Provider-Sponsored Health Plans - A Good Idea?

Today, 13% of all US health systems offer health plans in one or more markets --commercial, Medicare Advantage (MA), or managed Medicaid. Together, these 107 systems operate health plans covering about 18 million members, about 8% of all insured lives. And there are more coming, with ten more provider-led plans being offered on the public exchanges in 2015.

Approximately half of all those covered by provider-led plans - 8.9 million people - are enrolled in Medicaid products and represent almost a quarter of the people in that market.  The 7 million people enrolled in provider-led commercial plans constitute 4.3% of that market.   Another 1.6 M people (almost 10% of the market) are enrolled in provider-led Medicare Advantage (MA) plans.

Provider-led plans are currently present in 39 states. However, considerable variation exists in both the number of plans in each state and the size of each plan. The 10 largest plans cover about 43% of the 17.9 M lives in the provider-led market. The next 10 largest plans cover another 20% of lives.  The states with 5 or more provider-led plans include CA, NY, WI, MI and TX.

plansbystate Source: Mckinsey & Co. "Provider-Led Plans - the Next Frontier or the 1990s All Over Again?" Gunjan Khanna


Why do providers start or buy health plans?  There are 5 primary reasons:

  • To preserve or increase volume.  Provider-led plans tend to have narrow networks potentially limited to their facilities
  • Access to full actuarial as well as utilization data
  • Broaden the strategic options available to the health system.  Enabling it to broaden its product offering
  • Gaining entry to new geographies
  • Getting access to the premium dollar and plan margin - keeping more of the pie  Avoiding price pressure as plans consolidate

For most health systems, offering a health plan is not easy. The providers most likely to succeed are those that have an aligned strategy across their system, a strong balance sheet, well-developed member-management capabilities, solid brand recognition, and sufficient scale to command a strong presence in the market.

For a health system to consider operating a health plan, it needs to assess its skills and resources.  To be successful, a health system must have access to sufficient capital to meet Risk-Based Capital Requirements (RBC) as established by regulatory bodies, experience managing care across the entire continuum, the systems and capabilities to adjudicate and process claims, the ability and channels to effectively market their offering to consumers.  Other risks include conflicts with other plans in your market that now consider you a competitor and potential conflicts with physician practices and other local providers - owned or otherwise.

Source: Mckinsey & Co. "Provider-Led Plans - the Next Frontier or the 1990s All Over Again?"  Gunjan Khanna

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