Gregg Masters reports on a recent Kaiser Health News
article: Hospitals Look to Become Insurers, As Well as Providers of Care”.
This is the dumbest idea I’ve heard since “I’m going to invest all my money in Facebook’s IPO and get rich!”
Here are six reasons why:
1) You’re too late. Health insurance was an attractive and profitable business in the 00s, but after passage of the Accountable Care Act it’s been commoditized.
First, the health plan business model of the past decade is dead. That model was — “Avoid and shed risk” — or more simply, avoid insuring people who are already sick (preexisting conditions) and get rid of people who become sick (rescissions). Under the ACA, health insurers must take all comers and they can rescind policies only for fraud or intentional misrepresentation.
Second, the ACA institutes medical loss ratio restrictions on health insurers. Depending the the type of plan, insurers now must spend at least 80-85% of premium dollars on paying medical claims; if they spend less, they must return these “excess profits” as rebates to customers. As a result, health insurance has become a highly regulated quasi public utility.
This is why you see health plan CEOs like Mark Bertolini of Aetna declaring “Health insurers face extinction”. The old health insurance model is on a burning platform, and health plans are reformulating themselves as companies involved in health IT, analytics, data mining, etc.
2) You have bigger fish to fry. Focus on developing accountable care capabilities. The AHA estimated that hospitals will need to spend $11-25 million to develop an ACO. Get going.
3) Health insurance is a far more complicated business than you realize. As Gregg points out, hospitals tried to become insurers in the 90s and almost all failed. Since then, the business has only become far more specialized and automated. You need scale and deep expertise to run a health plan, and hospitals don’t have it.
4) Becoming a health insurers will drain you of capital and management resources.
5) It’s beyond your core competencies and not in your DNA. Trust me.
6) Do you really want to risk waking the sleeping giants in your neighborhood, i.e., the existing health insurance companies? Remember that hospitals are a high fixed-cost, low margin business. When health plans realize YOU are the competition and start steering patients elsewhere, on average 95% of every dollar of revenue lost will come straight off your bottom line.
The far better strategy for hospitals: work cooperatively with health insurers, and count your blessings that you don’t have their business challenges.
Vince Kuraitis JD, MBA, is a health care consultant and primary author of the e-CareManagement blog, where this post first appeared.
Categories: Uncategorized
Health insurers like Hillary Clinton, have nine lives. Profits have never been better. If you have not noticed, insurers are becoming payers — establishing health services subsidiaries and selling their services to their sister company, the insurer, for transfer pricing that could not be supported in the private market. The author fails to recognize that most insurers now receive 15% in aggregate for their profit and administration under the 85% MLR regs– but they ALSO receive as much as 30% payment for services that are buried in the 85% allowance for claims. Their “share” is growing and their margins prove it. They are also moving heavily into Medicare and Medicaid as they see these programs growing under reform. The only way to deconstruct the private insurer oligopoly is to have more competition from ACOs and integrated delivery systems. If hospitals can first prove they can tame their own domestic spend for their own employees and master gain sharing with CMS for Medicare ACOs, they will be ready to pivot into commercial risk taking. Mark Bertollini was not waving the white flag when he said that insurers run the risk of being rendered irrelevant. He was signaling to investors that he was going to turn the firm into a multi-facted health services and data management company and in doing so, position Aetna for the fragmentation of distribution ( public, private, concierge, ACO, consumer, employer, private exchange etc…) that is certain to result from reform. It was hardly an admission that the end is near. If that were true, Aetna would not be sitting on a five year high stock price. I think the Street feels that providers cannot take risk without the insurers holding their hands and charging them for the privilege. New entrants like Evolent and others are trying to help providers assume more risk. The challenge is that the systems that are jumping in or have jumped in over e years to take risk (UPMC, LIJ ) are some of the highest unit cost systems and their foray into commercial risk is an effort to remove the cost and the oppressive oversight of insurers. The key is whether they can manage their own practitioners to achieve better outcomes. Unless you are a PHO with strong oversight, you have a steep learning curve. it’s a 50/50 proposition but I for one, hope the healthcare systems make the transition and start slicing business from traditional employer plans. This kind of medical home model will drive better outcomes and higher value over time if the incentives are aligned and more money is preserved to pay primary care and invest in outpatient alternatives. I think hospital systems will only survive if they pivot into these models and are willing to cannibalize inpatient care to keep patients healthy. The golden age is over for fee for service providers and hospitals must heed the Age old expression, “incipite avt morimini” — change or die!
alexdombroff@alexanderdombroff.com
“Health Insurers face extinction”
Why would a health care system want to follow the author’s recommended strategy of working with Health Insurers if they are approaching extinction? The new health care industry needs health care providers to become health insurers. It’s the only way to provide affordable health care to the masses. The health care system can effectively work with their subscribers/employer groups, to minimize their health care expenses. Think about it…..that works for the Dr’s being comped with global payments, as it will result in greater profits for them, it also works for the small business who can now work with their provider to customize a plan that provides the greatest value for their situation.
The greatest challenge is going to be working professionally/playing nice with competitors. If it means producing high quality, customized (efficient), affordable health insurance, the health care industry will make it work.
“This is why you see health plan CEOs like Mark Bertolini of Aetna declaring ‘Health insurers face extinction’”
Health insurers should face extinction. Health care is the one area where profit and care for the patient are not compatible. Companies cannot serve two masters…profit is why they exist,,,as it should be. Health care belongs under the purview of non-profit, where the only master it serves is the well-being of the patient.
Love your beginning statement. It brings back memories of the dot.com days where everyone thought they could be a millionaire by starting a internet company then going IPO. We see how well that went
Gee, I thought the industry’s critics always tell us that insurers add no value and drain the healthcare system of scarce resources with their high administrative costs, profits, and grossly excessive CEO compensation. Or, maybe their traditional role of assuming actuarial risk is important, valuable, requires significant capital and is not easily replicated.
If hospitals want to get into the insurance business, they will have to quote a premium that will be all the revenue they will get for the year plus any risk adjustment payment arrangement that they might be eligible for. For care that they cannot provide within their organization, they will need to negotiate reimbursement rates with outside providers and they will also need to negotiate reciprocal payment arrangements to provide emergency care when their members are out of their home area or wind up in the ER at a non-network hospital and non-members wind up in their hospital(s). If they can’t provide all the care that members need for the premium revenue they collect, they better have significant capital reserves to survive those bad years and hope they can raise premiums, adjust benefits or reduce costs the next year.
As for insurers shedding risk, they are required to take all comers in the Medicare Advantage business and the bigger market participants have been doing quite well thank you and they continue to grow. There is no reason to conclude that they can’t do equally well with the population younger than 65 assuming comparable risk adjustment mechanisms evolve. At the same time, they can use some of their free cash flow to expand into health services, including data analytics, and other unregulated businesses within the healthcare sector.
As JD Kleinke has said: “Manage the conditions instead of the money.”
“after passage of the Accountable Care Act it’s been commoditized.”
“First, the health plan business model of the past decade is dead. That model was — “Avoid and shed risk”
“Second, the ACA institutes medical loss ratio restrictions on health insurers.”
“As a result, health insurance has become a highly regulated quasi public utility.”
All good. It’s supposed to be about providing health care.
“You’re too late. Health insurance was an attractive and profitable business in the 00s, but after passage of the Accountable Care Act it’s been commoditized.
First, the health plan business model of the past decade is dead. That model was — “Avoid and shed risk” — or more simply, avoid insuring people who are already sick (preexisting conditions) and get rid of people who become sick (rescissions). Under the ACA, health insurers must take all comers and they can rescind policies only for fraud or intentional misrepresentation.”
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Not to worry. Two Wealthy White Men are gonna fix that come January.
😉
This post is most interesting. When you suggest providers focus on forming ACOs (a model shifting risk to providers) at the same time as you advise providers to stay away from the insurance industry, I find it somewhat comical. After all, if providers are to assume risk in the cost of medical care for a population (i.e. form an accountable care organization, go into a managed care model or capitated payment model), the utility of working with an the insurance industry to manage risk is significantly diminished if not lost. In this era of shifting risks, it might make far more sense for the providers to cut out the insurance industry all together.