Everyone wants to be like Kaiser.
Although reasons vary from market to market, it’s clear hospitals view owning a health plan as a way to build their population health programs by combining medical claims and clinical data. A health plan also allows hospitals to control more of the premium dollar.
Approximately 15.3 million people received their health coverage through a provider-owned health plan in 2014 compared with 12.4 million in 2010, an average 6% annual increase in enrollment over that time span, according to a report from consulting firm McKinsey & Co. Most of that growth came in Medicaid plans. Many safety net systems have their own Medicaid plans since low-income people are their primary patients.
Total enrollment in hospital-based plans will be even higher by 2017. Numerous health systems, including UnityPoint Health in Iowa and some in North Carolina, have started new Medicare Advantage plans. Advocate Health Care and NorthShore University HealthSystem, two large Chicago-area systems, will offer a new health insurance product if the Federal Trade Commission blesses their pending merger.
Medicaid represents the largest line of business for provider health plans. Roughly 57% of members were on Medicaid in 2014, compared with 32% in employer commercial plans, according to McKinsey. In 2010, half of people in provider-owned plans were in Medicaid, and 43% were in commercial. Like other insurers, most growth has been steered toward government-funded programs such as Medicaid, Medicare Advantage and the new individual exchange business.
Pennsylvania, Michigan, New York and Texas had more than 1 million people enrolled in a provider-owned plan. Large, prominent hospital-owned brands sit in those states, including UPMC in Pittsburgh, Henry Ford Health System’s plan in Detroit and Baylor Scott & White’s insurer in Temple, Texas. Wisconsin, where a third of the health insurance market is controlled by provider-owned plans, has 900,000 enrollees in such plans.
Despite the gradual growth in the number of hospitals and providers launching their own plans and in membership, not all plans have been successful. Catholic Health Initiatives told bondholders last month it was pumping the brakes on its new insurance arm, Prominence Health, because of heavy operating losses. About 45% of the plans McKinsey analyzed had a negative margin in at least one of the past three years.
Standard & Poor’s has warned health systems that buying or starting health plans could lead to “volatile” operations and potential credit rating downgrades. Existing health insurers have also viewed hospital-owned plans negatively.
Payer consultants as well as executives at provider-led plans have said hospitals should not expect to profit from new insurance arms in the first several years. Intermountain Healthcare in Salt Lake City, one of the more established hospital-based plans in the country, didn’t break even until it was six years in.