Health plans need new approaches to profitability

Now I get it. To get back their healthy profits--which have taken a serious plunge of late--all U.S. health plans have to do is a) raise premiums and b) lower reimbursements for providers. Easy as pie! This, at least, is the line being peddled by the likes of WellPoint CEO Angela Braly who, to her credit, probably didn't even laugh once when she briefed investors.

The truth is, though, rebuilding profit margins by pure muscle is something of a pipe dream. Actually, it's something of a wonder that health plans have been so profitable to date.

While some of the forces that have hit health plans' bottom lines are directly within their control, others--such as the investment climate--aren't going to obey their commands.

For example, WellPoint took its a drubbing on medical costs resulting from its Medicare program. Despite Braly's tough talk, the company can't just turn around and demand whatever premiums it wants from the federal government to make up for those losses. Actually, boosting Medicare plan income is a tricky game that involves improving your "risk adjustment factor." Sure, WellPoint may succeed, but not overnight.

What about demanding lower prices from doctors and hospitals? Sure, health plans can and will try to accomplish this, as they always do. No doubt, they'll succeed in some cases.

But while the evidence is fragmentary, some statistics I've seen suggest that very gradually, physicians are dropping managed care contracts when push comes to shove, or at least limiting the percentage of volume managed care represents in their practice. Hospitals are perhaps a bit slower to do so, but they are getting tougher on this front, too.

So, are health plans going to get much juice out of bullying providers? Probably not a lot more than they are from any other hard-nosed contracting sessions. 

All told, it seems that health plans will need to try some new tricks--new partnerships with providers, new medical-cost management models (medical homes? chronic-care management programs? telemedicine?) or new investment models (buying up medical real estate? running health IT companies?). What I'm pretty sure of is that squeezing more blood out of provider and employer turnips isn't going to cut it. - Anne