THE NEW INSURANCE FRONTIER

January 7, 2008

Some of the nation's largest insurers are starting to recognize that selling insurance in a subsidized market might be a good business to be in, say Matthew Collier and Lisa Walsh, partners with Bain & Co. in San Francisco, and senior members of Bain's global healthcare practice.

Two economic realities are behind this shift.  First, the nation's 47 million uninsured are not as bad a risk as is commonly assumed:

  • Census Bureau data reveal that the uninsured are actually the kind of demographic that consumer product companies dream about.
  • A surprising 85 percent of the nation's uninsured are currently employed and nearly all have worked in the past year.
  • They are young -- almost half are between the ages of 18 and 34 -- and nearly three-quarters of the uninsured describe their health as "excellent" or "very good."
  • More than two-thirds have at least some college education and about half earn middle-class incomes.

Second, insurers no longer can afford to ignore the uninsured market. Their core business -- selling group plans to large employers -- is stagnant:

  • A Bain & Company analysis of the health-insurance sector shows that total commercial health-insurance enrollment has been flat at around 174 million people since 2001.
  • In response to rising costs, employers have steadily pared back benefits, and the percent of businesses offering health insurance has fallen to 60 percent last year from 66 percent in 1999.
  • Since the 2001 recession, the number of contractors, part-timers and small-business employees has grown two to six times faster than the economy overall.
  • In contrast, traditional workers -- the full-time company employees that provide the insurance companies' bread and butter -- have declined 0.6 percent.
  • As a result, profit pools in corporate-funded health plans are shrinking.

Source: Matthew Collier and Lisa Walsh, "The New Insurance Frontier, Wall Street Journal, January 7, 2008.

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