Achieving profitability: Provider-sponsored health plans

July 7, 2017 / By Carole Cusack

In June, the Robert Wood Johnson Foundation released a new analysis on provider-sponsored health plans (PSPs). While most of the article validated previous analyses and findings, the new information provided insight on the profitability woes of many PSPs in 2016. Those of you who attended our webinar in May probably recognized the cautions we discussed as you read the report.

Our analysis of the accompanying data file shows that of the approximate 150 plans included, nearly half of them experienced negative margins during 2016, many in the double-digit range. The average membership for plans with losses was approximately 93,000 and the average loss was 84 percent. Although enrollment volume was a notable factor seemingly contributing to the losses (enrollment ranged from 200 to 768,000), the plans with the deepest losses were not always the smallest plans. This highlights the multi-faceted determinants of success.

So, what went wrong?

According to the RWJ report, there are several factors that contributed to the lack of success in this market:

• Failure to achieve scale: There is a sizable cost to establishing a health plan, whether the administrative services are purchased or built internally. According to our analysis, many of the plans with deep losses appeared to be start-up as there was no reported enrollment in 2015. It is not uncommon for plans to lose money during the start-up period so, if all other factors are a green light and the plan is appropriately capitalized, it should stay the course and build toward future success.
• Failure to achieve a market price for perceived value: In order for the local plans (especially start-ups) to compete in their markets, they need to deliver quality at a price lower than their larger competitors. The report indicated that few have made progress on this front. These plans need to review pricing strategy and capitalization and assess the feasibility of continuing in the market while avoiding the common mistake of imposing large price increases on the community.
• Lack of sophisticated analytics: The report indicated that many plans complained about a lack of information on new enrollees in order to determine cost. We would add that this lack of information also prevents early insight and intervention on patient needs. All health plans should be using demographics and social determinants as inputs to predictive models to provide this view into an otherwise unknown patient. These models use patterns of usage of similar types of known individuals to fill the void on the unknown.
• Failure to establish a culture for change: The report indicated that many plans offered a low premium simply by paying their own providers less money without the correlating reduction in inefficiency. This is a recipe for disaster. PSPs need to achieve alignment of goals across the health plan and the system and/or provider group. These two organizations need to work together to re-invent how health care is going to be delivered in the community, and this usually requires a conversation about efficiency. 

We discuss these and many additional factors for PSP success in our webinar.  If you haven’t already viewed it, you can find it here. 

Carole Cusack is Vice President of 3M Health Information Systems.