Health Insurers Diversify in Wake of Industry Reform

The national health care reform, the implementation of which effectively requires a shift of health insurer spending more heavily towards medical care, is projected to reduce insurance profit margins to approximately 3% to 5%. This is a substantial decline considering these margins historically averaged around 7% to 8%. As a result, major health insurers in the United States are diversifying their businesses to include new partnerships and acquisitions that allow the companies to provide health information technology (“HIT”), take part in accountable care organizations (“ACOs”), and employ doctors directly.

The HIT market, in particular, is alluring to health insurers. Approximately 20% of managed-care business deals since 2010 involved HIT firms. Large profit margins reported by some companies with a presence in the HIT market (in excess of 20% in some instances), brought about by relatively low overhead, contribute to the appeal of these acquisitions. Interest in HIT businesses is fueled even further by the $27 billion available to doctors and hospitals for record computerization from the federal government.

Further, health insurers are participating in ACO formation projects and the direct employment of physicians. Their participation in creating ACOs seems a natural complement to plans’ core business considering that under the ACO plan the financial risk of patient care is partly transferred from the insurers to doctors and hospitals. Absent a change in the federal ACO proposed regulations, however, the 25% cap on ownership by non-providers might militate against ownership in ACOs. The direct employment of physicians, on the other hand, might prove financially beneficial to insurers while reducing patient costs, especially if the predicted shortage of primary-care doctors is not meaningfully addressed.

The recent health insurer diversification triggers concerns among certain health care policy makers, namely as a result of the possibility that such efforts will take attention from the core of each insurer’s business. This, however, has not deterred a number of major U.S. health insurers from attempting to diversify, and the expectation is that the trend will continue.

For more information about ACOs or for professional assistance navigating the ever-evolving healthcare landscape, please contact Carey F. Kalmowitz, Esq., Adrienne Dresevic, Esq. or Esq. at (248) 996-8510 or (212) 734-0128, or Daniel B. Brown, Esq. at (770) 804-6475, or visit the HLP website.