Hospitals Prepare to Double as Insurers

As the nation’s health care system is in a constant whirlwind of change, hospitals in many states are about to make drastic moves to their normal operations. There has been increasing pressure from government plans and private insurers alike to accept bundled or flat payments in lieu of reimbursements for services, which requires hospitals to be responsible for cost management as well as their patients’ health. Therefore, these facilities are being urged to assume an insurer-like role.

“The more hospitals take on risk and manage the care, the more they look like insurance companies,” says Advisory Board Company Chief Research Officer Chas Roades. In order to manage the financial risks, hospitals are not only becoming more active in controlling costs and securing patient wellness. Many hospital networks are now planning to provide insurance coverage directly through their organizations.

One of the main contributors speaking on this was Michael Dowling of the North Shore-LIJ Health System in New York, who operates 16 hospitals and over 300 outpatient facilities. Dowling stated that this is a move in favor of preventive care.

“Once the system becomes an insurer, picking up the tab for a hospitalization rather than generating revenue from it, more resources will be devoted to preventive care,” Dowling told Kaiser Health News/Washington Post several days ago.


Clearly detonated by the health care law, this set off an idea of reconstruction in hospital systems throughout the country. According to an Advisory Board survey, about 20 percent of hospital networks currently offer an insurance plan, and an additional 20 percent are investigating their options as future insurers. MedStar Health of the Washington-Baltimore region already markets an insurance product, their network including Georgetown University Hospital among eight other facilities.

Multiple large hospital networks, such as The Ford Health System in Detroit and UPMC in Pittsburgh have entities that already sell health insurance plans. This has proven to complicate relations with insurance companies, as UPMC and Highmark were in a legal battle over acquiring a rival hospital network, though it was settled several months ago. Texas Health gave it a try in the 1990s, though let it go as they found it a distraction from their focal business.

How will patients be affected?

Of course the supporters of the change claim that streamlined care will have a positive impact on those receiving it, and potentially lower costs. However, this could also lead to a greater limitation on choices and access to outside experts if everything is all under one roof.

Experts predict a fairly unexcited general public one way or another, which is realistic. “The big wild card is: how will patients view it? Is it just going to be viewed as managed care 2.0 and engender the same kind of backlash, or will people engage with it because it can help them live healthier lives?” Roades said.

“Hospitals think this is a way to cut out the middle person, tailor care more closely and save a lot of extra money, but there’s a history to this and it generally doesn’t work,” said Howard Berliner, a visiting professor of health policy at NYU. “It sounds easy, but it winds up being incredibly complicated.”

Crossing the border

Transitioning from hospital to insurance provider is going to be complex, introducing new risks with such a big move. One consideration is that insurance companies have different requirements for skills and licensing than health care providers. For instance, a health system needs to maintain millions of dollars in capital reserves in order to offer insurance policies.

While many components will need to be ironed out in order to make this new system of health insurance via hospital a success, they are still on their way. Implementation is already being seen in several DC-area health systems, and being planned in states all the way out to Colorado.


About B. Somers

B. Somers is a contributor to Health Insurance News, focusing on medical coverage, carriers, health reform and the conflicts surrounding insurance. Writing for the company's sites has provided a strong introduction to health insurance, and the opportunity to gain knowledge in the insurance industry.