The evolving relationship between blockchain tech and the health sector has already been thoroughly documented, yet something that's received less attention is the increasing role blockchains are set to have in the health insurance industry. This industry was worth over $600 billion in 2017 in the United States alone, while calculations suggest that as much as $375 billion is wasted every year by American insurance companies as a result of the paperwork and administrative box-ticking that comes with having a multi-payer health care system. There is, therefore, a massive opportunity for blockchain-related companies and platforms to not only claim a slice of the health-insurance pie for themselves, but to make this pie bigger by cutting down on legacy costs.

Given this opportunity, it's not surprising that an increasing number of companies are looking to bring blockchain-based technology to the health insurance sector. To some extent, many service providers were looking to digitize health insurance before they ever heard of blockchain, yet it's also clear that blockchain tech will bring some definite benefits to the provision of medical insurance. From streamlining claims processes to introducing greater transparency and enabling provider interoperability, blockchains are being increasingly sought by startups and established corporations alike as a means of pushing the industry forward, with many of the biggest names in health insurance already staking their futures on the new technology.

IBM and co.

If there were any doubt that blockchain tech is being taken seriously by the world's biggest insurance companies, it was most likely dispelled in January, when the likes of Aetna, Anthem and Health Care Service Corporation (HCSC) announced a collaboration with IBM to build a digital ecosystem for the health care industry based on the IBM Blockchain Platform. According to the press release, the parties involved aim to use IBM's blockchain to help with a range of industry challenges, from making the processing of claims and payments more efficient to enabling the "secure and frictionless" exchange of information among insurance providers (and medical facilities). As said by Aetna CTO Claus Jensen:

"We are committed to improving the healthcare consumer experience and making our healthcare system work more effectively. Through the application of blockchain technology, we'll work to improve data accuracy for providers, regulators, and other stakeholders, and give our members more control over their own data."

Of course, this all sounds good in writing, but the question remains as to how exactly IBM's blockchain will be used by these insurance service providers to improve their industry. According to Soroush Abbaspour, IBM's program director for blockchain for HCLS, one of the principal ways greater efficiency will be provided will be via the use of smart contracts. As he explains to Cointelegraph, such smart contracts will permit the automatic (i.e., cheaper) execution of claims and payment processes, and they'll permit greater transparency between those handling a patient's contract(s).

"In today’s claim processing system, especially in the case of value-based contracts, most of the process for reconciliation of the claims is manual. There is no transparency and visibility between the healthcare stakeholders who are involved in the contract associated with the patient. Blockchain can work as an authoritative source of truth for contract execution and management. It can provide a secure, transparent system of record for value-based contracts, and it can bring automatic and near real-time settlement for contracts and episode-level financial positions."

As indicated by Abbaspour, the likes of Aetna and Anthem will be using IBM's distributed ledger technology to capture and validate all incoming claims’ data, as well as the quality measures taken to ensure the compliance of claims.

"Smart contracts on blockchains can be used to implement contract terms and business rules in a trusted execution environment. The benefit of blockchain is to dramatically reduce administration costs by eliminating duplicate processing, reducing disputes, and allowing for more effective risk management through real-time visibility and provenance leading to broader adoption of value programs by providers."

Smart contracts are the secret ingredient such health insurers as Aetna and HCSC have been waiting for, even if the move toward greater digitization in the health insurance industry had been initiated years ago. Yet, Abbaspour notes that the providers collaborating with IBM have identified more potential benefits than simply the secure and transparent automation of claims.

"The founding members of the utility network have identified several use cases and plan to prioritize them," he says. "The prioritized list of use cases will be shared with the industry in the coming months."

Industry interest

While IBM hasn't yet made these additional use cases public, the fact that blockchains offer numerous advantages is indicated by the other organizations that have been turning to them over the past few months. Back in December, another alliance – formed by the likes of Humana, Multiplan, and Optum – announced the addition of two new members, Ascension and (once again) Aetna. Together, these insurers would begin a trial of blockchain solutions intended to solve a variety of problems common to the health insurance industry.

Chief among these problems is the inaccuracy of directory data, which provides insurers with information on medical providers, info that is obviously needed in order to accurately process claims. According to Modern Healthcare, insurers and health care providers spend around $2.1 billion a year to keep this info updated, while the Centers for Medicare & Medicaid Services reported last year that 52 percent of all provider locations listed in 64 online directories had at least one error in them. By introducing distributed ledgers into this equation, providers will be able to quickly and cheaply share updated location (and other) info, thereby making it likelier that claims will be processed in a timely fashion. What’s more, Humana believes that using blockchain tech for this purpose would provide the best possible entry point for bringing blockchain to other areas of the industry, as explained to Cointelegraph by Kyle Culver, the lead enterprise architect at Humana:

"In thinking about the opportunities with blockchain, it’s important to know that its value proposition is driven by network effect, meaning that the value of a blockchain-powered solution increases as the number of participants using the solution increases. Thus, at Humana, we are focusing first on the provider directory use case. Provider directories rely upon public data, so the firms creating directories don’t view this activity as being competitive in nature. With the competitive risk mitigated, firms have been more willing to collaborate. There are many other similar opportunities ripe for collaboration that could improve the overall healthcare system.”

“As our first wave of blockchain-powered solutions begin to scale and as the technologies evolve, we will gain a great deal of knowledge that we can apply to work on future, more complex, use cases.”

Health insurer interest in blockchain isn’t restricted to the U.S., though. It’s also been prevalent in China, where the People's Insurance Company of China announced that it would be teaming up with VeChain and global assurance company DNV GL to digitally transform its operations. In particular, it would harness the VeChainThor enterprise platform and its smart contract capability to bring greater efficiency to data collection, processing and auditing.

Speaking of such benefits, George Kang — the CEO at DNV GL Business Assurance in China — said: "The role DNV GL plays is to ensure data integrity from the business operation perspective. In conjunction with VeChainThor Platform, we will provide a robust digital trust platform to assist PICC with enhanced data management and efficient data processing."

This wasn't the first time in 2018 that Chinese companies sought to bring blockchain to health insurance. Last June, it was announced by the Alibaba-associated tech firm ZhongAn that it was building a blockchain-based platform for insurance and that it had already entered into data-sharing agreements for automated claims and record validation with over 100 Chinese hospitals.

Similar indicators that health care insurers and providers are now serious about blockchain aren't hard to find: In August, the American advisory organization for insurers (the American Association of Insurance Services) revealed that it had launched an insurance database and reporting tool running on IBM's Hypderledger Fabric ledger.

Also in August, Singapore-based MetLife subsidiary LumenLab began testing "the world’s first, automated insurance solution using blockchain technology," which will be used to offer automatic payouts to pregnant women in Singapore affected by gestational diabetes.

In light of such developments, it's hard to shake the suspicion that blockchain technology will become an increasingly prominent feature of the (health) insurance industry in the coming years. Because, as IBM's Soroush Abbaspour affirms, it offers effective ways of dealing with problems that have plagued the industry for years now:

"Blockchain technology can allow various stakeholders in the healthcare value-chain to increase transparency and streamline processes across organizations without compromising data security and integrity. Blockchain can address a range of industry challenges, including promoting efficient claims and payment processing, enabling secure and frictionless healthcare information exchanges, and maintaining current and accurate provider directories."

The inevitable challenges

As promising for the health insurance industry as blockchain-based platforms would appear, there are predictably a number of factors that need to be addressed before such platforms become widespread — and before insurance providers throughout the globe strengthen their systems using distributed ledger technology.

First of all, there is the understandable concern over data privacy, given that the health care industry loses around $6 billion a year as a result of security breaches. Worse still, a joint ProPublica and NPR report from July found that insurers are covertly amassing personal data concerning their customers from a range of public and private sources, so as to calculate how much to charge in premiums.

This all indicates that security needs to be one of the primary concerns for the companies rolling out blockchain-based systems, while they also need to ensure that interoperability doesn't result in customer data being shared without customer consent. However, even though this is a big challenge, Soroush Abbaspour believes it's one that IBM's Blockchain Platform will help the industry overcome:

"As a first principle, data is owned by the parties that bring them to the network. Each party has the ability to identify who can view and access their data on the network platform. Patient data will solely be shared between parties based on patient consent and existing privacy regulations, only between the network participants. Within these constraints, the network will facilitate sharing of data so as to improve transparency and interoperability between network members and to provide more streamlined and efficient care to patients. The infrastructure is built on a HIPAA [Health Insurance Portability and Accountability Act]-enabled environment, within the IBM Cloud, delivering the high levels of trust, security and regulatory compliance that clients can expect from IBM Cloud and its offerings in the healthcare domain."

Another, more predictable problem is that of educating the public and relevant companies of the benefits of blockchain technology, something that can really be done only by taking a risk and launching those initial few platforms that go on to directly teach people about these benefits.

"The current state of blockchain can be compared to where internet was in 1997," says Abbaspour, suggesting that it will mostly take time and continual effort to break through the all-important threshold of public awareness.

"The industry needs a continued effort to educate and bring awareness to all the stakeholders in the industry about how blockchain can help them to reduce health data transaction administrative costs, improve data accuracy for consumers, providers, regulators, and other stakeholders, and ultimately improve outcomes."

Education and awareness-building touches on another challenge, that of getting as many insurance providers as interested in blockchain as possible. As Abbaspour says”

"Blockchain is a team-sport. Unless all the stakeholders that benefit from the use of blockchain for a specific solution/use case come together on the blockchain network, the value of the solution is not fully realized. There is a need for the industry's influential thought leaders to come together and collaborate on creation of a utility network and solutions."

However, as Abbaspour also notes, collaborations between such providers as Aetna, Anthem, HCSC and IBM will go a long way in getting more insurers on board the blockchain train. Something else that would help is agreeing on guidelines and standards for the governance of any shared health insurance ledger, as pointed out by Kyle Culver:

“Before decentralized blockchain solutions will be widely adopted — and before they can deliver on current expectations — firms need to be comfortable with agreed upon governance and privacy, and must feel the business model for a given project is equitable.”

“Because the value proposition is tied to network effect, a solution likely needs to grow in scale before it’s worth the investment. This means that, to get a project off the ground, at least some firms must be comfortable with the risk of committing before a solution has proven itself. Furthermore, for any group of competing firms, aligning on governance and a business model is a challenging and time consuming task.”

Connected to the issue of governance is that of having appropriate regulation in place for insurance-focused blockchains, as well as interoperability standards so that different systems can communicate with each other (and with legacy systems). This is a problem highlighted by Optum’s senior distinguished engineer, Mike Jacobs, who also suggests to Cointelegraph that such standards aren’t likely to be formulated and agreed upon until the industry works out all of the use cases they have for blockchain tech.

“Many capabilities are still being explored including supporting high volume transactions, validating identity, incorporating privacy controls such as consent, and positive user experience for consumers to name a few. Interoperability standards and practices may need adjustments to better enable integration with existing systems. Regulatory clarity and changes are likely needed especially around the ownership of patient data. Progress is being made on these fronts, but it will take time to complete.”

But once again, the fact that a number of major insurance providers have already launched collaborations would suggest that they’ve taken the first step toward solving the challenges posed by interoperability and governance. And once they’ve solved this, it will only be a matter of time before they go on to meet other challenges, with the end result being more efficient, more effective and cheaper health insurance for much of the globe.