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Provider-Owned Plans

By April 21, 2016Commentary

Some of us have been around long enough to remember the first go around of providers trying to own and operate health plans, which ended badly for most of them who were not essentially monopolists in their local market.  Value-based purchasing, ACOs, medical homes and other factors have led to provider organizations feeling that if they are going to be at financial risk anyway, why not capture all the health coverage dollars through an owned health plan.  And the provider market has consolidated so extensively, horizontally and vertically, that higher prices are easy to achieve and those higher prices can cover a multitude of operational sins.  McKinsey issued a paper on the status of provider-led health plans.   (McKinsey Study)   Some of these provider-owned plans began life targeted at specific markets, like Medicaid managed care or Medicare Advantage on insurance exchange opportunities.  According to McKinsey, as of 2014 there were 106 provider owned health plans, and most of them were in multiple business lines.  These plans operated in 43 states and had 15.3 million enrollees.  Most of these enrollees are not in the general group health insurance market and the most growth occurred in Medicaid and individual plans.  These are low-margin and riskier lines of business.

The plans are also generally small; only five had more than 500,000 members.  And only a few states have significant enrollment in the plans, including Pennsylvania, Michigan, New York and Texas.  The medical loss ratio for these plans also generally rose between 2010 and 2014, indicating less ability to control medical costs in relation to premiums.  But in regard to provider-owned plans, MLRs can be misleading–the providers could simply be paying themselves more and not reporting a profit at the plan level.  The plans also tend to have higher than average administrative costs, but that may partly reflect lack of scale.  Given the exposure many of these plans have to the exchange market, you would have to be concerned about the losses they may be incurring, and may not be aware of, given that even the large Blues plans and large publicly-held health plan companies have reported very large losses on exchange business.

If this generation of provider-owned plans is to fare better than past ones, they will need to figure out a strategy to differentiate themselves from their large Blues and publicly-owned competitors and they will have to display an organizational commitment to operating their health plan arms efficiently and profitably, not just as adjuncts to feed their provider business.  That seems like a tall order for most of them.

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