Catholic Health Initiatives' ambitious plan to sell health insurance has faltered. Other providers are likely to learn from the CHI experience.
When one of the country's largest hospital operators can't make a go of it in the health insurance business, it pretty much confirms that running a health plan is a tough way to make a dollar.
Catholic Health Initiatives' recent announcement that it is pulling back sharply from the market is another sign that health insurance has become so complex and the risks so high that hardly anyone is willing to enter anymore, and those that have are either poised to retreat or likely considering it.
CHI entered the health insurance business three years ago with an ambitious plan for its own national insurance plan. It bought a managed care plan in Arkansas and interests in a Washington State insurer so it could market to employers and direct them to CHI physicians and hospitals.
It was an aggressive business move, but it did not seem unreasonable for a non-profit with 103 hospitals in 18 states.
But reality hit CHI hard. Its insurance arm lost $109.6 million for the fiscal year ended in June, according to the Wall Street Journal, and now Catholic Health is selling off a substantial portion of the business.
CHI's experience may make other providers think twice before jumping into the insurance market, despite the lure of millions of people (still) required to buy their product, say David Kaufman, JD, and Deborah Dorman-Rodriguez, JD, healthcare attorneys and analysts with the firm Freeborn and Peters.
Diminishing Margins, Market Unpredictability
Though CHI's trouble is particularly noteworthy because of its stature as a major hospital operator, others have had similar experiences since the Affordable Care Act was enacted the attorneys, say.
"New entrants saw that health insurance is a particularly complicated business, requiring substantial investments in personnel and the technology necessary to be successful in a business with diminishing margins and competitors seeking to maximize efficiency," Kaufman says.
"As a result, many insurers, those both established and new entrants, lost a lot of money in the new markets. The lack of success demonstrates the substantial capitalization requirements needed, complexity of the business and unpredictability in the market and the regulatory system."
One lesson from the CHI experience might be that, even though the industry is dominated by a few big players, size isn't everything. Even giants Aetna and Blue Cross have had setbacks, and a big name like CHI doesn't come with immunity.
"Contrary to what some may expect, the successful companies have not necessarily been the established large insurers. Those insurers have the resources to stay in the market regardless of profit, but other insurers have found success in the early years," Dorman-Rodriguez says.
"Insurers familiar with the Medicaid managed care market that are effective at managing population health continue to grow."
She notes that some smaller insurers have found success in the new markets and may provide a model for integrated health systems that remain.
The greatest unknown is, of course, uncertainty regarding legislative and regulatory changes expected from the incoming administration, both attorneys note. Those plans and how they are implemented may equal or even exceed the impacts experienced with implementation of the ACA, they say.
Gregory A. Freeman is a contributing writer for HealthLeaders.