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Deloitte's Life Sciences & Health Care Blog

Provider-sponsored health plans can be at the forefront of the changing health care market

I have always been fascinated by simple solutions to seemingly complex problems. Few problems are more vexing than the US health care system. One of the solutions offered by several experts and policy makers is unifying care delivery and financing. Isn’t that simple? If not the solution, at least the articulation of the solution is simple.

As health systems take a shot to simplify health care, provider-sponsored health plans (PSPs) have been one of the arrows in their quivers. By controlling both the delivery of care and the financing of it, PSPs have the potential to break some of the constraints that health plans and health systems have traditionally faced.

Top PSPs have continued outperforming their traditional peers

Have PSPs lived up to their potential? The results are mixed. Over the past decade, several health systems have launched their own health insurance subsidiaries. During the early part of the decade, many PSPs were able to add members more quickly than some of their more established counterparts.

In 2017, PSPs served about 15 percent of total fully-insured population, up from about 9 percent in 2014.i However, several PSPs also suffered substantial losses, especially in the commercial individual market, due to pricing issues, and adverse impact of risk-mitigation programs such as the ACA’s risk-corridors and risk-adjustment programs.iiAs a result, health system leaders have pondered whether PSPs are really viable.

In 2015, we studied the financial performance of the 25 most financially successful PSPs, as measured by profitability (underwriting margins), efficiency (revenue/capital), and leverage (liabilities/capital). We benchmarked these parameters against those of competing health plans between 2012 and 2014. We found that, on average as a cohort, these PSPs outperformed other types of health plans in all three parameters.

But that was 2015. We studied these same measures again in 2018 to see whether PSPs were doing better – or worse. We found that even between 2015 and 2017, when several PSPs faced financial challenges, the 25 most financially successful PSPs continued to outperform their traditional health plan peers in their respective markets. In 2015, the top PSPs posted 1 percent underwriting margin losses. By 2017, however, their margins recovered to 2 percent—still slightly higher than the 1.8 percent average among their market peers. In addition, top PSPs were more capital efficient during the period. PSPs had revenue/capital of 11x compared to 8x of their peers in 2017.

Average financial metrics 2015 2016 2017
Top PSPs 1 Other health plans 2 Top PSPs 1 Other health plans 2 Top PSPs 1 Other health plans 2
Underwriting margin -0.9% -0.1% 0.7% 0.6% 2.0% 1.8%
Revenue / Capital and Surplus 12.1 7.6 11.2 8.1 10.6 8.1
Liabilities/ Capital and Surplus 2.0 1.7 1.9 1.9 1.8 1.7


1 Top 25 financially performing PSPs

2 Other health plans in states of top-25 financially performing PSPs

Source: Deloitte analysis of financial data from NAIC filings through S&P Market Intelligence

Scale, tenure, and choice of markets likely matter in the financial success of PSPs. We found that, similar to 2015, several of top-performing PSPs had been in the market for a long time and had weathered various financial cycles. They also had built strong community bases and had a critical enrollment mass of more than 100,000 enrollees. In addition, success for many PSPs hinged on the ability to successfully serve some of the more challenging health care communities—the elderly (Medicare Advantage) and the poor (Medicaid). For instance, Geisinger Health System’s health plan is focused on creating more engaged relationships for the elderly and is among the top five Medicare plans in Pennsylvania. Similarly, Neighborhood Health plan of Rhode Island, founded by the community health centers of the state, serves the majority of the at-risk populations in the state. The health plan is consistently rated among the top Medicaid plans on quality.iii

PSPs can be at the forefront of the changing health care market

In our recent research, some industry experts suggested that the health plan of tomorrow will work more closely with the health care providers to improve patient well-being. In this changing health care market, PSPs can be at the forefront of this shift, through convergence of care delivery and financing. Also, with quicker, better, and more comprehensive access to member data, PSPs might have more actionable patient information at their disposal. As a result, PSPs often have more engaged relationships with the consumers.

For health system leaders, establishing a health plan can require investments in people, actuarial capabilities, and emerging technologies and analytics. Most of these investments will likely be upfront, but immediate returns have been—and will continue to be—challenging. In the longer term, however, with market and actuarial experience, community engagement, and through next-gen technologies, PSPs could be the vanguards of this health care market shift.


i Deloitte analysis of NAIC filings between 2011 and 2017
ii https://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/commercial-health-plan-financial-trends.html
iii https://www.nhpri.org/AboutUs/CompanyProfile/FastFacts.aspx

Author bio

Maulesh Shukla is an assistant manager with the Deloitte Center for Health Solutions. For the past eight years, Shukla’s research has covered a wide range of topics in the realm of health plans and hospital and health systems. His recent research has focused on health plan financial performance, patient experience and customer transformation, health care information technology, innovation, and health care reform. He holds an MBA from IBS, Hyderabad, India, and is based in Mumbai, India.