Turning an ACO into an Insurance Product

While U.S. health plans have been quick to engage in value-based contracts with providers, almost none have taken the additional step of creating ACO-specific health plans. That needs to change, and quickly.

ACO-specific plans are a powerful tool for capturing market share, but they require close collaboration with high-quality providers. Those providers are in limited supply, and the first health plan to move has an enormous advantage. Value-based products require new skills, but if health plans are aware of a handful of basic principles, the first steps are manageable — and urgently needed.

Where the Products Are

As of August 2013, Oliver Wyman identified 16 value-based insurance products across the country. This map shows where they are located. Roll over the map points for details.

1Why do you think ACO-specific health plans are so important?

We think plans built around a single high-quality, value-based healthcare provider network are going to have a big competitive edge on the public exchanges where individual consumers can shop for the best healthcare deal. One health plan that we’re tracking has been able to offer its ACO-specific plans at 5 to 12 percent below the market. That would be compelling even with a no-name network — but these products are supported by top provider brands in their markets.
2Why should single-ACO health plans be able to offer lower premiums?

For several reasons. Some have to do with administrative costs — it’s cheaper to deal with a single provider and its IT infrastructure than to link up separate entities. But more important, care coordination is one of the biggest sources of healthcare savings, and the quickest, easiest way to coordinate care is to have the patient stay inside a single system with a coherent strategy and aligned incentives.
3Why have health plans been slow to productize their ACO relationships?

You have to remember that health plans have traditionally based their business on the breadth of their networks, not quality or value. They are naturally disinclined to say, “This is the best hospital in the area, and we want everyone to use it.” That would alienate the other hospitals and jeopardize the network. But as we move to a world where quality counts, health plans need to start making choices.
4What advice would you give health plans?

Get started. An ACO-based health plan is very different from traditional health insurance. It requires a lot of negotiation and partnership and deep understanding of the ACO’s capabilities. It makes sense to pick your strongest potential partner and launch something. It won’t be perfect. It almost certainly won’t be a full upside-downside risk share — almost no providers are ready for that. But you can lock in the relationship and start building the skill set.