New Insurance CO-OPs Off to a Sluggish Start

New Insurance CO-OPs are off to a sluggish start in the health insurance market based on recently released data.  According to the National Association for State Health CO-OPs, a national trade association, the recently closed Obamacare health insurance open enrollment period saw over 400,000 people sign up for CO-OP coverage.   On an aggregate basis the number sounds good, but with CO-OPs in just 23 states, that comes to less than 18,000 CO-OP members per state on average.  In the health plan world, less than 18,000 members statewide makes you a tiny player and being a tiny player can spell trouble for a health plan.

For the uninitiated, a CO-OP is a non-profit consumer oriented and operated plan organized under provisions of the Affordable Care Act (ACA) to offer health insurance as competition to private health plans.  Under provisions of the ACA, the federal government has provided over $2 billion of loan support to help launch CO-OPs operating in 23 states.  Among various governance and operational requirements set forth in the ACA, qualified CO-OPs are expected to devote any profits towards lowering premiums, improving benefits or enhancing care for their membership.

Without having to pad their premiums to cover profits and income taxes, in theory CO-OPs should be very price competitive with private insurers, all other things being equal.  Unfortunately for CO-OPs, all other things are not equal.  Membership size matters a great deal in the real health insurance world and right now few, if any, of these new CO-OPs have enough membership size to compete effectively. 

The reality in health insurance is that taxes and profits only account for a few percent of the premium dollar, so not having to worry about them provides little edge to CO-OPs.  The key cost driver, by far, for health insurers is the cost of member medical claims, which eats up eighty percent or more of each premium dollar.  After medical claims costs, health insurers will typically see another fifteen percent or more of its premium dollars consumed by their administrative costs.   These administrative costs include all of the expenses associated with the people and systems infrastructure needed to build and manage provider networks, pay medical claims, manage utilization, service customers, distribute products and ensure compliance with a complex set of state and federal regulations.

At the end of the day, health insurance is a capital intensive business where economies-of-scale give a significant advantage to big membership plans.  Big plans can absorb fixed administrative costs more easily and, more importantly, they have serious bargaining power when negotiating medical service rates with healthcare providers.   In healthcare, as in most businesses, suppliers are prone to giving their best rates to the biggest buyers.  And with not much buying power, small insurers rarely get the best medical service rates from providers. Combine higher medical service rates with a proportionally greater administrative cost burden and the financial picture for small insurers is not so good.  Health insurance is a very tough business for the small guy.

Industry participants have known for a long time that bigger is better in health insurance, which is why the industry has seen significant consolidation over the past twenty years.  Small player after small player has exited the business over that past two decades, either through mergers, acquisitions and even plan terminations.  Right now the new insurance CO-OPs are small fry in the health plan business.   It is still too early to write them off as relevant players in the health insurance market.  But if these new CO-OPs want to thrive, they must achieve significant membership growth over the next 3 to 5 years.   Otherwise, many will suffer the same fate that so many other small health plans experienced over the past twenty years.

Is the Internet Giving Old-Fashioned Physician House Calls a Shot in the Arm?

Is the Internet Giving Old-Fashioned Physician House Calls a Shot in the Arm?  At least one innovative healthcare company is hoping to do just that.  As profiled in several commentaries here, internet and smartphone technologies are disrupting healthcare delivery in many ways.  We've got online doctors, online doctors for the webcam challenged, online dermatologists who can treat most skin conditions remotely and a growing number of web and smartphone enabled monitoring and testing devices (like a smartphone ekg) now available to consumers.  Driven by growing demand to make healthcare more convenient and more affordable, innovative companies are busy developing solutions and services that are reshaping consumer expectations about healthcare delivery.

So far a common theme in these new web and smartphone enabled solutions is the absence of any real contact with a healthcare practitioner.  To be sure, many of these new service options involve real-time webcam consultations where patient and provider interact.  And for some common conditions and for some consumers, that degree of interaction will suffice.  However, for many consumers a webcam consultation, even if only used for diagnosing and treatment of minor health conditions, seems inadequate.  We all know that a certain amount of good doctoring requires a tactile examination and more than a two-dimensional visual inspection.

If you happen to be a consumer who likes the idea of more convenient doctor visits, but are wary of the virtual consultation, keep an eye on service solutions like the one offered by Medicast.  The Medicast model allows a consumer to set up an account online or through a mobile app and then request a house call from a participating primary care physician.  After a house call request is made, a Medicast participating physician will call the consumer for a preliminary review of the consumer's symptoms and to arrange a specific time for a visit.  Physician house calls are made within 2 hours and are arranged at the consumer's home or office, or even a hotel room if the consumer happens to be visiting from out of town.  Services provided range from check-ups to urgent care, including the issuance of prescriptions and the administration of intramuscular injections. 

The Medicast service is available 24 hours a day.  Services can be purchased on-demand or on a monthly subscription basis.  Depending on the subscription plan purchased, monthly subscribers are entitled to a set number of free doctor house calls each year, stipulated discounts on additional house calls and services and certain other benefits.

Right now the Medicast service solution is only available in Miami.  However, the Company is indicating that it will be launching its services in Los Angeles/Orange County and the Kansas City markets in the next few months.  And it is actively working on plans to launch its service in the New York City and San Francisco markets in the not too distant future.

Medicast is an early entrant into this space, but it is unlikely to be the last.  In various markets around the country consumers can already use telephone-based services to arrange physician house calls.   Expect many of these service-providers to soon be integrating internet and smartphone based technologies into their platforms, giving the old-fashioned physician house call service model a shot in the arm.