Earliest Adopters Could Dominate Slower-Moving Blues and Other Plans

By John Pyhtila, PhD, Chief Product and Strategy Officer and Gokul Varadharaj, Chief Revenue Officer & Co-Founder

Breakthrough technologies often disrupt established industries, enabling new players, unburdened by legacy products, systems, processes and workforces, to seize the upper hand with innovative new products and services. Incumbents are often left reeling or obsolete. Think Kodak and digital photography. Blockbuster and streaming. Toys ‘R Us and ecommerce.

When it comes to health insurance, many payer startups are trying to shake up the big national competitors and regional Blues with more consumer-friendly approaches and more affordable options.

Generative artificial intelligence, however, doesn’t give upstarts the competitive advantage. In fact, incumbent payers have all the key ingredients to take full advantage of this disruptive technology. Payers have the data and own the processes with vital functional expertise, plus the provider networks and members, to deliver on GenAI’s promise of massive cost efficiencies and improved health outcomes.

Incumbents that move fast with GenAI have so much to gain in cost reductions and revenue growth that it will help them not only outperform new competitors but also established players in the market. GenAI could upend the current payer landscape with first movers and fast followers becoming more competitive with a reduced cost structure that enables them to pull so far ahead that slow movers never catch up. Mid-sized and smaller Blues and other payers are especially vulnerable against large national plans with vast resources.

GenAI plays to incumbent payer strengths

The real value in GenAI is not the new large language models (LLMs), which seem to come out almost on a daily basis and are quickly being commoditized. The real value comes from augmenting LLMs with the treasure troves of data and functional expertise within a payer and applying them to payer-specific workflows to drive improvements with a large member base and established provider networks. These incumbent benefits–data, expertise, workflows, member-base, and provider networks–cannot easily or quickly be replicated by challengers regardless of size or success in other industries.

Fueling more efficient and, ultimately, better operational processes by customizing LLMs with payers’ exclusive, proprietary and differentiated data will drive significant cost savings, both administrative and medical. The lower cost structure will improve competitiveness and win more business from cost-conscious employers and members. Payer-customized LLMs for specific use cases also can accelerate new insights and better ways of working, collaborating and innovating, ultimately driving better outcomes for members and internal stakeholders through reimagined processes and offerings.

Cumulatively, they can transform a payer’s performance, members’ experience, provider relations and health equity, access, care and costs. For the full business case, read our blog Payer-Customized Generative AI Models Deliver Strategic Impact.

The fight for market advantage

Having the right building blocks does not guarantee incumbent payers will succeed with GenAI nor does it protect these payers from competitive threat.

That’s because nationals, regional Blues and other health insurers all have the same basic generative AI pillars. Disrupters, both startups and tech giants, cannot be totally counted out either. They may follow a tried-and-true strategy of developing differentiated solutions targeting profitable niches. For example, Livongo introduced digital-first patient management for diabetes and other chronic conditions 20 years ago and is still fulfilling a need for payers, providers and employers as part of Teladoc.

GenAI leadership could draw a bright line between payers with increased and prolonged success and those with escalating competitive and financial struggles. Generative AI solutions offer the promise of massive cost savings across payers’ operations while increasing revenues. McKinsey estimates GenAI could drive net savings of 13% to 25% in administrative costs and 5% to 11% in medical costs while growing revenues by 3% to 12%.

Even if a payer achieves just a quarter of these potential savings, it will more than double its margin, giving the company an immense market advantage over other plans. The payer will have significant financial leverage to further invest, lower prices, and win more business. Employers and investors will flock to health insurers with lower costs. So will members because these plans will provide better benefits at reduced premiums. These market advantages could ultimately amplify, allowing leaders to keep widening the gap with laggards.

Accelerated payer path to effective GenAI

While strong member bases and provider networks are clear market advantages over newcomers, owning the data, workflows and talented team with deep domain expertise are the three key advantages that position payers to lead in GenAI. They therefore must move rapidly to make the most of those assets.

1. Get data house in order.

Data is the main asset that differentiates incumbents from new entrants. Companies need to ensure that this asset is well managed and highly usable to be successful in developing and deploying GenAI capabilities. Data integrity is central to training LLMs and large multi-modal models (LMMs) so they produce trustworthy results for new insights and decision making.

Yet “managing data remains one of the main barriers to value creation from gen AI,” according to a July 2024 McKinsey article, with 70 percent of top GenAI performers across industries experiencing difficulties integrating data into AI models, including issues with data quality and data governance.

Healthcare’s notoriously flawed data poses a particular challenge to payers. So, it’s all the more important that they invest in achieving the gold standard of usable data—accurate, complete, timely, relevant, versatile and suitable for all use cases and applications. Along with usable data as a foundational GenAI development requirement, learn about the need for trust, security and scalability in our blog Four GenAI Development Requirements for Payers to Realize Strategic Value

2. Reinvent workflows by leveraging domain expertise.

Expertise in claim processing and management, care and utilization management, networking and contracting, and risk management is key to effectively developing and operationalizing GenAI to drive new workflows that will reduce costs and improve outcomes. This expertise also is critical for handling edge cases, which fall outside of the run-of-the-mill situations, and thus creating a robust GenAI system that will not lead to errors that could have significant impact on payers.

New entrants will try to ‘bolt on’ a solution to an existing workflow, but that approach won’t realize GenAI’s full potential. Nor will simply making tweaks work for payers either. What’s needed are completely reimagined workflows and entire areas of the business.

To get started, payers need a strategic process for selecting and ordering use cases which they can find in our blog Five Criteria for Choosing Initial Payer GenAI Use Cases. Once underway, payers can roll out the redesigned operation in stages, updating parts of a workflow to make incremental progress and validate the value being delivered to the business.

3. Prepare employees for new ways of doing business

Employees will play a make-or-break role in the success of payer-customized GenAI solutions and the transformed work. Payers need to prepare employees for significant changes, including the tech team, which will be helping to build the solutions, and administrative, clinical and business teams that will be expected to embrace and leverage the GenAI solutions.

For example, customer service reps might find themselves using a GenAI solution which ‘listens in’ to the conversation and automatically generates responses for the rep to use. Instead of formulating their own responses, the reps will need to learn how to quickly validate the GenAI content and weave that into their conversations with members.

These advances will require investments in change management and training to ensure employees are ready for new ways of working.

Seizing the opportunity

Even with built-in advantages including data, functional expertise and workflows as the starting point for GenAI, payer success will depend on moving both quickly and strategically. The corollary is that payers don’t have to go it alone. Smart data and technology partnerships can accelerate and scale effective GenAI-powered use cases and workflows, extending payer leadership.

Generative AI is likely a once-in-a-generation technology change agent. And payers have the upper hand for now. It’s up to them to keep it.

Contact us at info@abacusinsights.com if you’d like to learn more about getting the usable data you need to power GenAI and strategic initiatives.