Rather than debate endlessly about whether the Affordable Care Act is good or bad, staff at the Clayton Christensen Institute for Disruptive Innovation has analyzed Obamacare for entrepreneurial opportunities created by disruptive innovations in the law.
Clayton Christensen is a Harvard Business School Professor and author of The Innovator’s Dilemma (and a few more books about innovation since that business best-seller).
According to the authors, these new provisions of Obamacare are disruptive innovations:
- Individual Mandate – adds tens of millions of new individuals to the primary care healthcare system.
- Employer Mandate – will drive demand for new, less costly models of health insurance.
- Accountable Care Organizations (ACOs) – provides incentives to providers to keep patients healthy rather than just paying for treatment of illnesses.
- Wellness Programs – requires health plans to offer new preventive and self-directed care options.
- CMS Innovation Center – an entity created outside of Medicare and Medicaid with responsibility for developing novel payment and healthcare delivery models.
The ACA is not perfect by any means. It is also not perfect in the estimation of the Christensen Institute. Here are a few provisions of the Affordable Care Act that are likely to inhibit disruptive innovation:
- Essential Health Benefits – mandated levels of coverage that may exceed user needs and will make it difficult to introduce low-end disruptive plans.
- Insurance Exchanges – online marketplaces that will enable comparison shopping, but only among qualified plans, excluding some new and potentially innovative options.
- Cost-Sharing – government subsidies will drive consumers into Silver-level plans, limiting demand once again for Bronze-level or even lower (and less costly) plans.
- Medical Loss Ratio – requiring insurers to justify all rate increases and to spend a minimum of 80% of premiums on healthcare creates barriers to entry for new and disruptive market entrants with low or no subscriber populations.
- Medicaid Expansion – enrolling patients with minimal or zero previous healthcare coverage into Bronze or even Silver-level plans eliminates a market that could be served by disruptive new entrants with innovative healthcare models. Instead, these patients will be driven to traditional insurers.
As noted by many people, including President Obama, the ACA does not have the ability to transform healthcare on its own. Rather, it is intended to provide incentives and opportunities for innovation in order to make healthcare more efficient, more affordable, and more accessible. In the words of the President, “We want to bend the cost curve.” The opportunities to help in and profit from the bending are present for existing players and for new market entrants.
In the framework established by Prof. Christensen, it is the new entrant that is usually disruptive because the established competitors have little incentive to innovate or to change their business models. It is also impossible for the new entrants to gain market share using the existing business models so they are forced to develop and deploy disruptive innovations.
I don’t expect the full effects of Obamacare to be evident for years, although we should see small improvements (and to be sure, some startup problems) almost immediately. There will no doubt be modifications and delays to the regulations and to implementation. It is to be hoped that some of those changes will be favorable to more, rather than less, disruptive innovation.
Takeaways: With change comes opportunity. The ACA may not be hugely popular (especially among medical device companies paying the 2.3% excise tax). Obamacare is, however, somewhat disruptive and creates new opportunities for healthcare companies.