The United States healthcare system represents a massive opportunity for healthcare businesses and new entrants alike. While the United States is not the largest country by population, it represents an outsized proportion of the total international healthcare spend on an annualized basis. Payers, or insurance companies as they are commonly known to folks working outside of healthcare, play an integral role in the dynamic industry. At Untangle Health, we work closely with our payer partners on technology strategy and also closely with healthcare information technology organizations that prioritize selling directly to payers. To shed some light on the importance of payers to the US healthcare market, let’s start by walking through the numbers from last year.
The Numbers
In 2023, the United States healthcare system reached a total expenditure of $4.8 Trillion dollars, accounting for ~40% of global healthcare spend. While this figure is already astonishing, it actually underrepresents the total US healthcare market in terms of revenue and opportunity for organizations looking to participate. The figure, $4.8T dollars, refers to the “uses” of healthcare expenditures in the United States, which is the summed total of goods and services that are purchased to provide healthcare and access. This includes what you would expect in terms of hospital visits, outpatient provider visits, medical devices, medications, and home health care.
However, our system is not as simple as that.
We will cover this later, but a significant portion of this United States healthcare expenditure (~81%) comes out of the pockets of payers, which are funded by insurance plans. These payers, in addition to out-of-pocket expenses from individuals, public health efforts, and investments, make up the budget that pays for those $4.8T of healthcare goods and services. So, when we consider both the sources and uses of United States healthcare expenditure, we get a more complete picture of the total market: ~$9.6 Trillion.
| Sources | 2023 |
|---|---|
| Private health insurance | $1,433.50 |
| Medicare | $1,023.90 |
| Other health insurance programs | $189 |
| Medicaid | $851.90 |
| Out of Pocket | $508.60 |
| Other third-party payers and programs | $394.10 |
| Public health activity | $164.30 |
| Investment | $234.10 |
| $4,799.40 |
| Uses | |
|---|---|
| Hospital care | $1,491.70 |
| Professional services | $1,293.10 |
| Retail outlet sales of medical products | $632.30 |
| Other health, residential, and personal care | $266.60 |
| Home health care | $145.20 |
| Nursing care facilities and continuing care retirement communities | $209.30 |
| Government administration | $56.70 |
| Net cost of health insurance | $306 |
| Government public health activities | $164.3 |
| Noncommercial research | $68 |
| Structures and equipment | $166.10 |
| 4,799.30 |
Where do Payers Fit In?
This CMS data tells a story of the significant importance of payers to the US Healthcare industry. While we each have an understanding that payers provide our insurance, it is important to recognize the magnitude of their presence.
- Private Insurance accounts for ~30% of US healthcare spending, or $1,433 billion in 2023.
- Public insurance (Medicare, Medicaid) makes up 39% or $1,875 billion.
- In other Insurance Programs, payers make up another 12% or $583 billion.
- All-in, insurance makes up 81.1% of all US healthcare expenditure for a total of $3,892 billion dollars.
| Sources | 2023 | 2023 |
|---|---|---|
| Insurance | $3892.40 | 81.10% |
| Out of Pocket | $508.60 | 10.60% |
| Investment | $234.10 | 4.88% |
| Public Health Activity | $164.30 | 3.42% |
| $4799.40 | 100% |
Now the picture is starting to get a bit clearer! Our expenditure greatly surpasses other developed countries and is heavily concentrated through our insurance systems.
We Had a Hunch, Why Does this Matter?
With >80% of healthcare expenditure flowing through payers, we start to get a better sense of their scale, coverage, and role in our healthcare system. This is an incredible concentration of money flow through only a few organizations. While there are ~1,500 payer companies (including the long tail of state-specific health plan entities), the top ~100 or so make up 80% of the total revenue. Stacking these together, ~100 organizations make up ~64% (~80% flows through payers, top 100 make up ~80% of revenue) of all US healthcare expenditure. Regardless of your role in the healthcare industry, these ~100 organizations cannot be ignored.
If your objective is to reach the most patients possible with your service or offering, selling through a few payers can help you potentially reach millions of patients. Additionally, if you are developing services or products that increase the efficiency of transactions, payers operate at such a large scale that small efficiencies can create millions in savings.
What do these payers do?
Insurance plans recruit members to pay monthly or annual premiums for access to healthcare coverage provided by a credentialed network of trusted clinicians and service providers. Insurance companies, therefore, engage with millions of Americans to enroll in insurance plans through employers, state-based marketplaces, or other forms of enrollment. These premiums are determined by actuaries and risk models, which assess the relative risk of an insured population or individual. Based on that assessed risk, assumptions about utilization, and other inputs, the insurance premium is priced to allow healthcare coverage while baking in a defined profit for the insurance plan.
Therefore, payers are the major decision-makers in both the list of services that will be offered (based on whether there is coverage at all) and the price of those healthcare services (based on how much plans will cover). Aside from the small set of individuals capable of self-paying or self-insuring for all healthcare expenditures, payers decide how healthcare works for you.
How is compliance coming into play in 2024?
Payers provide critical infrastructure to the United States healthcare system and are subsequently highly regulated by government entities such as CMS and the Department of Insurance. These regulations fall into a couple of categories, improving member experience (eg: no surprise billing), increasing transparency (eg: prior auth reporting requirements), and financial requirements (eg: balance sheet requirements and medical loss ratio). However, as healthcare and payers transition to modern infrastructure, governing bodies are layering compliance requirements to increase interoperability, data sharing, and transparency via the new standard of FHIR APIs.
Specifically, and covered in greater detail in our other piece on the rising interoperability baseline for payers in 2024, compliance requires technical modernization and open infrastructure that is new to payers and health plans. While CMS-9115, CMS-0057, TEFCA, and other efforts (required or opt-in) are adding new technical requirements for payers, they are also providing new opportunities in terms of access to clinical data.
What does this mean for B2B Vendors, Point Solutions, and other healthcare entities?
| Payers operate at a scale that cannot be ignored. |
|---|
| For a health plan with billions of dollars of annual revenue (Example: Humana reported $112B in TTM revenue in June 2024), small efficiencies can have significant financial impacts. Increasing efficiencies by 1% or even 0.5% in a high-volume process could yield hundreds of millions in savings. |
| On the other side of the same coin, small efficiencies may be ignored if the benefit is not scalable. Trying to convince a jumbo national payer to focus on a highly specific regional solution impacting only a few hundred patients may be a futile effort. |
| Private payers are subject to the Medical Loss Ratio from the Affordable Care Act |
|---|
| Private payers must spend 80-85% of collected premiums on medical care and efforts to improve the quality of medical care. |
| The remaining 15-20% of revenues (collected premiums) account for overhead, core operational staffing, profit, IT expenses, and the long tail of other requirements for running a business. |
| For healthcare service-based point solutions, understanding how to mechanically fit into the 80-85% of healthcare-related expenses is an important first step. This is typically done by mapping services to existing, already covered CPT or other charge codes, and getting credentialed by a plan as a covered service provider. |
| For IT and other types of organizations selling to payers, you should be considering the portion of the 15-20% overhead that the payer sets aside for operating their business. |
| Compliance is leading to opportunities |
|---|
| Technical modernization should be viewed as an opportunity to upscale IT infrastructure and sunset inefficient legacy systems. |
| As mentioned above in the scale section, technical efficiencies can lead to significant cost savings for payers. For systems processing millions of prior authorizations, eligibility determinations, and coverage determinations, optimizing technology stacks is imperative. |
| While payers are opening up their core infrastructure to adhere to new interoperability standards, specifically related to sending and receiving FHIR-based API calls, vendors should piggyback on these projects to incorporate new efficiencies and modern best practices. |
| Economic Climate strongly dictates payer behavior |
|---|
| In down markets or recessions, individual spending behavior is typically impacted, seen by a decrease in discretionary spending. In addition, healthcare expenditures typically also decrease during these down markets. |
| For payers, recessions therefore create environments of relatively low healthcare expenditure without a reduction in revenue from premiums. |
| In down markets, payers are flush with cash and are more likely to invest in care-optimizing services and measures. |
Where does Untangle Health fit in?
Untangle Health sits firmly between payers and health data infrastructure organizations. For payers, we advise on data strategy and growth. Our expertise encompasses compliance, modernization, quality, vendor/partner selection, and competition. We deeply understand how payers work and differentiate themselves from the competition.
For health data infrastructure organizations, we cut through the noise and curate actionable, achievable, go-to-market strategies, often focusing on driving growth with payers.
If you are a payer looking to optimize your technical infrastructure, or a healthcare information technology company looking to expand your payer footprint, reach out for a free consultation.
