t feel engaged with their health insurer, a fool-proof recipe for continued high turnover. A quarter of them feel that health insurance is “basically a scam”. 20% of them don’t really see why they need health insurance at all. It’s hard to imagine robust growth for traditional players built on a core base that is calling for reform, and a growth engine that thinks your model is either unnecessary or fraudulent.

HHS’ rules won’t have any dramatic effect on health insurance operations in the near term.  They’ll go about as far as package insert requirements have for the drug industry in terms of creating better transparency for consumers (not really so far). They do suggest, however, that there’s a real tension in the market between what consumers want and what the industry is providing. And as the individual and small group markets begin to heat up in the next few years, the question of who will finally cut through the clutter and build a real relationship with consumers will grow increasingly important.

The question for the current players in the market is already pretty clear. Will it be you or somebody else?