More Not-for-Profit Hospitals Entering Insurance Market Despite Risks

September 29, 2015

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Source: California Healthline

Not-for-profit hospitals increasingly are entering the health insurance market in an effort to boost revenue during a period of slow growth,according to a report released last week by Moody’s Investors Service, Modern Healthcare reports.

According to the report, the hospitals are making such moves even as the startup costs and short-term losses have put a strain on their margins. Moody’s found that not-for-profit hospitals with a health insurance business in 2014 operated at cash flow margins of 3.7%, compared with 4.8% for similar health systems lacking insurance products.

The report also found that the median operating revenue for health systems with insurance businesses was $2.73 billion, compared with $2.67 billion for those not operating a health plan. However, Mark Pascaris, one of the Moody’s analysts who authored the report, noted that the higher median operating revenue is only beneficial if the insurance operations continue to turn a profit. He explained that health systems often lack the knowledge in underwriting and marketing to keep operations profitable, noting, “It’s a completely different skill set running a hospital operation versus operating a health plan.”

Ups and Downs for Health Systems Entering Insurance Business

Not-for-profit health systems continue to experience financial highs and lows when entering the insurance market, Modern Healthcare reports.

For example, Catholic Health Initiatives of Englewood, Colo., reported $23.7 million in losses on revenue of $377.6 million for its insurance plan for the fiscal year that ended June 30. Meanwhile, North Shore-LIJ Health System in Great Neck, N.Y., reported a $12.4 million loss during the first half of the year on its CareConnect insurance startup. However, its revenue during that period tripled to $95.3 million.

Other systems dipping a toe in the insurance business include:

  • Ascension, which has announced a plan to pursue large employers after acquiring a Michigan health plan earlier this year; and
  • Sutter Health, which announced last week that it will expand its HMO to five more California counties

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