Since (at least) 2019, the healthcare industry has faced mounting financial pressure. Industry EBITDA as a proportion of national health expenditure has declined significantly, with payer margins in 2024 reaching their lowest point in a decade. Inflationary pressures, labor shortages and constrained reimbursement growth have compounded the challenges. The shifting payer mix — driven by increased enrollment in Medicare and Medicaid — has further strained financial models.

Regulatory changes have added another layer of complexity. The Inflation Reduction Act (IRA) introduced new cost burdens for Medicare Advantage plans, including caps on out-of-pocket drug costs and expanded subsidies. These changes, while beneficial to consumers, have increased financial liability for payers. This has driven the Medical Loss Ratio (MLR) as high as 93% for some payers. Additionally, evolving CMS mandates around real-time prior authorization and data exchange are pushing payers to modernize their systems under tight timelines. With shrinking margins and unpredictable policy shifts, the appetite for bold investments — particularly in customer experience — has waned.

Despite these challenges, the imperative to improve customer experience has never been stronger. The healthcare consumer of 2025 is digitally savvy, expects personalized engagement, and demands transparency and convenience. Yet, health insurers continue to rank near the bottom of customer experience indices compared to other industries. Forrester’s latest report puts the industry’s CX dead last among the 13 the firm follows.

This disconnect is not just a reputational issue — it has tangible financial consequences. CMS has increasingly tied Medicare Advantage Star ratings to customer experience metrics, with patient experience, complaints and access now comprising 57% of the overall score. These ratings directly impact plan enrollment and Quality Bonus Payments, making CX a strategic lever for growth and profitability.

Moreover, poor customer experience leads to deferred care, member churn and increased administrative burden. Fragmented systems, legacy infrastructure and siloed data impede payers’ ability to deliver seamless, personalized interactions. As healthcare becomes more consumer-driven, payers that fail to adapt risk losing market share to more agile competitors and new entrants.

One of the most significant barriers to CX investment is the pressure to cut costs and rationalize IT infrastructure. According to the NAIC’s 2024 mid-year analysis, health plans’ net income fell 14%, and operational cash flow dropped 86% compared to the previous year. With such drastic liquidity shifts, payers are forced to make difficult decisions about where to allocate resources.

Traditional cost-cutting measures — such as administrative downsizing and contract renegotiation — are no longer sufficient. Operational inefficiencies and outdated systems continue to drain resources, making it harder to justify new investments. Additionally, the ROI of CX initiatives can be difficult to quantify, especially when benefits are realized over the long term.

However, the cost of inaction may be even greater. Member dissatisfaction leads to higher churn, increased call center volume and lower Star ratings — all of which have direct financial implications. Investing in CX should not be viewed as a discretionary expense but as a strategic necessity.

To navigate these challenges, payers must adopt a more strategic and integrated approach to customer experience. This begins with modernizing technology infrastructure to support real-time data access, personalized engagement and seamless omnichannel communication.

AI and automation offer promising avenues for reducing administrative costs and improving member interactions. McKinsey estimates that targeted AI adoption could reduce administrative expenses by up to 25%, medical costs by 11% and increase revenue by 12%. Applications such as claims automation, predictive analytics, and AI-powered member engagement can deliver measurable ROI while enhancing service quality.

Moreover, payers should integrate CX initiatives across core functions — risk adjustment, quality improvement, enrollment, claims, care management and utilization management — to maximize impact. Fragmented efforts dilute value; coordinated strategies amplify it.

Cultural and organizational inertia often hinder CX transformation. Many payers still view customer service as a cost center rather than a strategic asset. To shift this mindset, leadership must champion CX as a driver of growth and differentiation.

This requires cross-functional collaboration, clear KPIs, and a commitment to continuous improvement. Training staff, empowering agents, and redesigning workflows around member needs are essential steps. Additionally, payers must invest in data (and AI) governance and interoperability to unlock the full potential of their technology platforms.

In a time of economic and regulatory uncertainty, it’s tempting for payers to delay investments in customer experience. But doing so risks falling behind in a rapidly evolving healthcare landscape. The consumer expectations of 2025 demand more than transactional interactions — they require empathy, personalization and digital-first engagement.

By rethinking their approach to CX and embracing strategic modernization, payers can not only weather the current storm but emerge stronger and more competitive. The path forward is not easy, but it is necessary. Customer experience is no longer a luxury — it is a strategic imperative.