Contributor: Sheri Sellmeyer
Topic: Medical loss ratios
Health plans owned by hospitals and physicians have long competed against insurers with deeper pockets, larger networks and better-known brands.
But for all the disadvantages these provider-owned plans face, they do have at least one important ace in the hole: they are already spending a higher percentage of their premiums on medical care, a key tenet of healthcare reform.
Kenneth Lewis, the president of FirstCarolinaCare Insurance Company in Pinehurst, N.C., pointed out in a recent letter to Kaiser Health News that his company has a voluntary cap on profits (1.5 percent of operations) that has been in place since 2005, and it pays back money to members when it exceeds that cap.
That’s exactly what healthcare reform will force all health insurers to do. The law requires health plans to spend 80 percent of the premium dollar on medical care for individual and small-group lines and 85 percent for large businesses. If the plans do not meet those standards, they will have to pay rebates to consumers beginning in 2012.
A look at several provider-owned plans across the country shows them well within the law’s requirement. Dean Health Plan and Security Health Plan, owned by a hospital system and physician group, respectively, in Wisconsin, have achieved MLRs in the low 90s over the past several years, according to HealthLeaders-InterStudy. Southeast Indiana Health Organization has kept its MLR in the 86 to 90 range, and Scott & White Health Plan in Texas has had an MLR as high as 95 in recent years. (All MLRs noted are for HMO business.)
The number of provider-owned plans has steadily declined over the past 15 years as they are snatched up by larger plans eager to increase market share. But the surviving ones are still here for a reason: they often have a reputation for being physician-friendly and patient-centered, and they are ranked among the top plans in the country by the National Committee for Quality Assurance and the Commonwealth Fund.
FirstCarolinaCare’s Lewis argues that hospital-owned health plans have provided value to communities with their low margins and low administrative fees; he notes that taxes meant to reduce the profits of large carriers will hurt these smaller plans.
Small, provider-owned plans have survived the recession and competition from much larger plans. Whether they can remain independent through healthcare reform is a big question. With their strength in coordinated care, they may be a tasty acquisition morsel for a much larger fish.