Mitigating The Costs Of Customer Churn In Healthcare

Healthcare payers can experience exceptionally high rates of churn, which is financially damaging for both consumers and payers.

doctor taking mature woman by arm
Yakobchuk Olena/

When you're not happy with a company and they don't do better for you, it's not unreasonable to ditch them and go somewhere else. This process of people leaving, known as churn, happens in the healthcare industry just as it does in other sectors. However, payers like insurance companies and Medicaid that shell out the money to providers, such as hospitals on behalf of consumers, have a high churn rate, with 10.3% as one estimate for the Medicaid churn rate. The potential financial loss is devastating and unsustainable. Payers have to find ways to reduce churn rates if they want to be successful and support maximized healthcare for consumers.

How much money loss are we talking about?

Net promoter score (NPS) is a metric a company can use to assess the customer experience and growth. It gets consumers to reveal how likely they are to recommend the company's services or products. Across all industries, healthcare payers have one of the lowest NPS of all industries, with a current average in the mid-20s. What's more, an estimated third of consumers (36%) are indifferent to brands. More so than in other sectors, they rely mainly on referrals from friends and loved ones to decide where to go.

This lack of loyalty, which is often fueled by job changes and other factors, often is not beneficial to consumers. One study shows that Medicaid coverage prices increase as the time on a plan decreases, with consumers paying $371 a month with 12 months of coverage, $583 with six months, and $799 with three months.

Low consumer loyalty is also quantifiable by looking at payer revenue and profits. More broadly, on the payer side, the average lifetime value of an American healthcare consumer is $1.4 million. At that rate, even a relatively small number of consumers going elsewhere quickly can add up to billions of dollars in loss. Conversely, even a tiny reduction in churn (e.g., 1%) can mean big savings that make the difference in whether the payer can keep operating.

Drilling into the issue more deeply, healthcare payers experience a double hit as consumers leave. The first hit is the loss of income from the consumer. But then the payer also has to invest in attracting new customers to replace the ones who have left. This double hit means that payers can struggle to break even, let alone grow and provide better support.

The Potential Role of Technology in Supporting Change

Breaking the pattern of financial loss that occurs with churn and maximizing the lifetime value of the consumer requires healthcare payers to attend more closely to the customer experience (CX). Research suggests that managed-care models can outperform their competitors on measures like the Health Outcome Survey. It also translates to lower total medical costs for the long-term, potentially saving $185 billion. Most payers thus are supportive of regulatory and technological innovations that support a new care-delivery focus. Discussion about the need to provide better value-based care has become entrenched and normative in the industry.

The question, though, is how payers can actually provide the better experience they know customers need and that's crucial to payer financial solvency. Although this requires a complicated spiderweb of interactions and reframings, technology might be one of the most legitimate avenues to CX transformation.

Payers might best apply technology by using artificial intelligence (AI) and machine learning (ML) tools to predict which consumers are likely to leave. Many sectors, such as retail, are already using this strategy with customers. The basic idea is to collect as much data about what's happening as possible, aggregate it into one location (a "data lake" or single source of truth), and then make it all accessible through a user-friendly interface or platform. Once payers have that data, they can connect it to systems that automatically alert representatives to connect with healthcare consumers who are on the verge of exiting with offers or feedback requests.

Creating this type of system can support a more real-time approach, but it also gives payers a way to target specific groups months or even years before they typically cancel their healthcare plan memberships. If churn is high for people around the age of 65, they can start engaging more proactively with those consumers when they are 62 or 63, rather than waiting until the consumers are at a high-risk point.

The success relies on gathering both operational and feedback data. The payer must be able to look at both sets of the information to understand which elements are driving consumers to feel and act as they do, and to make informed decisions about what to shift for improvement. They might realize only by looking at both sides that transportation is holding people back or that customers need more immediate notifications about specific service unavailability. Another important part of this equation is the ability to adjust contracts with providers, because those contracts influence service flexibility.

Healthcare payers are, fortunately, in a good position compared to some other sectors in that they typically already gather information on both the operational and feedback sides. They simply have to bring it into tools that let them interpret and respond in ways that are customized but still at scale.

Using IT and ML To Move Healthcare to Greater Profitability and Customer Satisfaction

Healthcare payers can experience exceptionally high rates of churn, which is financially damaging for both consumers and payers. Organizations can lose billions of dollars quickly, which is not sustainable. Improving the customer experience can not only address the money leak, but also result in improved consumer wellness and stronger relationships among payers, employers and customers. Tapping AI and ML is a powerful strategy for getting churn under control and transforming the entire healthcare industry, so explore what partnering with skilled IT providers to get those tools requires for your organization.

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