Health Care

System-owned health plans provide financial buffer against COVID-19

While the phenomenon is unlikely to convince providers to get into the health plan business if they’re not already, the pandemic has exposed just how risky the seemingly safe world of fee-for-service medicine truly is. If anything, the crisis may prompt more providers to take on meaningful risk in the form of capitated and value-based payments.
“The fee-for-service system in the U.S. let down Americans in this crisis because it was so reliant on volume of services,” said Ceci Connolly, CEO of the Alliance of Community Health Plans, “and we don’t need more healthcare procedures and services, we need better.”
In a matter of months, COVID-19 has thrown hospitals and physician clinics into a state of uncertainty by effectively cutting off one of their most important revenue streams—nonurgent procedures—while simultaneously causing a spike in staff and supply spending. Insurance companies, on the other hand, expect to profit from the pandemic because they’re no longer paying for those procedures.
In Geisinger’s case, the healthcare delivery arm lost an estimated $180 million in April, which was partly offset by a roughly $50 million positive impact from the health plan, working out to a $130 million loss for the month, Roberts said, adding that the system’s financial condition has improved somewhat since then.
In Ohio, ProMedica’s provider operations lost $35.5 million in the first quarter, while its insurance arm posted $9 million in operating income, compared with a $28.5 million operating loss in the prior-year period. Toledo, Ohio-based ProMedica’s insurance company, Paramount, contributed 30% of its revenue in the first quarter, compared with 25% from its provider division and 45% from senior care.
Paramount’s profitability will show even further improvement in the second quarter, said Steve Cavanaugh, ProMedica’s CFO.
“That’s a nice offset on the downward pressure in the acute business and senior-care business,” he said.
Eventually, though, patients will come in for those procedures, so Cavanaugh said he expects Paramount’s claims expenses to rise in the back half of 2020.
Bloomington, Minn.-based HealthPartners, whose health plan drew the fourth-highest amount of premium revenue in 2018 among health system-owned health plans, according to Modern Healthcare data, saw a similar bump from its health plan in the first quarter. While medical service revenue declined by almost $143 million, premium revenue increased $32 million, mostly from higher premiums. The system’s total revenue declined 6.4% in the first quarter year-over-year. HealthPartners did not return a request for comment.
Salt Lake City-based Intermountain Healthcare, which had the fifth-largest provider-owned health plan by premium revenue in 2018, saw its premium revenue increase 29% in the first quarter year-over-year, even as patient service revenue declined slightly. Spokesman Daron Cowley said in a statement the health plan, SelectHealth, has provided a certain amount of stability so far during the pandemic. However, that could change as the system catches up on procedures that were postponed. 
Kaiser Permanente has the country’s largest provider-owned health plan. Its unique integrated operating structure meant that California’s stay-at-home order didn’t hurt Oakland, Calif.-based Kaiser’s operating performance in the first quarter. That’s because even as the health system suspended procedures, patients still paid their membership dues at the start of the month.
Some provider-owned health plans are doing so well, they’re reducing members’ premiums and issuing premium credits back to members. The willingness to offer financial relief suggests they expect to profit this year and there could be an effort to speed up the delivery of rebates required under the Affordable Care Act if insurers don’t spend enough on medical care.
Not-for-profit Priority Health, the health plan arm of Spectrum Health, offered 15% premium credits in June and July. Although Priority shouldered significant claims related to COVID-19 cases for members in Southeast Michigan, the hardest hit part of the state, that was offset by the suspension of elective services, said Michael Jasperson, Priority’s senior vice president-provider network.

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