Until recently, commercial health insurance products have, with only a few exceptions, been offered by health insurance companies. Their size, capital and provider networks allowed them to operate at scale, manage actuarial risk, and offer consumers the range and number of providers needed to satisfy patient care needs. Historically, these barriers to entry excluded non-traditional competitors.
Today, large health systems that have sufficient capital and scale as well as provider networks with broad geographic coverage are positioned to offer their own health plans, thus bypassing traditional health plans. These health systems are beginning to market insurance directly to employers. They may also offer insurance direct to consumers through public and private exchanges, a convenient and promising new avenue to market their products.
Private exchanges are projected to grow in popularity as employers seek to control costs by transitioning to defined contribution health plans that limit employer healthcare expenses. Participation in private healthcare exchanges is predicted to surpass public exchange enrollment levels as soon as 20181 with a predicted enrollment level of 40 million people2. Clearly, the landscape is changing.
Why would health systems want to offer a health plan? This question must be answered within the context of the ongoing evolution of American healthcare.
Large health systems continue to emerge as a result of both organic growth and ongoing consolidation. Having met the capital, scale and provider barriers to entry, they can also offer health plan products.
Provider systems that achieve operational efficiency and master population health management may be able to offer competitive premiums that will help grow market share and mitigate reduced utilization of inpatient and other services associated with the transition to value-based care.
Potential benefits to the health system include the following:
- Market forces require that provider networks increasingly participate in multiple forms of risk contracts, including the CMS shared savings program, Medicare Advantage, Managed Medicaid and commercial programs, as well as any risk they assume for their self-insured employees. A provider-designed plan helps the system align its operations, often a big challenge for provider systems that are transitioning to value-based care models.
- Offering their own provider-sponsored health plans increases the number of lives for which the system is at risk, which improves its actuarial stability.
- Population health programs, required to succeed at value-based care, are more effective when providers can align around a common set of uniform processes for all patients. A common program can also create scale and operational efficiency.
- Redundant programs can confuse patients, increase expenses and impair clinical outcomes. For example, patients that are enrolled in both health plan and provider care management programs may be asked the same questions and receive conflicting instructions. Eliminating redundant services can reduce costs, streamline operations and increase patient satisfaction.
- Care and utilization management programs implemented by commercial health plans have not been as effective as the industry had hoped. Emerging evidence suggests that care management programs are more effective when administered by providers and incorporated into the clinical workflow. Providers can leverage their relationships with patients and implement interventions within the clinical setting to drive better results.
- The costs and time associated with prior authorization and similar legacy gatekeeper functions used by health plans can be replaced by contemporary utilization management strategies, such as automated processes, provider incentives and practice pattern variation management that offer greater potential to improve care outcomes.
- Providers prefer consolidated patient reporting, which is easier for clinicians and administrators to perform and creates larger denominator populations that enhance analytic credibility.
- Shared information, provider accountability and patient support are needed to promote value-based care. Controlling the product and benefit design allows the delivery system to standardize workflows and offer a narrow network that optimizes care coordination.
- Operational integration promotes efficient, timely data flows and reporting that can improve health system performance.
The question remains: is this development economically beneficial? The answer may lie in a recent study published by The Commonwealth Fund that documented substantial administrative costs in the current system. Administrative costs account for 25% of total US hospital spending (1.43 % of gross domestic product), with no clear link between these higher costs and care quality3. Many of the transactional costs between providers and health plans, such as prior authorizations and claims handling, provide no clinical benefit and may be avoidable.
The cost and operational benefits of provider-sponsored health plans described above, combined with the opportunity to improve profit by capturing the whole insurance premium, may create a strong motivation for large provider systems to offer their own insurance products. Provider systems that achieve operational efficiency and master population health management may be able to offer competitive premiums that will help grow market share and mitigate reduced utilization of inpatient and other services associated with the transition to value-based care.
Market forces continue to blur the line between payers and providers. At the same time, payers are migrating into the provider space, further blurring traditional boundaries. It will be interesting to see how these trends play out.
To learn more about how the health insurance industry is changing, read my blog post about employer-offered defined contribution plans.