Insurers think outside the policy

With their insurance profits capped, plans are rapidly branching out beyond their traditional business of selling health coverage.

By — Posted Feb. 27, 2012

Print  |   Email  |   Respond  |   Reprints  |   Like Facebook  |   Share Twitter  |   Tweet Linkedin

Once upon a time, U.S. insurers' business was paying claims and putting together networks of physicians and hospitals. Today, they are selling health benefits for workers in Brazil, developing health information exchange systems and even helping big physician groups bill patients.

That work was once outside the purview of the largest U.S. health insurers -- or relegated to side projects. But in 2012, after U.S. health system reform and amid other changes sweeping the industry, health plans are relying on businesses that were once peripheral to drive company profits.

"Health plans are slowly waking up to the fact that they are health plans, not just health insurers," said Janice Young, program director of payer IT strategies at IDC Health Insights, a consulting firm based in Framingham, Mass.

By 2020, Young said IDC expects 30% to 40% of the largest health plans' revenue to come from businesses other than health insurance.

Some insurers are trying to change their public image to match the new, broadening business model. For example, Aetna's January "brand refresh" came complete with a new logo and accompanying statements about its updated corporate philosophy. The company's announcement said it was evolving from a "health insurance carrier to a health solutions company."

Cigna went through a similar rebranding in September 2011.

It's more than lip service -- health plans are busy buying up small health care companies that have little or nothing to do with processing claims. Subsidiaries that once barely merited a mention at earnings time are growing into major profit centers.

There are many reasons for insurers to branch out into business beyond insurance, but high on the list is the ceiling that health system reform built over health insurance profits.

Health plans typically operate under single-digit profit margins overall. The Patient Protection and Affordable Care Act requires them to spend at least 80 cents of every premium dollar on patient care, beginning with 2011, or pay rebates to customers the following year. That medical-loss ratio will be calculated by state and product, so what a national insurer spends on small-business employees in Georgia will be counted separately from what it spends on large groups in Wisconsin, for example. In their fourth-quarter 2011 earnings filings, most plans noted that they will put aside an unspecified amount of money to pay rebates in 2012, and noted that action was a drag against their profits.

Young said medical-loss ratio minimums have forced health plans to branch out more significantly into noninsurance business as they seek to grow, in terms of customer base, revenue and profit margin.

"Margin is limited by MLR [minimums], and there are only so many people in the country," she said. "Growth is not always easy outside of merger and acquisition."

David Brailer, MD, PhD, is the chair of Health Evolution Partners, a San Francisco-based private investment and buyout firm, and sits on the board of directors of Walgreens. In 2004, he became the first White House appointee to the position of national coordinator for health information technology, a job he held for two years before starting his private equity fund. He said there is an adage that business decisions are usually motivated by either greed or fear. In this case, he said, both are in play.

"The fear factor is that the core market of health insurance companies is melting," he said, and the greed is fed by a boom in other products insurers can offer.

There are a few major areas where health plans are most visibly invested:

  • Claims data analysis and health IT.
  • Owning the patient care site -- hospitals, physician practices and clinics -- and employing clinicians.
  • International health products, including insurance and wellness programs for both expatriates and residents of other countries.

Managing data, health IT

Aetna is among the large health plans that has boosted its health IT holdings by acquiring smaller companies in that field. In a deal announced in December 2010, Aetna paid $500 million in cash for Medicity, a firm specializing in health information exchange systems that help hospitals and physicians share patient care records.

UnitedHealth Group has seen tremendous growth in several areas outside of traditional insurance, but its Optum subsidiary stands apart. Optum, which contains the business formerly known as Ingenix and the company's prescription benefit manager, has been making double-digit percentage gains in revenue and has helped drive profit growth for United during the last few years. That has been due to heightened demand for health care data, predictive modeling services, wellness programs, pharmacy utilization data and IT consulting.

In 2011, it brought in $28.7 billion in revenue and $1.3 billion in profit, compared with $23.6 billion in revenue and $1.1 billion in profit in 2010. Total United revenue was $101.8 billion for 2011, with net income $8.5 billion. In 2010, those figures were $94.2 billion in revenue and $7.9 billion in net income.

In just one year, Optum's share of United revenue increased to 28.1% from 25.1%, and its share of net income stood at 14.9%, from 14.3%.

"Optum is developing into a 15-year 'overnight success story,' " said John Penshorn, executive vice president at United. "We've been on this path for a long time. We were ahead of the market, and now there is accelerating market demand for things that improve performance around health quality and overall system efficiency."

Health plans also are building up their business with smaller acquisitions, such as Humana's purchase of Anvita Health, a health analytics company based in Louisville, Ky. Humana CEO Michael McCallister said the Anvita purchase, announced in December 2011, would allow the company to "analyze data in ways that translate directly to better health outcomes."

Controlling the point of care

Optum is part of the boom in health IT and health services work by health plans, but the United division also took over management of a few Southern California independent practice associations in 2011, branching out into direct care delivery. In that sense, it is part of a second area of expansion by health plans -- patient care.

Health plan executives like to talk about the ways that their noninsurance businesses help them do a better job as insurers. That goal is clearest where health plans have bought hospitals or taken over running physician practices -- as with Optum's management of Monarch, a Southern California independent practice association.

Mark Jamilkowski, a director at the Health Actuarial Advisory Practice at the consulting firm KPMG, said insurers' arrangements with practices are a chance for insurers to show doctors what health plans do best -- manage risk. "There's an opportunity for insurance companies that have financial, risk management or IT expertise to leverage that expertise and help educate physicians, either as a one-off pilot or as a more accountable-care-type model," he said.

None of the health plans says it wants to be the next Kaiser Permanente, or restrict members to the hospitals and physician practices it owns. But all are interested in using the points of care they own to experiment with new payment systems, build nontraditional networks and augment their networks where they are thin.

If they can figure out a way to cut costs in their clinics and practices, they can use that insight to drive down cost elsewhere.

"Care is the new core for payers," Young said. "The focus of the investment toward the future will be on care and delivery -- improving the cost curve, not just paying the claims."

But the success of those ventures is far from a sure thing.

For example, Cigna, which has operated a Phoenix-area medical group for 40 years, said in January that it will cut 100 jobs, including 15 doctors' positions, and stop offering certain specialties at its offices. The company said it could operate more efficiently by contracting that work to independent doctors.

Selling health care abroad

As the prospect of growing profits in the U.S. market for health insurance dims, the health benefits business abroad is attracting a lot of attention from insurers. Their international business is not new, but it's growing rapidly.

Cigna began selling health benefits products in Turkey in 2011, and applied for a license to sell in India as part of a joint venture with Indian conglomerate TTK Group. If the license is approved, Cigna could be selling health benefits there in 2013 both to expatriates and some of India's 1.2 billion residents.

In December 2011, Cigna announced that its expatriate business had reached an agreement that would add 20,000 doctors, caregivers, hospitals and clinics to its network in Brazil. Cigna International's Expatriate Business became the largest expatriate health benefits company in the world with its 2010 purchase of Vanbreda International.

In 2011 it also began selling a global individual policy designed for people who live "around the world."

Jamilkowski said the expansion into international markets is natural for U.S. health insurers, as other countries' health systems begin to resemble those in the U.S. more closely.

"It is a leverage of core competencies," he said. "No one has got a private health insurance market like we do. As our country has been looking at more socialized financing of health care, other countries are looking to privatize."

Physicians could end up being swept up in insurers' efforts to diversify -- one day finding themselves working at a hospital or as part of an IPA owned by a health plan, or as users of technology that health plans have developed and launched in exam rooms and hospitals.

Dr. Brailer said he believes successful health plans will be the ones that figure out how to overcome years of history working at odds with physicians and genuinely partner with them in their new noninsurance lines of business.

"It's very possible for plans to go from doctors' foes to doctors' partners," he said. "Why do doctors have so many run-ins with managed care? Managed care has made money in the past by limiting eligibility and limiting their pay. They have absolutely no economic benefit to do that now. Health plans have no reason to whip doctors, and on the other hand, [when it comes to] the stuff they want to do, physicians are right in their sight."

Back to top


Health plans' other businesses

Businesses that were once side projects for big health plans have turned out to be growing sources of profit. The lower potential for profit growth in the traditional insurance market is driving health plans to invest in health IT, buy hospitals and physician groups, and sell health benefit products abroad. Some noninsurance businesses among large, publicly traded health insurers:


Aetna Global Benefits: Health benefits for expatriates and individuals and corporations outside the U.S.
Medicity: Health information exchange software


Cigna International: Health benefits for expatriates and individuals and corporations outside the U.S.
Cigna Medical Group: Medical care in several specialties at multiple locations around Phoenix


Anvita Health: Health care analytics
SeniorBridge: In-home care for seniors

UnitedHealth Group

Optum: Health care analytics, health IT consulting, pharmacy benefit management, wellness, clinical practice management
Picis: Acute care clinical management software


HealthCore: Clinical outcomes research
Resolution Health: Health care analytics, personalized health advice

Source: Company websites

Back to top

How one division drives United's profits

For the last three years, Optum, which handles data management and other services, has accounted for an increasing portion of revenue to its parent, UnitedHealth Group.

Optum financial results as a percentage of company total
Result 2009 2010 2011
Revenue 23.5% 25.1% 28.1%
Net income 24.0% 14.3% 14.9%

Source: UnitedHealth Group filings with the U.S. Securities and Exchange Commission for the three years for which comparable figures are available

Back to top



Read story

Confronting bias against obese patients

Medical educators are starting to raise awareness about how weight-related stigma can impair patient-physician communication and the treatment of obesity. Read story

Read story


American Medical News is ceasing publication after 55 years of serving physicians by keeping them informed of their rapidly changing profession. Read story

Read story

Policing medical practice employees after work

Doctors can try to regulate staff actions outside the office, but they must watch what they try to stamp out and how they do it. Read story

Read story

Diabetes prevention: Set on a course for lifestyle change

The YMCA's evidence-based program is helping prediabetic patients eat right, get active and lose weight. Read story

Read story

Medicaid's muddled preventive care picture

The health system reform law promises no-cost coverage of a lengthy list of screenings and other prevention services, but some beneficiaries still might miss out. Read story

Read story

How to get tax breaks for your medical practice

Federal, state and local governments offer doctors incentives because practices are recognized as economic engines. But physicians must know how and where to find them. Read story

Read story

Advance pay ACOs: A down payment on Medicare's future

Accountable care organizations that pay doctors up-front bring practice improvements, but it's unclear yet if program actuaries will see a return on investment. Read story

Read story

Physician liability: Your team, your legal risk

When health care team members drop the ball, it's often doctors who end up in court. How can physicians improve such care and avoid risks? Read story

  • Stay informed
  • Twitter
  • Facebook
  • RSS
  • LinkedIn