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Independent Health Plan Performance

By March 21, 2014Commentary

When discussing health plans, much of the focus tends to be on the few large national insurers or on Kaiser or the Blue Cross Blue Shield organizations.  But in a number of markets there are still independent, often provider-sponsored plans that offer strong local brand recognition and meaningful competition.  An article from Sherlock Company examines the characteristics of the best performing of these plans.   (Sherlock Article)   The plans that had overall low costs had a low staffing ration per 10,000 members and this low staffing ratio explained the great majority of the difference in overall costs.  The average staffing ratio among the best quartile of plans was 41% lower than that of the higher cost plans.  These plans also had staffing costs per FTE that were about 10% lower than those for the other plans, although no geographic adjustment was made.  Non-labor costs, particular per FTE were higher in these overall low-cost plans, which may reflect more investment in information technology.  And the low-cost plans appeared to spend less overall for functions like claims and IS, so they appear to using more technology to lower labor costs and improve productivity.  They also had lower Sales and Marketing expense and appeared to be more likely to use external distribution channels, as opposed to employed sales people.  There may be some scale effects in the results, as the low overall cost plans were about 26% larger on average than the other plans.  But the conclusions also suggest that there are some best practices in managing and operating a health plan that do lead to lower administrative costs.

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