With near-universal health insurance and an impetus to make healthcare affordable, health systems starting their own insurance plans believe this time is different.
A number of health systems want to take on financial risk, but their longtime commercial health insurers aren't necessarily interested in turning that over. That's what Standard & Poor's analyst Martin Arrick has heard from providers figuring out where to go next in the health reform journey.
Those health systems have invested in change and made efforts to lower costs and focus on quality while trying to address patient experience concerns--much to the benefit of their payers. "Provider frustration with this is one of the key reasons behind the development of (provider-sponsored health plans) as they want to benefit from their efforts," Arrick argues in a new S&P report.
"Most of the providers we have spoken with highlight PSHPs (provider-sponsored health plans) as helping their organizations develop a true integrated delivery system capable of meeting the broad goal of improving quality at a lower cost--at least on an inflation-adjusted basis," Arrick writes. "As a result, providers are increasingly embracing PSHPs and have learned the hard lessons of the late 1990s, when many providers entered and exited the PSHP business often with sizable and embarrassing losses."
S&P sees performance- and quality-based contracts with insurers as a positive credit factor for U.S. health systems, along with moves to start their own health plans.
For one thing, provider-sponsored plans can capitalize on the growth of narrow networks to feature their own health system. Arrick argues that they can also learn how to offer higher-quality and more affordable services and more convenient options that patients want.
"We believe creating integrated systems of care and developing the wide range of capabilities that operating a PSHP implies is a plus for healthcare providers as it develops essential skills increasingly needed for success," Arrick writes. Provider-sponsored health plans can support their parent systems' "core clinical delivery enterprise, gaining more and earlier access to the premium dollar, and providing data access across the care spectrum."
The reluctance of insurers to offer "robust risk sharing deals" seems to be a key factor for health systems growing their own plans, but will it backfire? Providers are starting to learn more about managing risk, and that may let them "counter the market clout of traditional insurance companies," Arrick argues.
The rise of provider-sponsored insurance may be part of second generation of cost containment post-Affordable Care Act, this one involving "direct attention to medical management and service rationalizations within markets," Arrick argues. In tandem, there is "a blurring of the lines between insurance companies and providers, depending on local circumstances."
Provider-sponsored plans of course require startup investments and are exposed to losses early on and regularly, for instance when a drug like Sovaldi premieres. But large regional health systems seem to have enough money to finance such bets on integration.
As a model, they can look to UPMC Health Plan, the nation's second-largest provider-owned insurance company with 2.6 million members. UPMC Health Plan lost almost $40 million in its first four years of operations and has fluctuated ever since. UPMC's insurance services brought in $55 million of operating income in fiscal year 2013, but it lost $25 million the next year.
In any case, so far provider-sponsored health plans have had at most "a mild" impact on their parent organizations' credit ratings, Arrick said. Of the 16 largest provider-sponsored plans rated by S&P, only two have ratings in the B category, Boston Medical Center (BBB) and Temple University Health System (BB+). UPMC is rated at A+, Baylor Scott & White at AA-, Presbyterian Health System at AA and Spectrum Health System at AA.
(Source: S&P: "The Growing And Evolving Role Of Provider-Sponsored Health Plans In U.S. Health Care.")