Hospitals, Other Providers Show New Interest in Owning Health Insurance Plans, Despite Falling Profits, Membership

Even though provider-owned health insurance plans have been seeing declines in profits and membership, providers have stopped selling them off and may even decide to create new ones, according to a release by A.M. Best Co.

Hospitals, physician groups and integrated healthcare delivery systems had been selling off their plans to large nationwide insurers, but that trend has slowed. Providers are holding on to their plans as a way to improve coordination of care, reimbursement and understanding of local market needs. The company said it predicts a renewed interest by providers in creating or acquiring health plans.

Based on industry reports, the company made the following observations about provider-owned plans:

1. Lower profit margins. The plans' average profit margin has been on a two-year decline and in 2009 reached its lowest point in four years, at nearly 1.4 percent, after a two-year upward trend hit a high of 3.3 percent in 2007.

2. Declines in enrollment. Average membership fell by 5.5 percent since 2007, but Medicaid membership grew by 29 percent.

3. Lower underwriting margins.
The plans' underwriting margin dropped significantly to just over one percent in 2009, after holding steady at over two percent since 2007. In comparison, the total health insurance industry had a two percent margin in 2009, down from a 3.9 percent margin in 2007.

4. Pressure to tamp down profits. About half of the plans are local, not-for-profit organizations, which are under pressure from regulators to limit profit margins to 2-3 percent.

5. Decline in risk-based capital.
Risk-based capital, on a company action level basis, had a slight decline measuring 236.9 for year-end 2009, compared with 239.7 in 2007.

Read the A.M. Best release on health insurance.

Read more coverage on health insurance:

- AMA Study: Competition in Health Insurance Industry Disappearing

- AMA Releases National Health Insurer Report Card

- HHS Secretary Lists Reform Provisions About to Go Into Effect

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