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June 15, 2017

Why it's so hard for provider-sponsored plans to turn a profit

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Only four provider-sponsored health plans created since 2010 have generated profits, suggesting that the current health insurance market is "not conducive to profitability for new provider-sponsored plans," according to a Robert Wood Johnson Foundation (RWJF) report published this month.

Report details

For the report, Allan Baumgarten, an independent research consultant specializing in health care policy, conducted more than 25 interviews with leaders of health care provider systems and provider-sponsored health plans, as well as academics, consultants, and others who specialize in provider system strategies.

How to talk to your providers about data

Baumgarten and RWJF researchers also collected and analyzed data from state regulatory filings on about 145 provider-sponsored health plans that operated in the United States in 2015 and 2016.

The researchers also prepared case studies on the experiences of several provider-sponsored health plans. For each case study, the researchers interviewed between three to five leaders from the studied health plans and provider systems, as well as market observers. The researchers also collected data on enrollment and prices for the three plans and their competitors.


According to the report, a majority of the provider-sponsored health plans created since 2010 failed to enroll an adequate number of individuals to "effectively manage risk, achieve economies of scale in plan administration, or have an impact on competition and price in their local markets."

The researchers found 42 provider-sponsored plans had either been created or acquired since 2010, and of those companies, only four had reported profits in 2015. According to the report, five of the health plans had gone out of business and two currently are being sold.

The researchers said several of the plans experienced moderate success in enrolling at least 100,000 members. However, nearly all of those plans continued to report financial losses. As a result, providers have had to intervene and contribute capital to keep the health plans in compliance with solvency requirements, which ultimately left them with fewer resources to invest in care delivery, health information technology, and new or improved facilities, according to the report.

According to the researchers, the earliest and most established provider-sponsored health plans—such as Geisinger, HealthPartners, and Kaiser Permanente—have managed to prosper in the market. The researchers said those plans "offer comprehensive benefits from a limited network of providers at competitive prices" through "careful care coordination and conservative practice"(Morse, Healthcare Finance News, 6/12; Kuhrt, FierceHealthcare, 6/8; Baumgarten, Robert Wood Johnson Foundation report, June 2017; Robert Wood Johnson report summary, June 2017).

Advisory Board's take

Rachel Sokol, Health Plan Advisory Council

Provider-sponsored plans face similar headwinds of any new plan—it's tough to create a competitive network that purchasers want to buy. Many provider-sponsored plans also decided to participate in the Affordable Care Act's exchanges, but like other plans have found this population difficult to manage and more expensive than anticipated.

Health systems launching their own plans also face distinct challenges: They are often the largest provider in their region and typically command higher rates than smaller organizations, making it harder to set a competitive premium. And some providers launched insurance arms thinking they could translate their current care management capabilities into broader utilization management, but many failed to realize that delegated risk is not the same as delegated responsibility and have had trouble pushing back on requests from their provider-sponsor.

In addition, while some prognosticators had assumed consumers would flock to a provider-affiliated product, to their surprise insurance consumers are prioritizing price over hospital affiliation.

What sets the most successful provider-sponsored plans apart is they start with the right goal—of flexibility in managing plan members' health, rather than as a way to shore up market share or compete with established plans. And that tends to carry through to the leadership structure, with provider and plan leadership sharing equal strategic input, resulting in unified vision about what is best for the member.

Some providers will be successful with their own plans, but we're also seeing many deciding to pursue partnerships with established plans instead. Joint ventures—including between Aetna and Inova and between Aspirus and WPS Health Solutions—provide hospitals with an opportunity to share in the potential revenue from an insurance product, but leave much of the benefit and actuarial expertise with the plan. We expect to see more of these as plans expand into new markets and partner with progressive providers.

Four principles to establish your Health Plan Diplomacy

Health plans have a lot in common with the modern diplomat. Diplomats have to be objective, but still empathize with the needs of others. They play a central role in an industry, without directly controlling stakeholder behavior. Finally, they have to persuade their partners to act in the best interest of everyone involved.

Health Plan Diplomacy is about working with members to improve their health outcomes. Health plans typically track the actions of their members, but for successful Health Plan Diplomacy, health plans should track their own actions. In our infographic, we’ve included four diplomatic principles that plans should apply to their member interactions and the corresponding metrics to measure progress.

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