IREG Update - July 24, 2015

Provider-Sponsored Carriers

By Theresa Fitzgerald and Kate Morgan

A new trend in the provision and financing of health care is the forming of health carriers by health systems and provider groups. This trend follows the emphasis on managing health care with better quality and decreased costs under the Affordable Care Act, and provider reimbursement increasingly linked to cost-effectiveness and quality rather than simply the volume of services delivered. Methods such as accountable care organizations and bundled payments are also creating incentives for provider systems to manage the entire process of care, including insurance.

In 2014 for example, North Shore-LIJ CareConnect became the first provider-owned health plan in New York to offer health insurance on the state's health insurance exchange. Similarly, Premier Health recently acquired a state insurance license in Ohio and has expanded from offering coverage to its own employees and their dependents to providing coverage both on and off the federal insurance exchange in Ohio. These provider-sponsored plans tend to focus on a particular region, with a more narrow network than larger carriers, but also with a more interactive network. Typically the goal is to cover lives in the provider group's service area with the providers' health initiatives, rather than to be a large national player in the insurance market. Forming an insurance carrier for this purpose can help the provider group's business at a time when insurers are pushing back at hospitals on reimbursement rates, but it also puts the provider groups in direct competition with insurers who are contracting with the providers for their insureds. It also creates new and regulatory issues that may not be familiar to providers and health systems.

In embarking on these new ventures, providers and health systems need to consider carefully the implications of acting as a health carrier. First and foremost, the health system must appreciate that the insurance business is very highly regulated and regulated quite differently from health care providers. For example, insurers are subject to financial regulation intended to prohibit improvident practices that could limit the availability of the insurer's resources for fulfillment of obligations under its insurance contracts, such as investment limitations that permit investment in instruments specifically authorized by statute, strict reserving requirements and risk based capital requirements...