Map of Provider Sponsored Plan Enrollment Share by State 2014
A whopping 50 percent of U.S. health systems have applied – or intend to apply – for an insurance license, according to PwC.  This represents an important chapter in a larger story about the massive shift occurring across our healthcare system – the move away from traditional fee-for-service to value-based care. The payer-provider convergence comes in many shapes and sizes, ranging from M&A and joint ventures to strategic and contractual alliances. While the level of integration ranges widely in these various scenarios, the traditional definitions, economics, and roles and responsibilities of payers and providers are changing. The provider-sponsored plan (PSP) is on the rise, and many argue that it is a good thing.

What exactly is a provider-sponsored plan?
A provider-sponsored plan is a health insurance company owned by a health system, physicians group, or hospital. There are many ways to describe the concept of providers getting into the health insurance game. McKinsey and Company uses the term “provider-led health plan” and Deloitte prefers “provider-sponsored plan.” We are seeing our customers coalesce around “provider-sponsored plan” and the accompanying initialism PSP.

How many PSPs are there in the U.S.?
According to the preliminary results from Atlantic Information Services’ (AIS) annual survey for its forthcoming Directory of Health Plans: 2016 there were 270 provider-sponsor plans that participated in government and commercial markets in 2015, up from 107 two years ago. PSP membership increased from 32.8 million in 2014 to 36.2 million in 2015, an increase of 10% in just one year.

Are PSPs a new trend?
Providers getting into the insurance business is not new – there are established, successful IDNs (e.g. Kaiser, Intermountain, Geisinger) that have been around for decades and have proven the model. There were also a cohort of PSPs that emerged in the 90s, but didn’t survive because of financial difficulties and their inability to achieve scale.

So what’s changed and why are so many health systems interested in the health insurance business today? The post-ACA world is a much different place than the 90s when the last PSP surge occurred.  Some important changes include:

  • CMS has paved the way for fee-for-service to be obsolesced. Outcome-based models are gaining traction and private payers have followed suit.
  • New distribution channels exist and opportunities abound. The proliferation of public and private exchanges gives providers today many new ways to market themselves to consumers.
  • Expansion of managed care into Medicare and Medicaid has put additional resources on the table.
  • Proliferation of EMRs and other silo-busting platforms have made clinical data sharing easier.

In today’s market, PSPs are showing that greater integration can improve the quality of the care, and reduce costs, while still providing a great experience to members and patients.

PSPs are well positioned
The reason so many providers are becoming payers (or at least considering it) is because PSPs, as Mitch Morris at Deloitte put it, “have at their fingertips the very levers that are needed to be successful in the post-transformation world.” This makes PSPs one of the most exciting areas of the health insurance ecosystem right now. PSPs have many assets that they can leverage: quick and reliable access to claims and clinical data, strong brands and customer loyalty, and an ability to innovate relatively quickly. They have the advantage of not being encumbered by old technology and are free to pursue and implement first-class technology to help them meet their goals of providing a superior customer experience for their members.

Despite the many advantages of PSPs, there are of course challenges. To be successful in the long run, PSPs will need to:

  1. Attract new group and individual members
  2. Move beyond only selling major medical products
  3. Increase member engagement and influence behavior
  4. Link with existing clinicial and care management capabilities
  5. Stay lean and efficient

Private exchanges, which are e-commerce platforms for health insurance, are perfectly suited to help PSPs meet these five objectives. My next post will discuss how adopting an e-commerce approach will help PSPs achieve their full potential.