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Hospitals…Thinking About Getting Into Health Insurance? 6 Reasons To Lie Down Until the Urge Goes Away.

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.

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Michael TurpinThalia CaffentzisJerryjoe arrigoEllen Lim Recent comment authors
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Michael Turpin
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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… Read more »

Thalia Caffentzis
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Jerry
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Jerry

“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… Read more »

joe arrigo
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“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.

Ellen Lim
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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

Barry Carol
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Barry Carol

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… Read more »

Peter1
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Peter1

“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.

BobbyG
Guest

As JD Kleinke has said: “Manage the conditions instead of the money.”

BobbyG
Guest

“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.”
__

Not to worry. Two Wealthy White Men are gonna fix that come January.

😉

Jim
Guest
Jim

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… Read more »