Understand how we got here — and how to move forward.


Emerging Idea

Health plan line of business diversification

15 Minute Read


The idea

Health plans are diversifying outside of their historic business operations in response to heighted market pressures and to achieve long-term stability and growth. Line of business (LOB) diversification is one of the traditional methods of diversification, in which plans expand outside of their core market segment to leverage opportunities in other markets.

The promise

Each line of business presents unique opportunities for growth. Plans that pursue line of business diversification can take advantage of products that are growing particularly fast, have favorable demographics, or are becoming profitable under shifting market conditions. LOB diversification is an opportunity to support existing market needs while pursuing internal stability and even growth.

Why now

While some large health plans have historically operated in multiple LOBs, smaller plans are now diversifying as well to remain competitive. Along with increased competition across the industry, plans are facing higher medical costs and economic uncertainty due to high inflation and rising interest rates. These factors have shifted the health care landscape and heightened the urgency for plans to make plays that increase their revenue and, ultimately, improve stability. Entering new market segments within health insurance is one strategy plans are pursuing to achieve these goals.

Reality check

Health plans can grow through LOB diversification, but they face challenges such as resource constraints, marketing a new product, and serving new demographics. Plans need to consider these challenges in their approach to LOB diversification.


What is it?

Health plans are diversifying outside of their historic business operations in response to heighted market pressures and to achieve long-term stability and growth. Like other industries, health plans see diversification as an opportunity to increase revenue, ensure stability in a dynamic market, and achieve greater control over costs. Plans pursue diversification in different ways, including geographic expansion, diversification of assets, and growth outside of their traditional line of business.

Much attention is focused on health plans’ diversification plays outside of the insurance business into other assets, such as provider services, home care, pharmacy benefit managers (PBMs), and virtual care, among others. However, many insurers continue to pursue diversification through more traditional routes —notably, entering new lines of business within health insurance.

Line of business diversification

Health plans today often provide insurance products in one or more lines of business. The main LOBs are:

  • Medicare Advantage
  • Individual market
  • Commercial group market
  • Medicaid managed care

Overview of Lines of Business, 2022

Medicare Advantage Individual market Group commercial market 1 Medicaid managed care

Size (by national enrollment)




89.9M 2

Growth rate (based on enrollment 2021-2022) 3





Profitability (by average margin)

$177 PMPM

$87 PMPM

$84 PMPM

$67 PMPM

Predominant sales channel

Broker-dominated business

Individual purchasers

Broker-dominated business

Individual purchasers, automatic enrollment

Major population characteristics

Individuals 65+, people with disabilities

Low-income individuals, self-employed and/or part-time employees

Non-elderly adults, employed individuals and dependents

Women, children, low-income individuals, people with disabilities

1 The group commercial market, as discussed here, refers to small and large group fully insured plans.

2 Size by national enrollment and growth rate data is based on the total Medicaid market, including Medicaid managed care and traditional Medicaid.

3 Based on data from Q2 2021 and Q2 2022 enrollment by market segment from Mark Farrah Associates’ Mid-Year 2022 Report.

Medicare Advantage (MA) provides coverage to 29.7 million Medicare beneficiaries as of 2022. Enrollment in MA has been increasing steadily for the last 10 years and is projected to grow to 35 million by 2025. In 2022, Medicare Advantage premiums per member per month (PMPM) averaged $1,212 while expenses PMPM averaged $1,035. Taking the difference between the two, the average margins in the MA market were $177 PMPM, more than double the margins for the individual and group market. The aging demographics of the US population and higher margins in MA makes it an attractive market for new entrants.

The individual market accounts for approximately 17.6 million individuals, including coverage purchased through the ACA exchanges and off-exchange. In 2022, the average premiums PMPM in the individual market were $509 and expenses averaged $422, for a margin of $87 PMPM. The individual market is relatively stable, and with increased government subsidies, it presents a good financial opportunity for new entrants.

The group commercial market covers approximately 46.3 million people, comprised of small and large group fully insured plans. In 2022, the average premiums PMPM in the employer-group market were $516, while the medical expenses averaged $432 for a margin of $84 PMPM. It has historically been the main driver of the insurance industry but is becoming increasingly competitive for new and existing players.

The Medicaid market covers approximately 89.9 million people in total as of 2022. In Medicaid managed care, premiums PMPM averaged $493. Medical expenses were high at $426 PMPM, for a difference of $67 PMPM in 2022. During the Covid-19 pandemic, Medicaid enrollment expanded substantially because of the continuous enrollment requirement.


Why now?

Why enter new lines of business?

Entering a new line of business is an opportunity for plans to:

  • Expand services while taking advantage of existing business capabilities
  • Grow membership in untapped or less-saturated lines of business
  • Meet unmet community needs for insurance and benefit coverage
  • Grow into new geographic markets
  • Take advantage of lucrative financial opportunities to enhance the plan’s competitive portfolio within the industry

Why (some) plans haven’t done this before

Entering a new line of business is challenging and therefore not feasible for all health plans. Depending on the maturity, resourcing, and existing capabilities of a plan, they may face any of the following challenges:

  • Serving a new demographic: Demographics and member needs vary widely across lines of business. To effectively diversify, plans must understand and support the populations they serve. This kind of shift might require a plan to invest resources and build new infrastructure to include new member services and benefits or additional workforce. For example, a historically commercial-focused plan would potentially have to build data systems to capture seniors’ data for Medicare Advantage’s STAR ratings and build marketing infrastructure catered to seniors and brokers. Therefore, plans looking to diversify should consider which line of business to enter based on their existing expertise and infrastructure.
  • Marketing and selling a new product: Significant variation exists in how products are sold across lines of business. Plans that are entering a new line of business must understand the marketing and sales channels of the product they intend to sell to effectively build market share. This is a challenge for plans without experience in other markets because they must develop new expertise in sales, along with the development of the insurance product itself. For new entrants to be successful, they must establish a strong understanding of the marketing and sales processes in the new line of business.
  • Capital and resource constraints: Plans that lack sufficient resources and capital will find it challenging to break into markets with strong incumbents. What’s more, many markets are increasingly competitive as large national plans expand their geographic presence, often by growing or entering new lines of business. For example, enrollment in Medicare Advantage, an attractive market for many insurers, is highly concentrated among a few players. UnitedHealthcare1 and Humana alone account for 46% of all MA enrollees in the country. While there are a lot of plans operating in the MA market, the vast majority of lives are covered by a few large national plans and some regional players. These plans gained market share early on and retain it from brand recognition and member loyalty, making it difficult for new entrants to break into the market unless they can differentiate their value and attract members from the dominant plans.

Other lines of business present similar barriers to entry. Successful entrants are typically those with the capital reserves to build out programs, services, and networks that attract new members. For smaller players to enter a new market and gain traction, they must present a compelling value proposition and leverage partnerships to build that value.


Should you pursue this idea and how?

Health plans seeking to enter new lines of business should assess their portfolio, expertise and scale, and consider the following factors to address potential challenges head on:

  • Which LOBs serve members with needs that are complementary to our current capabilities?
  • Do our current marketing capabilities align with the sales channels of other LOBs?
  • Are there other plans and/or vendors we can partner with to leverage their expertise?

Consideration 1: Which LOBs serve member with needs complementary to our current capabilities?

Entering Medicare Advantage: Resource intensive, high potential payoff

As a rapidly growing and potentially lucrative market, Medicare Advantage is an appealing opportunity for many plans with ambition to diversify. However, MA plans must be equipped to serve a demographic with far different needs than the commercial or Medicaid population and operate in a highly regulated market. Medicare Advantage serves individuals with more complicated and costly health conditions than the average commercial health plan member. To enter the MA market, commercial health insurers often require sufficient capital and infrastructure investment to manage risk for aging individuals with complex medical needs.

There is unique opportunity for Medicaid-focused plans to enter the MA market through Dual Eligible Special Needs Plans (D-SNPs). D-SNPs are MA plans that serve beneficiaries dually enrolled in Medicare and Medicaid, designed to streamline the coordination of services for members who are eligible for both programs. D-SNP beneficiaries are typically low-income and report lower health status than the average commercial enrollee. Managed Medicaid plans are familiar with these types of members and may be well equipped to manage their complex needs. Moreover, some states are pushing for more integrated Medicare-Medicaid dual plans because they reduce administrative burden and duplicative costs. These states make a favorable environment for smaller Medicaid plans looking to enter the MA market.

Entering Medicaid managed care: Strong opportunity for MA plans with high-acuity members

MA-focused plans might look to enter the Medicaid market because both programs need strong care management capabilities. To be successful, Medicaid and Medicare plans must manage high-acuity members with complex conditions. Plans with expertise in managing the Medicare population likely have supplemental benefits, staffing, and data infrastructure to manage Medicaid beneficiaries effectively. However, since the Medicaid market varies on a state-to-state basis, it is more difficult for plans to scale their programs uniformly across geographic regions and grow in the Medicaid market.

Entering the individual market: Stable growth prospect for commercial and Medicaid plans

The individual health insurance market presents an opportunity for all plans (especially commercial and Medicaid plans) to enter a new market. Enrollment in the individual market has increased 17% since 2021, mostly driven by enhanced government subsidies making premiums more affordable. The ACA individual market covers approximately 17 million people and will likely grow as more people become eligible with the end of the public health emergency (PHE) and corresponding end of the continuous coverage requirement for Medicaid.

Commercial plans looking to diversify face a lower barrier to entry to the ACA individual line of business relative to government lines of business. The individual market has seen steady growth in participation from insurers since it was launched in 2014, due to stabilization of marketplace enrollment and increased federal subsidies for members. Commercial insurers can enter the ACA market to build experience managing a more complex population with lower relative costs per member than Medicaid. This can also act as a steppingstone into the Medicaid managed care market by giving commercial insurers a chance to build their care management capabilities and provider relationships.

Similarly, the individual market is an opportunity for insurers with expertise in the Medicaid market. Given the similarities between the socioeconomic status and health conditions of the two populations, Medicaid plans are well equipped to manage members covered by the ACA individual insurance market. Moreover, many people fluctuate between the ACA individual market and Medicaid based on their eligibility over time. Therefore, operating in one of these markets allows plans to build trust and recognition with members, and an opportunity to retain those members in another line of business.

Consideration 2: Do our current marketing capabilities align with the sales channels of other LOBs?

Entering Medicare Advantage and the commercial group market: Bolster broker relationships

Medicare Advantage plans rely heavily on broker relationships to market and sell their product. Today, the average Medicare beneficiary has 43 plans to choose from, making it more crucial than ever for plans to stand out. Selecting a plan is difficult for beneficiaries to navigate on their own, so many of them rely on brokers to understand which plan to enroll in. Given that brokers play an important role in the selection process, new entrants in the MA market should establish strong relationships with brokers and communicate their value proposition clearly to those individuals that will market their product to prospective members.

Similarly, the commercial group market is a broker-dominated business. Employers often hire a broker to navigate which health plan would be the best fit for their company and employees. Brokers provide information on available plans in the area and their assessment of what the plans can offer each company. Commercial insurers with long-standing relationships with brokers benefit because brokers are more likely to understand and recommend those plans to employers.

Entering Medicaid managed care and the individual marketplace: Market to individual consumers

While commercial and MA plans interact frequently with brokers and agents, Medicaid managed care organizations (MCOs) and plans on the ACA marketplace market directly to individual consumers. First, plans must submit and win a request for proposal (RFP) bid to the state to be selected as an eligible Medicaid provider in that state. Individuals eligible for Medicaid are sent a list of the eligible Medicaid providers they can choose to enroll in, but they are often automatically enrolled in a plan selected for them because they do not select one in time. Medicaid plans must establish a community presence—through partnerships with local community organizations—to attract Medicaid members to their plan. For individual marketplace plans to be successful, they need to effectively market themselves to members navigating the marketplace. In this case, it is crucial to clearly communicate a plan’s value proposition and differentiating factors to consumers. Both types of plans must identify the right channels to reach consumers directly and build trust within the communities they serve to engage individual consumers.

Consideration 3: Are there other plans and/or vendors we can partner with to leverage their expertise?

Create scale with vendor partnerships

Large national players have the financial position to acquire and build out capabilities needed to serve new markets. Smaller players, however, should leverage partnerships to create synthetic scale to overcome capital constraints. For example, some MA and Medicaid managed care plans have partnered with NourishedRx to connect their members with nutritious, accessible food options. NourishedRx is a digital health platform that provides personalized food solutions, including groceries, meal prep guidance and nutrition consultations. This is especially relevant for Medicaid plan members, who often lack access to nutritious and affordable food options. Small and midsized plans can leverage partnerships with companies like NourishedRx to provide members’ access to fresh produce and distinguish themselves as a plan in a new market like Medicaid.

Build capabilities through joint ventures

A joint venture can also facilitate the process of entering a new market by allowing an organization to leverage the strengths of another organization rather than expend capital to build capabilities internally. Several health systems have launched joint ventures with health plans to drive patient volume. Health plans, too, can leverage a hospital’s patient relationships and access to members, while both entities work to improve outcomes and close gaps in care. For example, Blue Cross and Blue Shield of North Carolina partnered with Duke University Health System to launch a Medicare Advantage product called Experience Health in 2019. The plan, jointly owned by the two entities, leverages the network and health management programs of the health system and the claims management capabilities of the insurer. Outside investments through venture capital firms or private equity also enable smaller plans with limited capital to enter new LOBs. This type of partnership gives plans the necessary capital to make investments in costly infrastructure, knowing they won’t see short term returns.

Note that while these partnerships are helpful steppingstones into new markets, they still require time and capital. Most companies will not see returns on the investment immediately. Health plans should leverage these partnerships to lower the barrier to entry into a new market but understand that it is still a long-term investment.


What we’re keeping an eye out for

Health plans are looking for opportunities to diversify their revenue streams to remain stable and competitive in an increasingly dynamic market. Line of business diversification is a compelling opportunity for growth, especially for plans with resource constraints. But the calculus for which lines of business to enter is subject to changes from government regulations and shifting market dynamics.

Things that could change the calculus:

  • Increased scrutiny of mergers and acquisitions from the Department of Justice under antitrust measures
  • Reduction of individuals enrolled in Medicaid due to the end of the public health emergency
  • Increased competition from nontraditional players in health insurance such as retailers and health systems
  • Expiration of enhanced ACA subsidies under the Inflation Reduction Act (IRA)

Many health plans have faced pushback from regulatory agencies due to increasing antitrust enforcement as health plan markets become more concentrated. This could be a roadblock for plans pursuing acquisitions to diversify their products through horizontal integration.

Increased competition from players traditionally outside of health insurance is affecting market dynamics as retailers and health systems continue to make acquisitions within health insurance markets. This is becoming an increasingly relevant variable in the altering the market segments that a health plan finds attractive and accessible to break into. The end of the PHE and expiring IRA subsidies are also variables that influence which LOBs are favorable over time. Medicaid enrollment is expected to decrease with the end of the continuous coverage requirement, making it less attractive for new entrants. Similarly, the ACA marketplace becomes less favorable with the expiration of enhanced subsidies in 2025.

Have a Question?


Ask our experts a question on any topic in health care by visiting our member portal, AskAdvisory.