The Growth of Provider led Health Plans in the Individual Market

By April 25, 2016 February 24th, 2020 Delivery System Transformation, HCEG Top 10


Offering a health plan can give health systems a variety of strategic and economic advantages. The decision is not without risk, however. To benefit from this move, health systems will need to understand their consumers. A recent analysis provided by McKinsey & Company explains the growth of this business model and examines the key factors tied to success.

Recent Developments

Between 2010 and 2014, the largest enrollment growth for PLHPs in percentage terms occurred in the individual market. One of the primary drivers of this growth is the fact that many providers introduced public exchange plans as a way to drive volume. During that time, enrollment increased from about 270,000 to 670,000 members. This represents annual growth of approximately 25%. The number of providers offering health plans in the individual market rose to 55 from 36 during that span of time. The CO-OP shutdowns and losses incurred by large insurers, combined with heightened penalties for being uninsured, indicate that further growth in this market is likely for PLHPs.

Despite the significant increase in overall enrollment, most PLHPs remain comparatively small. In 2014, only five providers had plans that cover more than 500,000 members. In the aggregate, however, these plans had a fairly large market share. A regression analysis recently provided by Deloitte indicated that market share drives profitability for the PLHP model.

Since 2014, PLHPs have become more price competitive on the public exchanges. In the first open enrollment period (OEP), they were the price leader (the carrier offering the lowest-priced silver plan) in 15% of the counties where one or more PLHPs were available. That percentage rose to 19% in the 2015 OEP and then to 26% in 2016. PLHPs were especially likely to become price leaders in areas where CO-OPs exited the 2016 exchanges.


The possibility exists, however, that competition on the basis of price is not the appropriate strategy for PLHPs. The rise of healthcare consumerism has substantially changed what many people want from providers and health insurers. These changes play into the hands of PLHPs in many ways. If providers want to use health plans to increase volume, however, they must understand consumers price sensitivity and benefit preferences.

While people who buy health insurance for themselves tend to prefer low-cost plans, they do not base their purchasing decision on price alone. People have demonstrated a willingness to pay more for features that provide added convenience, such as guaranteed appointments, after-hours appointments, telemedicine services, and weekend appointments. The data also indicate that consumers are willing to let their health information be shared between insurers and providers.


Another important element to consider is the administrative model that these systems choose to employ. Often, the administrative infrastructure used to set up a PLHP is similar to that of a stand-alone health plan (granular claims requirements, extensive prior authorization lists, utilization management and care management prerequisites, etc.). This represents a lost opportunity for PLHPs, who really should take advantage of the chance to rethink the traditional payer administrative infrastructure. Because most provider-led plans cover 150,000 lives or less, it is impossible for them to attain the benefits of scale using the traditional payer administrative model. Greater efficiencies and reduced costs can be discovered by aligning policies between the health system and the health plans business units to achieve a level of cohesion that traditional payers simply cannot.

Health systems with their own health plans have an important advantage: integrated claims and clinical data that can allow them to produce sophisticated analytics. As a result, they should be able to make the most of opportunities for better medical management by identifying at-risk patients, offering them appropriate preventive care, and, when necessary, intervening early.

There is an opportunity for PLHPs to consider pricing and product benefits in a new way. The product benefits should be tailored to the strengths of the care management offered by the underlying health system. As with any business, location is a critical component to the success of a PLHP. The most suitable place for a PLHP is a region where the health system has a large share of a consolidated provider market and the level of payer consolidation is low.