Introduction: Shaping the Health Ecosystem
The healthcare payers of 2035 stand at a transformative crossroads, positioned to become trusted partners for life rather than transactional insurance providers. By orchestrating holistic support for members and families within an increasingly complex healthcare ecosystem, forward-thinking payers can deliver twice the service at half the cost. This transformation requires innovative business models, strategic use of artificial intelligence, and unwavering commitment to member value.
Drawing on comprehensive data sources, future-focused payers will leverage AI and advanced technologies to anticipate member needs and provide seamless guidance throughout their healthcare journeys. Transactions will become transparent and nearly instantaneous, offering consumers unprecedented cost transparency and predictability. Automation will personalize everything from diagnoses and scheduling to payment processing and follow-up care coordination.
As the central connection point within the health ecosystem, payers can help members achieve their wellness goals while offering indispensable insights to industry collaborators. Those who embrace innovation will continuously evolve to meet rising expectations, ensuring long-term resilience and maintaining a central role in shaping healthcare’s future. However, this transformation demands immediate action as economic pressure, technological innovation, medical advances, and consumerism fundamentally reshape the payer landscape.
Four Catalysts Driving Payer Transformation
The Big Squeeze: Financial Pressures
Health plan margins have reached their lowest point in two decades, with 2025 projected as a break-even year across the industry. The financial outlook remains challenging on multiple fronts. Commercial markets face shrinking group margins as enrollment declines and employers increasingly seek cost-saving solutions and alternative insurance products. Medicaid growth is expected to slow significantly as federal policy tightens eligibility requirements and reimbursement rates.
The Affordable Care Act (ACA) individual market continues experiencing volatility, while Medicare Advantage margins face mounting pressure from regulatory changes and increased medical costs. Across all sectors, rising medical expenses represent a major concern for payer sustainability. Industry projections indicate the medical cost trend for 2026 will reach 8.5% for group plans and 7.5% for individual plans, consistent with recent years’ escalation.
Without substantial innovation, aggressive cost control measures, and rapid adaptation to evolving regulations, ongoing margin compression threatens payer viability. These financial pressures manifest in deteriorating risk-based capital projections, creating potential challenges for payers lacking sufficient reserves to weather sustained uncertainty. As margins contract—driven by declining membership volume and reduced revenue—payers must scrutinize fixed cost investments that may no longer be justified due to reduced operational scale.
Technological Innovation and AI Adoption
Payers are increasingly adopting technological tools to enhance operational efficiency, create more personalized and streamlined member experiences, and strengthen cybersecurity defenses. However, the subsector’s adoption pace of advanced technologies like artificial intelligence lags behind health systems and other healthcare industry segments.
Years of deferred maintenance and accumulated technology debt continue burdening many payers, making modernization both urgent and expensive. Organizations must leverage new technologies—whether upgrading legacy systems or implementing fresh solutions—to deliver high-quality services at lower unit costs per member, fundamentally shifting focus from traditional business metrics.
Generative AI (GenAI) is revolutionizing workflows by automating processes, reducing costs, and dramatically enhancing productivity. Intelligent prior authorization and claims automation, enabled by Fast Healthcare Interoperability Resources (FHIR) APIs and AI-driven tools, are streamlining decision-making while lowering administrative expenses. GenAI-powered “digital front doors” and virtual care models are making healthcare access faster, more convenient, and increasingly personalized to individual member needs.
Strong cybersecurity measures and “zero-trust modernization” approaches—continuously confirming and authenticating user access—have become essential. Recent high-profile cyberattacks underscore the critical need for robust protection of personal health information and sensitive member data.
Medical Advances and Treatment Costs
Medical advances hold tremendous promise for improving patient outcomes while simultaneously introducing significant cost challenges. These developments compel payers to fundamentally rethink how they finance and manage access to breakthrough therapies. Innovative treatments such as gene therapy and CAR-T cell therapy have driven payers toward outcome-based agreements with pharmaceutical manufacturers, linking payments directly to real-world patient results.
The Centers for Medicare & Medicaid Services (CMS) Cell and Gene Therapy Access Model further supports outcome-based contracts, improving Medicaid patient access while reflecting a broader industry shift toward value-based care and financial innovation. The expanding use of GLP-1 medications for multiple indications is driving substantial near-term cost increases, prompting payers to respond through direct manufacturer negotiations, launching new pharmacy benefit manager (PBM) models, capping member copayments, and reconsidering coverage criteria for certain conditions.
As patents expire and generic alternatives enter the market, payers must continually reassess formulary strategies. Additionally, organizations must consider the impacts of emerging antibody-drug conjugates and radiopharmaceuticals, including complex logistics requirements and novel reimbursement models. Success demands agility, data-driven decision-making capabilities, and collaborative partnerships to effectively manage patient access while controlling costs.
Rising Consumerism in Healthcare
Consumerism is fundamentally reshaping the American healthcare landscape. While 44% of American consumers believe the system will improve by 2035, more than half remain critical of today’s healthcare system, with 51% describing it as “fundamentally broken.”
Financial concerns dominate consumer healthcare anxieties. Seventy-five percent worry about costs not covered by insurance, 71% about out-of-pocket expenses, and 70% about high premiums. These financial anxieties are particularly pronounced among caregivers, with nearly half (44%) reporting they cannot afford their own healthcare needs and 43% unable to afford mental health care—both significantly higher than non-caregivers.
Modern consumers are increasingly proactive and informed, frequently conducting independent research before making healthcare decisions. Health technology adoption has become widespread, with 80% of millennials and Generation Z, along with 75% of affluent consumers, reporting monthly use of some form of health technology. Many express comfort with AI-enabled services such as appointment scheduling or prescription refills, and 20% would willingly pay premium prices for streamlined, AI-enabled healthcare experiences.
Ultimately, consumers increasingly demand a comprehensive, integrated platform that simplifies their healthcare experience—including payment processes—while helping them make informed choices about their care. To succeed, consumer-centric payers must outpace these rising expectations through rapid innovation, a challenging but essential undertaking for coming years.
Half the Administrative Cost: The Path Forward
Four-Phase Transformation Journey
AI and other technological innovations are projected to dramatically lower and flatten the administrative cost curve for health plans over time. This transformation unfolds across four distinct phases:
Baseline (Current State): Health plans currently face high fixed and variable administrative costs due to fragmented systems, manual processes—including fax-based and phone-based utilization management decisions and outdated back-office systems—and years of accumulated technology debt. Larger plans typically achieve lower per-member-per-month (PMPM) administrative costs by spreading fixed costs across larger membership bases.
Productivity Phase: Streamlined systems and workflows—such as centralized enrollment and billing channels and digital sales management—reduce manual effort while driving down both fixed and variable costs.
Adoption Phase: Organizations implement AI and modern platforms—including predictive care management models and personalized agile marketing—to progressively replace manual tasks. This phase shifts more variable costs to fixed costs, further lowering the overall cost curve.
Maturation (End State): As legacy systems are retired and AI-native platforms enable rapid scaling, fixed costs decrease substantially. The industry transitions from labor-intensive operations to AI-enabled platforms, flattening the cost curve and making administrative expenses less dependent on organizational scale.
Cost Reduction Across Operations
Front Office Transformation: Through 2035, an estimated 40% to 50% reduction in administrative costs is expected, primarily through cuts in agent and broker commissions along with sales and marketing expenses. New AI-based reasoning models will help members select appropriate plans, replacing the outdated agent-based selection model often influenced by biases. Underwriting spending will shrink modestly as significant manual workflows transition to AI-powered processes including automated risk scoring, reinsurance triggers, and decline decisions.
Middle Office Evolution: A 20% to 30% administrative cost reduction is anticipated through 2035, mainly through network management efficiencies. Medical management spending can decrease as organizations shift from manually intensive prior authorization and utilization management processes toward member analytics and behavioral change strategies. Future middle office capabilities will provide intelligent sensing, point-of-service authorizations, precise patient navigation, and real-time data exchanges within the healthcare ecosystem.
Back Office Revolution: Significant cuts to shared services, IT, claims processing, customer service, and enrollment functions are predicted, potentially eliminating more than half of back-office costs by 2035. The back office remains largely invisible, somewhat antiquated, and plagued by systems built decades ago. Payers can create novel infrastructure reducing IT and shared services costs, enabling real-time verification and transactions similar to banking systems, while native rich communications systems (RCS) enable advanced customer service models.
Twice the Service: New Business Models
The elements defining today’s business models are reshuffling to establish four innovative frameworks for the future: the lean operator, the risk clearinghouse/marketplace for care, the value/market integrator, and the consumer health partner for life (CHPL).
Each model demands distinct capabilities, requiring leaders to carefully prioritize which to develop internally, acquire through partnerships, or defer—enabling strategic focus and sustainable transformation. Health organizations face a daunting array of potential technology and capability investments, with limited resources often making comprehensive pursuit impossible.
Strategic Implementation Roadmap
No-Regret Moves for Immediate Implementation:
In the short term, payers should focus on foundational actions essential for survival in a rapidly changing healthcare landscape:
- Simplify the back office by replacing legacy systems and embracing cloud-enabled platforms
- Automate administrative tasks to reduce manual workload and human error
- Drive zero-friction operations that eliminate unnecessary complexity
- Modernize core operations by building scalable technology and AI into business foundations
- Pursue strategic deals to acquire or partner for digital assets that accelerate transformation
Archetype-Defining Strategic Choices:
- Value Chain Orchestration: Decide whether to vertically integrate (vertical market integration) or maintain a lean, hands-off approach
- Product Model Redefinition: Choose between offering stripped-down, ultra-low-cost coverage or becoming a platform for configurable, consumer-designed benefit bundles
- Lifetime Health Investment: Determine whether to become a CHPL with prevention, genomics, and long-term ROI models, considering new partnerships and products like life insurance or financial services
Conclusion: The Time to Act
US payers have an unprecedented opportunity to shape the health ecosystem—including reimbursement models—through thoughtful business reinvention. They can leverage technology to deliver substantially more service for significantly less cost, underwriting development of a health ecosystem that is more productive, more affordable, and more effective for all stakeholders.
Payers must act immediately, accelerating personalization initiatives, building adaptable networks, deploying automation at scale, and experimenting with innovative models that underwrite care, expand access, and empower consumers as active managers of their health. By seizing this transformational moment, payers can embark on the path of delivering twice the service at half the cost, establishing themselves as trusted partners for life—both for their members and for the broader healthcare system.
The journey to 2035 begins today. Organizations that delay transformation risk obsolescence, while those embracing change position themselves for sustainable success in an increasingly competitive, consumer-driven healthcare marketplace.
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