As major market changes loom, one report says health insurance providers that wish to access this giant pool of potential customers will need to shift toward a consumer-focused model.

After the U.S. Department of Health and Human Services issued a framework to assist states in building the health insurance exchanges due to open in 2014, the question of how issuers will ready themselves for these changes remains open.

A new report published today by the PwC U.S. Health Research Institute, examines what changes insurers need to make from an operational perspective if they wish to participate successfully in state health insurance exchanges. The report, "Change the Channel: Health Insurance Exchanges Expand Choice and Competition," surveyed 1,000 consumers and 153 health insurance executives concerning their expectations around health insurance exchanges.

A first question insurers will need to ask is whether they want to participate in the exchanges at all. The survey finds that 52% of health insurance executives said their companies plan to compete in the individual or small group exchanges, with nearly one-third are considering it but are still undecided and 17% of insurers do not intend to participate. Moreover, of those insurance executives who said they plan to participate in exchanges, 37% are not active in the individual market today and 20% do not offer small group policies.

The willingness of the majority to participate in the exchanges is not all that surprising given that the expected size of the market is mammoth. PwC estimates these policies could be worth nearly $60 billion in revenue premiums by 2014 and grow to nearly $200 billion by 2019.

However, entrants will be forced to face new business risks serving customers in a retail market and being forced to compete head-to-head with other insurers in a way heretofore unseen.

“Health insurance exchanges will be one of the most market-changing aspects in the Patient Protection and Affordable Care Act,” says Jeff Gitlin, U.S. healthcare payer practice principal, PwC. “Insurers will need to shift from a wholesale approach to more of a retail way of interacting with consumers and compete in ways they never have before to earn consumers’ business and loyalty. As in all retail businesses, insurers will want to understand who these consumers are, what motivates them and how they behave.”

What’s more, since the law requires insurers to accept all eligible members regardless of their health, insurers will need to move away from a traditional reliance on risk selection to a focus on population risk management, the report says.

The report also predicts challenges surrounding preparing internal technology systems to interface with the exchanges. On average, the insurers surveyed expect it will take approximately 15 months to get their businesses ready for exchange certification by the federal government, with 40% expecting it to take 18 months, and 20% believing it will take two to two and a half years before they are ready.

Bill Kenealy writes for Insurance Networking News, a SourceMedia publication.

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