The Demise of Payers: Part 1

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“The future of healthcare delivery does not involve payers.”

Think of a world in which insurance companies not longer “manage” our healthcare. In fact, imagine insurance companies didn’t even exist in their present form. What would that mean?

  1. We could throw away claim forms that absorb so much effort and produce so much angst. But that’s a minor point
  2. We would not be debating compensation models like capitation, bundled payments, and shared savings as we work so hard to move from “volume to value”
  3. As patients, we would still lament “managed care”
  4. We really wouldn’t save as much money as you’d think

How could the system work without insurance companies? Well, we’re seeing it evolve right in front of our eyes. To visualize the trend, consider a baseline scenario in which a healthcare purchaser (i.e. an employer, Medicare Part C) gives money to an insurance company every month (their monthly premium). In turn, the insurance company contracts with physicians and hospitals to provide the actual healthcare. These providers are connected to the purchaser through the beneficiaries that the purchaser cares so much about.  The lines of relationship between these three stakeholders should form a triangle in your head.

Here are examples where those connecting lines are re-forged and that triangle disappears:

  • Kaiser Permanente – an obvious example in which the purchaser gives money directly to a business entity comprised of physicians and hospitals (Kaiser). Ask yourself this: If someone in the room shouted “Kaiser!”, would your first mental picture be that of an insurance company or a group of physicians? In all fairness, Kaiser is both.
  • 8 state Medicaid programs have established contracts with home-grown ACOs to deliver care to their needy populations. Though “Managed Medicaid” may seem like a new and innovative solution today, these 8 states have just leapt ahead on the road to the future. While Managed Medicaid still utilizes the Purchaser/Insurer/Provider triangle, a Medicaid ACO does not. Money can flow directly from the state to the providers in an ACO, which represents a fundamental shift in the healthcare landscape


When the flow of money changes, the whole industry shudders. Every stakeholder in the healthcare industry should be aware of a change in funding. The business models of insurance companies and providers (whether they are individual physicians, hospital systems, or full-blown ACOs) are evolving right before our eyes because of the change in money flow. When you hear of insurance companies (i.e. Highmark) buying providers (i.e. West Penn Allegheny), you should view that as proof insurers like Highmark see the future we just described. They are changing their business model. And rest assured, hospital systems are hiring insurance expertise behind the scenes to help them learn the difficult skillset required to offer insurance directly to purchasers.

Future posts will discuss the wide impact of the demise of payers, using real-world examples whenever possible. I promise you it will be interesting!

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