Should providers launch health plans?

Short take

Many health systems are considering launching health plans, assuming that because they can deliver efficient, outstanding care and superior customer service, they will succeed with a health plan. This assumption is not always correct.

Last year, more than 100 health systems in 39 US states offered health insurance plans (on their own or through an alliance with an insurer). Together, these health plans covered about 18 million Americans, roughly 8% of all insured lives. Ten more provider-led plans are being offered for enrollment in 2015.

Other health systems are considering launching health plans, assuming that because they can deliver efficient, outstanding care and superior customer service, they will succeed with a health plan. This assumption is not always correct, though.

In some cases, offering a health plan does give health systems important advantages. For example, it can enable them to preserve or increase patient volumes, take advantage of economies of scale and skill, and establish new strategic options for the future. As a result, it can produce economic benefits that far exceed the investments required to launch the health plan. 

In other cases, however, the return on investment is negative. The health systems may not have been able to establish a distinctive value proposition, or they may have underestimated the full costs involved (especially the resources required for compliance with insurance regulations). Perhaps most important, the health systems may have been unable to resolve the inherent tension between payor and provider value creation—history has shown that it is quite difficult for health systems to reach the level of payor-provider integration necessary for health plan success. 

Any health system that wants to launch a health plan successfully must thoroughly understand the challenges it will face and capabilities required, and it must have a well-developed plan for positioning the health plan in its market. The system should therefore ask itself a number of questions related to strategy, structure, and readiness. Among them: Where will the incremental value created by the health plan come from? How should the health plan be structured to manage the tension between payors and providers? How should the health system ready itself? What investments are required? 

The health systems most likely to succeed with a health plan are those that have an aligned strategy across their system, a strong balance sheet, sophisticated population health management capabilities, solid brand recognition, and sufficient scale.

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Author

Gunjan Khanna Partner
Dr. Saum Sutaria Senior Partner