Aetna, Cigna, Wellpoint Recreating Their Business Models

Major U.S. health insurers, including Aetna Inc., Humana Inc. and WellPoint Inc., are retooling to become more than just health plans, in the wake of the federal health-care overhaul that is changing the rules for the industry’s core business.

Diversification plans, touted in meetings with investors this year, include stepped up acquisitions and partnerships that will allow the companies to employ doctors directly, deliver health-information technologies, and participate in new hospital-doctor groups known as accountable-care organizations.

Wall Street Journal; May 12, 2011

Does this make sense? Absolutely!

The old health plan business model of “risk selection” is no longer viable under health care reform legislation. Starting in 2014, health plans will be required to offer and continue to provide health insurance to all comers, regardless of their health status.

Let me explain this two ways:

If you’re an insurer, you’d explain “risk selection” as rational business behavior.  For example, consider whether a property insurance company would want to insure beach front property in Malibu or Florida. I suspect most of us intuitively would grasp the risk of storms sweeping away the property and would understand that many insurers would not want to take on this type of risk…and we aren’t likely to be very sympathetic with wealthy homeowners seeking insurance on these properties.

However, for health insurers the equivalent of beach front property in Florida is patients who are very ill or likely to become very ill. We intuitively react very differently when a health plan denies or revokes insurance to someone who is a family member, neighbor, or co-worker.

Without rehashing the old “health plans are evil/no they’re not” issue, look at this opportunistically and practically.  Health plans are effectively being forced to change their business models, and we’re beginning to get some real insights where they’re heading:

  • promoting ACOs (accountable care organizations)
  • offering health IT
  • employing physicians

Details to follow…

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