Since the passage of the Affordable Care Act, health care providers in markets around the country have started exploring the payor side of the business by sponsoring health plans. As the future of the ACA and insurance exchanges becomes more uncertain, it remains to be seen how this trend will play out. This article discusses some of the factors giving rise to the phenomenon of providers becoming payors. It also explores what this trend might (and might not) mean for health insurance exchanges, smaller providers and the insurance markets generally.
Often, a provider-sponsored health plan starts with the provider offering health coverage to its own employees and those of its affiliates — for instance, employees of a health system or university. This approach enables the provider to become more adept at managing population health, because, as the provider begins to take on financial risk in addition to providing care, it develops the financial incentive to provide that care as efficiently as possible. The provider typically hires a third-party administrator to process and adjudicate claims under its plan, enabling it to continue to focus its internal efforts and resources on the care side of the equation. So, in effect, the provider continues to function as a provider, but because it has also taken on a risk-bearing, payment role, it gains the incentive to make its models of care delivery more cost-efficient and quality-driven.
Sometimes a provider-sponsored health plan stops there, but on other occasions, after offering coverage to its own employees, it expands further. For instance, it may begin to offer coverage through other, unaffiliated employers, or it may set up a Medicare Advantage plan to provide care, on a risk-bearing basis, to the Medicare population.
Providers may have different motivations for pursuing these options. Sometimes, as noted above, they see the provider-sponsored health plan as a sound initial step toward wider-scale population health management or value-based health care efforts. On other occasions, the move is more reactive. For example, as the insurance market in a particular region becomes more concentrated in the hands of a small number of insurers, the remaining providers may worry about the risk of being “squeezed out” of an increasingly concentrated market. That concern may lead some providers to jump into the payor market preemptively. For similar reasons, payors may seek to collaborate with, or acquire control of, providers.
The shift towards provider-sponsored health plans, perhaps like other elements of the move towards value-based health care, appears to be more apparent among large, sophisticated health systems. A recent Ernst & Young report assessed the progress in the march toward value-based health care of various U.S.-based health care providers with annual revenues of at least $100 million.1
Notably, the report found that only 1 percent of the smallest-revenue hospitals polled (those with $100 million to $499 million in revenue) were involved in provider-sponsored health plans. For hospitals in the next revenue category ($500 million to $999 million), the number was 6 percent. This pattern continued through all of the revenue categories studied, with 11 percent of organizations with revenue of $1 billion to $2.49 billion, 17 percent of those with revenue of $2.5 billion to $4.99 billion, and 19 percent of the largest-revenue organizations being involved in provider-sponsored health plans.2 The report found a similar pattern for other signs of the uptake of value-based health care, such as how many hospitals have at least one value-based reimbursement initiative, participate in bundled payment model initiatives, or are involved in alternative payment models.3 This is a significant trend, and one that raises important questions for the long-term competitiveness of smaller provider organizations.
As Congress finds itself in the midst of weighing, once again, whether and how to repeal or scale back the ACA, a number of financial and other uncertainties have emerged for providers. Hospitals generally worry about the number of people who will lose their insurance coverage; this could happen because people lose their coverage generally, or because insurers cease covering pre-existing conditions, or for a combination of these reasons. This possible increase in uninsured patient populations, and the accompanying rise in so-called bad debt, is a real concern for hospitals. Hospitals and providers also worry about insurers reducing their payments to them over time, in an effort to remain solvent.
It is unclear whether the rise of provider-sponsored health plans could actually combat these uncertainties faced by provider institutions. A health plan would be better placed to ward off these financial concerns by increasing the number of people in the market to whom it provides individual coverage. But this is unlikely to happen, because individual coverage is a risky undertaking from a payor’s point of view.
In a similar vein, a health plan could benefit from boosting the number of low-income people to whom it provides coverage, but again, this is difficult to achieve, because low-income populations generally are obtaining their insurance coverage through the exchanges. A provider-sponsored health plan might be able to make some headway by focusing on chronic diseases, providing coverage to patients who are heavy users of high-cost services, and working to make its care for those patients more cost-efficient by using care managers. Again, though, without the government subsidizing insurance for the chronic disease population, the rate of uptake may not be high enough.
Moreover, as the above discussion makes clear, larger provider networks seem to be better placed to jump into the world of sponsored health plans than smaller providers are. For smaller providers, which are arguably already more vulnerable to the risks of rising bad debt and diminishing insurance payments, the foray into sponsored health plans may be a much less plausible option than for their larger counterparts. Thus, those organizations most affected by these uncertainties may be less able to extricate themselves from them.
It is also unclear whether the growth in provider-sponsored health plans could strengthen the insurance exchange markets more generally. Arguably, it is difficult for any one newcomer to an exchange to have a significant impact. On the other hand, any new entrant into a market from which other insurers are fleeing likely stands to improve consumer choice and thus strengthen the market. A newcomer with name recognition, such as a health plan run by a highly regarded local or regional health care institution, may have particular success in this regard. Here, too, smaller providers may face a disadvantage.