CVS Health Just Upended the U.S. Health Insurance Market

For $59, CVS Health will now offer telehealth video visits through the company’s retail medical clinic, MinuteClinic. The video visits will be available through the CVS Pharmacy App to anyone interested who lives in Arizona, California, Florida, Idaho, Maine, Maryland, Mississippi, New Hampshire, and Virginia – and Washington D.C.

This move will significantly change the health insurance market, and CVS’s merger with giant insurer Aetna isn’t even final, though reportedly, the “Justice Department’s antitrust division hasn’t turned up vertical competition concerns from the merger,” increasing the odds significantly that the deal closes before the end of the year.

What does CVS Health see that is driving this strategy? A shifting private health insurance market that requires people to pay up front for routine care, making consumers more sensitive to costs and less obligated to use a provider that is “in-network.” In the olden days (2006!), as the chart below shows, patients paid the majority of their cost-sharing payments in the form of copayments or coinsurance, that is, payments to providers who had an agreement with a health insurer. In 2016, for the first time, more than half of cost-sharing payments were in the form of a deductible, as the chart below from the Peterson-Kaiser Health System Tracker shows.

MinuteClinic video visits for $59 (paid for directly by the consumer) capitalize on three ongoing trends: 1) Patients have to pay more, before insurance starts to pay for claims, making consumers more sensitive to cost; 2) Patients want more convenience and CVS can deliver it more cheaply, in no small part because there are no insurance forms or administrative costs; and 3) Payers are reluctant to pay for virtual visits.

First, CVS Health is looking to serve people with routine health needs who are shopping for lower costs.

According to FAIR Health, the median charge for a new patient office visit at a retail clinic in 2016 was $109, compared to $294 in an office setting. The average charges and allowed amounts for the most typical retail clinic visits are shown in the chart below from the FH Healthcare Indicators™ and FH Medical Price Index.™

Simply put, the video visits will be cheaper than retail clinic visits. And, even if a patient is referred from the MinuteClinic video visit to one of the 1,100 MinuteClinic physical locations, that patient is likely to save more than $100 for the visit compared to going to a physician visit.

Second, CVS is looking to leverage the steep rise of people seeking care in retail clinics, by offering a clear value proposition to use a MinuteClinic virtually because it’s cheaper and more convenient. As the chart from FH Healthcare Indicators™ and FH Medical Price Index™ below shows, retail clinic visits increased by 847% from 2011 to 2016 with growth in rural areas increasing by 704% and in urban areas by 865%.

Clearly, CVS Health knows their potential customer well. A survey of 5,000 virtual visit users published by the Advisory Board in April shows more than 33% of people who had a virtual visit lived in a city, compared to 9% who lived in the suburbs or rural areas. Virtual visit users are also high earners – 52% “make more than $71,000 a year,” and are more likely to have private insurance.

Third, CVS Health sees that getting insurance companies to pay for virtual visits is hard. Forbes recently touted telehealth in article titled, “Lower Cost Higher Quality Health Care Is Right At Our Fingertips“ but the author was blunt in his explanation of what is holding telehealth back:

“The biggest obstacles? Government. Insurance companies. Employers. They pay the bills. Not only have they been slow to take advantage of telemedicine, they are refusing to pay for most of it…”

Getting a virtual visit via the free CVS/pharmacy app for just $59 means a person can go around his or her insurance company – and CVS avoids that hassle, too. Here are just a few ways that CVS Health’s approach differs from regular health insurance: You don’t need a referral. You don’t need to wait days for an appointment. You probably don’t have to take time off work because the virtual visits are available 24 hours a day, 7 days a week.

If you are one of the 40% of people who has employer-sponsored insurance but is enrolled in a high deductible health plan (HDHP), you probably love the idea of a cheaper alternative to a retail clinic since you are accustomed to paying out-of-pocket for your basic care now. Even if you have insurance, it doesn’t matter, because the virtual visits can only be paid for with a credit or debit card (CVS Health said they will add insurance coverage and national coverage by the end of the year).

Insurers have been offering limited products, in limited geographies, with limited providers, their “network,” for years. The launch of MinuteClinic video visits will be trumpeted as a huge value for consumers. That is only half the story. How will health care providers convince people who are mostly healthy that they have to wait for appointments between 10am and 3pm at a complex, integrated health system where they have to pay to park? How will insurers convince people to continue to buy the expensive, comprehensive coverage on offer today? This move will start to change the way people think about what insurance is even for. Now THAT is disruptive.