AI to the rescue? Health insurers eye major savings with tech upgrade

Artificial intelligence and automation offer promising opportunities for health care payers to navigate a challenging economic landscape.

“We estimate that by using currently available technology, payers could see net savings of 13% to 25% in administrative costs and 5% to 11% in medical costs, as well as 3% to 12% higher revenue,” according to a new report from McKinsey & Company. “We based the calculations on an average-performing payer; lower performers could see even more improvement, suggesting the opportunity to leapfrog competitors.”

Researchers analyzed each function or process in health insurance and found substantial potential administrative and medical cost savings and increased revenue for payers that adopt the latest available technology, including AI and generative AI.

“Incremental approaches will continue to yield only minor savings, as we have seen to date across most of the industry,” the report said. “To capture full value, payers must reimagine the end-to-end processes of each domain. The experience of companies in other industries that are further along the journey shows there is a competitive advantage for those who are able to harness AI and automation technologies.”

The size of the opportunity suggests that those who choose to wait will need to have a ready response plan if competitors take the lead and move ahead successfully. For example, followers could find themselves in a position where industry leaders have 10% lower medical costs or 20% lower administrative costs.

In general, most payers are ill-equipped to pursue this opportunity. McKinsey recommends that payer CEOs assess their situation by answering several questions:

• How would we respond to a competitor with 20% lower administrative costs or one with 10% lower medical costs?
• Where are the biggest pockets of value for our business? Would that be a domain? A business unit? A function?
• Even if we’re not ready to take the plunge today, can we “rewire” a portion of the business so we know what to do if and when we need to move ahead? Do we have access to talent steeped in the new technologies? Does this tech talent understand how our business works?
• Do our leaders and managers understand how these technologies work, at least enough to identify opportunities and work collaboratively with our technologists?
• Do we have the underlying technology infrastructure to allow modeling and innovation to happen quickly and without friction?
• Is our data clean, clear and accessible to those who need it to do their jobs better?

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“Capturing this opportunity is a big leadership challenge for CEOs and their top teams,” the report concluded. “They will need to establish a governance and risk framework and mobilize the full organization. They can’t do this overnight, but the combination of opportunity size and the mounting pressure on the industry means it’s time to start asking themselves these tough questions.”