A new Robert Wood Johnson Foundation report found that only four of 42 recently formed provider-sponsored health plans were profitable in 2015. Some of the plans reported significant losses and five went out of business.
The study found many of the systems are not aligning clinically integrated networks and accountable care organizations to their health plan strategy. Instead, they are reducing costs by paying providers less.
For the new health plans to succeed, they have to provide high-quality care at a lower cost, but most have not and only a few are making progress in that area.
Provider organizations have formed some major health players, such as Kaiser Permanente, Geisinger and UPMC, but the report found that more recently-formed health plans are having issues. The finding isn't particularly unexpected. Providers that have bought health plans, such as Banner Health and Catholic Health Initiatives, have reported they are responsible for hits to their bottom line.
Provider organizations have started 37 health insurance companies and purchased five insurers since 2010 as providers looked to “gain market strength and more control over premium revenues,” and in response to ACA payment changes and other market trends, according to the report.
Only four of the plans had between 50,000 and 100,000 enrollees as of September 2016 and four others had between 25,000 and 50,000. The others were smaller. This means they’re not able “to achieve economies of scale in plan administration, to gain ability to manage risk or to have an impact on competition and price in their local markets.”
To stay competitive, the new provider-sponsored health plans set their prices lower for group and individual coverage, but they are paying providers below-market rates rather than reducing utilization and costs through better care management. This won’t be a successful long-term strategy.
The goals of the growing trend toward value-based payment systems is improving care and patient satisfaction while also lowering costs. That last piece of the puzzle is proving difficult for many providers. The jury is still out on whether value-based initiatives work better than other methods, but more time is needed for a fair evaluation.
The worst might be yet to come for provider-sponsored plans. The House narrowly approved the American Health Care Act in May. The bill includes more than $600 billion in cuts to Medicaid over 10 years and could change the individual insurance market. That market is already struggling without any indication whether payers will continue to receive cost-sharing payments from the government.
The market uncertainty and proposed changes will likely make the situation riskier for health insurers. The report suggested the challenges may make the provider-sponsored health plans reconsider “their commitment to adding the capital, energy and focus needed to sustain a health plan long enough to achieve success. For those reasons, and others, the prospects for success by these new health plans are not strong."