In order to correctly identify your opportunities and threats that align with your industry, you first have to examine the world around you. It’s also important to analyze these factors, because those factors can contribute to changes in the industry in which your company is competing. You also need to evaluate how those changes can affect your competition, suppliers, and your power
The largest factors in the external environment surrounding the health insurance industry are the political and legal factors. In 2010, Obama passed the Patient Protection and Affordable Health Care Act (ACA), which affected all parts of the health care industry. The largest opportunities are presented from the federal requirement that every American is required to have health insurance, or they will be fined. The health insurance industry is about to enlarge its market to a size larger then ever before. The Act also decreased the requirements for Medicaid eligibility. This will give the competing companies in the industry the ability to obtain more Medicare membership, which will increase the companies’ revenues. Unfortunately, he ACA also cuts the payments for Medicare Advantage programs. Insurance companies with Medicare Advantage Plans are paid by the government to provide a broader form of coverage for those recipients. This is a significant threat for those smaller insurance companies with a large amount of Medicare Advantage customers. They will still have to pay out just as much for claims, but will be receiving less money from the government. This could be an opportunity for larger companies within the industry, because this provision will eliminate a large amount of smaller competition. Part of the Act also sets up new requirements for an online market for consumers to buy and compare health insurance policies. This comes as a threat for the industry. Insurance companies will now have to competitively price their premiums in order to obtain new customers, and retain their current ones. It used to be a long process to switch insurance companies, and now with just a few clicks of a button a consumer can switch insurance companies. The reduced switching costs will increase competition between the companies competing within the industry. The ACA also requires all health care records to be maintained electronically. This could come as an opportunity in all health care sectors to cut overhead expenses in the form of paper, as well as helping the environment. This will also give an opportunity for faster access of needed documentation, which will in turn help administrative staff function quicker and more efficiently. A huge threat insurance company is that the ACA now prohibits denial of coverage for any pre-existing conditions. This is a severe disadvantage to an insurance company, because pre existing conditions can cause an above average amount of health care expenses. It also prohibits “caps” on any insurance plans. That means that no matter how many expenses a person incurred for medical coverage, the insurance company cannot limit the amount of reimbursement. One of the most significant parts of the ACA that directly affects all insurance companies, is the requirement that managed care companies are required to designate 80 percent of premium revenue directly medical claims and improvements of quality. This is called the medical loss ratio. This leaves only 20 percent to pay for all administrative and overhead expenses. This proposes a huge threat for companies within the industry, because their ability to provide their shareholders with adequate returns is severely diminished. Companies will have to figure out how to run as efficiently as possible in order to gain any sorts of profit. If any insurance company does not comply with these regulations, they would have to disburse a large amount of rebates to their...