Operating margins for Banner Health increased from 1.8% in 2015 to 2.1% in 2016, but profits would have been even higher if not for a health plan the provider organization acquired when it purchased University of Arizona Medical Center in 2015, Axios reported. The nonprofit's total revenue for 2016 was $7.6 billion.
Banner health plans generated an operating loss of $153.8 billion in 2016, up from $38.7 million in operating losses reported in 2015, according to bondholder documents obtained by Axios.
- Operating losses on health plans were attributed to underperformance in risk adjustment factors for Medicare Advantage plans and the “collapse” of Affordable Care Act insurance exchanges in Arizona.
At a time when many nonprofit provider organizations are taking hits to their operating incomes, Banner should have little to complain about. However, losses on health plans acquired during a merger with University of Arizona Medical Center are likely a sore spot for the provider.
As the consolidation craze continues to sweep through healthcare, a significant number of provider organizations have acquired or established their own health plans. There were 106 provider-sponsored health plans in 2016 compared with 94 in 2010, according to an analysis by Gunjan Khanna, a Pittsburgh-based partner with McKinsey & Company. A total of 15.3 million patients were enrolled in provider-sponsored health plans in 2016 compared with 15.3 million in 2010.
While interest among provider organizations in health plans has grown, it is not clear whether entering the insurance business will help their bottom lines. For instance, Catholic Health Initiatives began acquiring health plans around 2013, but the provider began seeking buyers for its insurance subsidiary after losing nearly $100 million on health plans through the first nine months of fiscal year 2016.
Data from HealthPocket, a web-based comparison tool for health plans, revealed that premiums for provider-sponsored health plans were typically higher than for traditional products. Medical and average administrative loss ratios are also generally higher for provider-sponsored health plans than for traditional health plans, according to the analysis from Khanna, although he wrote that these plans “may have had a more favorable effect on the health systems as a whole.”
For now, it seems providers still have some work to do when it comes to figuring out how to make health plans profitable. Banner is currently in the midst of a massive restructuring project, but it is unclear how its health plans factor in.