The Grass Is Always Greener

Reuters reports that more hospitals are interested in having their own health plan, citing a 2014 survey by The Advisory Board that found one-third of 45 large health systems already had a health plan, with three-quarters of the rest already planning one or seriously considering it.  A new report from Moody's predicts the same trend.

As the saying goes, be careful what you wish for, else you may get it.

Part of this trend is out of concern about the proposed mergers by mega-health plans like Aetna/Humana and Anthem/Cigna.  Both the AMA and AHA have voiced their strong opposition to these mergers, citing anti-trust concerns (they were, of course, silent about the intra-market consolidation going on among health systems).   Evidently many health care systems figure that the best way to fight an 800 pound gorilla is to have your own monkey.

In some ways, the time has never been better for health systems to have a health plan.  Such plans typically operate in a single market, which is often a barrier for employer coverage.  ACA has made individual coverage a hot market, with close to 10 million people receiving coverage through the exchanges, so operating only in single markets is less of a barrier.

Similarly, prior to ACA the trend in health plan networks had been wider networks, but under ACA that trend has been markedly reversed.  According to McKinsey, almost half of exchange plans have narrow networks, and the percentage is higher in larger cities.   Health system-specific health plans should fit in with this trend very well. 

Health systems love to cite examples of integrated delivery/financing systems like Kaiser, Geisinger, Group Health Cooperative, Intermountain Healthcare, or UPMC.  Yes, there are examples of health systems that offer successful health plans.  No, that doesn't mean it is easy to do.  Geisinger spun-off a consulting company, xG Health Solutions, to help other health systems become more like them, and UPMC did something similar with Evolent Health.  Still, the other successes have been slow in coming.

As I've written before, several of those models have been around for decades.  If they were bending the cost curve by even 1 percentage point a year, by now they should be 15%, 25%, even 50% lower in cost than their competitors.  They are not.  If the models were easily replicated, one would expect to find that they'd already spread widely.  They have not.  For the most part, they've stayed in their home markets; even Kaiser has struggled outside California.    

It's not as easy as it looks, and it doesn't look all that easy.

As Moody's warns: "Not-for-profit hospitals with a health insurance business (often known as an integrated delivery system, or IDS) tend to operate at noticeably lower operating cash flow margins than similar health systems without insurance."  

As if that wasn't cautionary enough, there's the example of the health insurance coops created by ACA to compete with the traditional health insurers.  The largest coop, Health Republic Insurance of New York, is being shut down, despite their having gained over 200,000 members.  The Kentucky Health Cooperative also recently announced it was closing.  Coops in Iowa, Louisiana, Nevada, and Tennessee have also closed, 

Indeed, this past July the HHS Office of Inspector General found that 21 of the 23 coops lost money in 2014, due in part that 13 of them had "significantly" lower enrollment than expected.  Ray Herschman, president of xG Health Solutions, told Reuters that new health plans needed to aim at enrollment of at least 100,000, so the coop enrollment struggles should be particularly concerning to health systems.  

The Kentucky Coop in particular blamed the failure of the federal risk corridor program, designed to cover higher-than-expected losses in the early years of the exchanges.  HHS recently announced it is only granting about 13% of the almost $3b in payments requested by health plans.  That's not HHS just being stingy; rather, it means that fewer health plans did better than expected and thus were able to "fund" the corridor.  Even health plans with significant experience and market share had trouble making money in the exchanges.  

This is not an easy business in which to start-up. 

Even assuming health systems are comfortable with the financial risk of having a health plan, there are some other factors to consider:

• Brand: Consumer ratings for health care providers are dipping, but health plans would love to have the kind of ratings providers get.  Fairly or not, health plans get blamed for what they don't pay.  That kind of negative perception could harm a health system's overall brand.
• Marketing: Health systems have tried to broaden their appeal to younger and healthier consumers, but still love to tout their expertise with serious conditions.  That can lead to a risk selection disaster for a health plan.
• Regulation: Health systems certainly have plenty of regulation, but they may be surprised by the degree and types of regulations that health insurance brings.  And they are not usually from the regulators health systems are used to.  It is a big compliance leap.
• Customer service: If health systems think they get a lot of calls now, it's nothing like what they can expect with a health plan.  Likely, more irate calls too.  Customer service can be outsourced, of course, but that puts both customer contact and customer satisfaction in the hands of other entities.
• Focus: Both health plans and health systems are edging closer to population health management and coordination across the continuum of care, but the simple truth is that health insurance is not the same as providing health services.  Health systems need to be comfortable that a having health plan aids in their focus rather than distracts from it.  Does a health system CEO really want to add claims backlogs to the list of worries?

As Moody's said: "Different management expertise is needed to operate a commercial health insurance business versus an acute care hospital."  

If a health system asked my opinion, I'd tell them to forget about developing a health plan.  Instead, I'd recommend they focus on taking more risk via value-based payments, bundled payments, even global or semi-global payments as in an ACO.  They'd learn about managing populations and dealing with upside/downside risks, without getting dragged all the way into the morass that having a health plan could bring.

Instead of coveting the what they perceive as the greener grass of health plans, perhaps health systems should, as Voltaire suggested, cultivate their own garden.