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Health care providers enter the insurance arena

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The lines are blurring between traditional health insurers and providers as more health systems develop their own insurance plans.

But, wary of this relatively immature health care delivery model and potential administrative headaches, most employers have been reluctant to choose the option.

Health systems are moving into the insurance business from solely providing care through fully owned insurance plans or joint ventures with insurers to help promote high-value care, reduce costs, drive patients to their services and differentiate their revenue streams, observers say.

Though the concept isn't new — the 1990s saw an uptick in the creation of provider-sponsored health plans, though many failed — it has seen renewed growth since the passage of the Patient Protection and Affordable Care Act.

Exchanges spur interest

According to an April report by New York-based McKinsey & Co., 106 providers were offering at least one health plan in 2014, up from 94 in 2010, and about 15.3 million people were enrolled in a provider-sponsored health plan in 2014, versus 12.4 million 2010. Most of the growth occurred in government plans such as Medicaid and Medicare Advantage and the individual insurance market, where there's opportunity because of the public health exchanges. The small-group market also saw slight growth, McKinsey said.

Enrollment in the provider-sponsored health plans in the large group and administrative-services-only markets declined, however, McKinsey said.

Most recently, Hartford, Connecticut-based health insurer Aetna Inc. in May announced a joint health plan with Texas Health Resources, a 24-hospital system based in Arlington, Texas. And in late April, a Wisconsin subsidiary of Anthem Inc. joined forces with Milwaukee-based health system Aurora Health Care to create a 50-50 joint venture, Wisconsin Collaborative Insurance Co.

“The entire design of this is based on a mutual commitment to build a more sustainable health care system by, in essence, optimizing care delivery,” said Larry Schreiber, New York-based CEO of Wisconsin Collaborative Insurance. “We are acutely aligned on all the important metrics that we need to be holding ourselves accountable to” involving cost structure and clinical pathways, he said.

Today's post-health care law environment, with its emphasis on driving value in health care, is ripe for health systems to take on more financial risk by insuring their own patients, observers say.

But larger employer groups are a challenging market for provider-sponsored plans.

Large employers have been approached, but “we see very few takers,” said Mike Taylor, Boston-based senior vice president with Aon Hewitt.

There have been enrollment gains among small employers, as McKinsey noted, but they typically don't need a big national network.

It's risky for employers, Mr. Taylor said, because most of the provider-sponsored plans aren't as mature as traditional health insurers. Additionally, it can be an administrative headache for an employer who has a workforce in several states, because provider-sponsored plans typically operate in the state or location where the health system is present, he said.

“There's a little bit of a barrier to entry in that they're new, they don't cover enough geography, and I think that's what's sort of holding back employers from going to (them),” he said.

Many local health systems don't have the “administrative infrastructure that's required to support an employer directly,” like the ability to coordinate with the employer's pharmacy benefit manager or deal with employees' health savings accounts, said Scott Rabin, Los Angeles-based national practice leader of health exchange solutions with Xerox HR Services.

Providers “love this idea” of going direct, Mr. Rabin said, but some are “forgetting that there's a whole bunch of stuff that the health plan is doing for those large employers that are not necessarily about provision of care, but are absolutely essential to running a benefit plan.”

Still, a few large, innovative employers are “piloting” deals with provider health plans, because “it could be better quality, better experience and lower cost, which is kind of the gold standard,” said Cameron Congdon, Boston-based North American health and benefits leader, client delivery and sales with Willis Towers Watson P.L.C.

“Providers who have their own health plan have some unique and special advantages that most health plans don't have, because they have a local brand, because they know these people, they take care of them, they know where they live, they know their preferences, they know all the social determinants of health ... and as a result, they have some competitive advantages, where they can lower the cost and improve the a quality and make something much more affordable,” said Bill Copeland, Philadelphia-based leader of Deloitte L.L.P.'s U.S. life sciences and health care practice.

For the model to be effective, employers evaluating provider-sponsored plans should ensure that the narrow network is “stratified” based on quality and outcomes and not just cutting out the most expensive providers to save costs, Mr. Rabin said.

Wisconsin Collaborative Insurance is one of the few provider-sponsored plans focused only on middle-market and large employer groups. In the long term, the company could expand into individual and government plans.

“What we're coming to market with is everything that you want from a local provider-sponsored health plan with everything you need from a national carrier,” Mr. Schreiber of Wisconsin Collaborative said. “It puts us in a space that differentiates us not just relative to local provider-owned health plans, but to our national carrier competition.”

The joint venture eliminates the geography barrier for multisite employers by combining a local health system in Wisconsin with a national network.

Provider-sponsored health plans could play a larger role in employer health plans in the future, experts say.

“As these provider-sponsored health plans get bigger and more mature, I think there is likelihood to be more interest, because in general, they can ... price more competitively than some of the big carriers,” Aon Hewitt's Mr. Taylor said. “They can control what they charge for their services.”