Why health systems are scaling back their own health plans

A growing number of regional health systems are exiting the insurance business as rising costs squeeze margins and market share remains concentrated among the national carriers. 

Provider-owned health plans are running into trouble as they navigate expensive care and administrative costs, while also trying to keep premiums competitively low. The largest insurers, such as UnitedHealthcare and Aetna, are well-oiled operations with multibillion-dollar balance sheets. For systems, insurance is often an add-on business and not part of the core care delivery operation.

More than 800 hospitals owned a health plan as of 2023, according to a study published in May from Massachusetts General Hospital and Harvard Medical School researchers.

“Provider-aligned health plans remain an essential component of the industry, particularly in rural and underserved communities,” said Ceci Connolly, president and CEO of ACHP, which represents 29 nonprofit provider health plans. 

Here’s a look at why some systems are dismantling their health plans — and how others are staying in the game. 

Which systems are exiting?

Houston-based Memorial Hermann Health System said earlier this month it will wind down its commercial insurance plans offered to employers. 

Baylor Scott & White Health, based in Dallas, said in April it is ending its Medicaid managed care program Aug. 31 and individual exchange programs at the end of the year.

Columbus, Ohio-based Ohio Health is winding down OhioHealthy benefits at the end of the year.

Providence Health’s insurance division said in May it will end Medicaid, employer-sponsored and exchange programs in 2027. The Renton, Washington-based system plans to maintain Medicare Advantage offerings by partnering with a national carrier. Providence said in March it was exploring the sale of its health plan. 

Also in 2027, Albuquerque, New Mexico-based Presbyterian Healthcare Services will discontinue most Medicare Advantage plans.

Other recent pullbacks include Sentara Health, Ochsner Health, Michigan Medicine and Carle Health.

Why are systems pulling back?

System-owned health plans say the challenging operating environment is driving the decisions. 

Providence said regional health plans are under increased pressure due to rising costs, constraints on premium affordability and technology demands. Memorial Hermann said it was unable to achieve the scale necessary to sustain operations. Systems also face competition from well-established national carriers.

Health systems’ entry into and exit from insurance businesses tend to be cyclical, said Ari Gottlieb, principal at A2 Strategy Group. Systems want to drive patient volume to their facilities and balance payer mix, but they are at a size disadvantage compared with the national companies and struggle to maintain competitive pricing, he said. 

“They don’t have the balance sheet for the volatility of these things,” Gottlieb said. “These systems get excited when the market is doing really well and there’s a lot of margin out there. … Then there’s a downturn for a few years, and they’re like ‘why are we sustaining this?’”

Which systems are making it work?

Despite challenges, many systems still operate their own health plans.

Sanford Health, for example, launched its insurance offering nearly 30 years ago in Sioux Falls, South Dakota. It covers about 400,000 members with Medicare Advantage, employer-sponsored, individual and family plans.

Sanford Chief Operating Officer Matt Hocks said overseeing the provider and payer sides allows the system to offer patients a more seamless experience with proactive care. 

“We want patients to choose us for life,” Hocks said. “You’ve got the whole organization wrapped around you.”

Other systems with health plans include Kaiser Permanente, UPMC and Intermountain Health.

How are they keeping plans in operation?

Sanford Health Plan aims for a 2% to 3% margin, Hocks said. About half of the health plan’s spending goes to Sanford operations. The rest goes to provider partners, he said. 

Provider-owned plans must balance what’s best for the provider side, what’s best for the payer side and what’s best for the patient.

Colorectal cancer screenings are one example. Clinicians encourage patients to get colonoscopies. The procedure can be costly for patients, providers and payers, and many patients are unwilling to undergo it. Hocks said Sanford finds a compromise by using analytics to determine patients’ risk levels and offering screening kits as a cheaper option, keeping patients healthy and benefitting the health plan. 

Localization is another key part of health plan strategy. 

Montage Health formed Aspire Health Plan more than a decade ago to meet the needs of patients in Monterey County, California. Most of Aspire’s revenue comes from Medicare Advantage, CEO Bob Bush said. Salinas Valley Health became a minority owner of Aspire in 2017. 

“The health plan was intended to be a strategic tool that we could create the alignment that was needed with an integrated health system,” Bush said. “That alignment — it’s financial, it’s care delivery and then population health resources.”

Bush said Aspire, which has 59,000 members, couldn’t operate without support from Montage and Salinas Valley amid rising costs. He said shared services in IT, human resources and other areas help with administrative costs.
 

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