GM's move could pose threat to health insurers
A new direct contracting initiative offered by a large automaker shows care purchasers are pursuing new ways to buy healthcare.
On Monday, General Motors announced it had directly negotiated a deal with Henry Ford Health System to offer a cheaper health insurance option to a subset of Detroit-area employees. It’s following in the footsteps of several other large and prominent employers that have struck deals directly with providers, without an insurer intermediary.
The healthcare sector stalwarts may think that the joint venture between Amazon.com, JP Morgan Chase and Berkshire Hathaway poses no near-term threat. It will likely be years before the initiative develops the potential to have a meaningful impact on the industry’s behemoths, particularly insurers.
But things are happening elsewhere in the meantime. Employers clearly aren’t satisfied with the status quo, and they aren’t waiting for permission to try something new.
General Motors' new "ConnectedCare" plan option will provide access to more than 3,000 providers from a network of primary care and specialty care doctors spanning the communities where GM employees live. GM ConnectedCare will be added as a new option for the company's salaried employees' open enrollment this fall, with service beginning at the start of 2019.
A majority of Americans get health insurance through their employers. It’s a particularly important business for some of the country’s largest insurers, most notably Anthem, Cigna and UnitedHealth Group.
Some employers already take on the risk of paying for employee healthcare, just paying insurers for more limited administrative services. But GM and other firms like Boeing and Walt Disney are engaging in an additional radical departure by cutting insurers out from one their most core functions, negotiating and contracting with providers.
It helps them save money by eliminating a middleman. In addition, they get a greater degree of control and flexibility in how they manage healthcare costs. Henry Ford, for instance, agreed to a number of goals related to quality and cost as part of its GM contract, and can get extra payments if it exceeds them.
GM and other like-minded companies are clearly unhappy with the rising cost of insurance. Employees aren’t enjoying it either—average annual premiums for employer-sponsored family health coverage reached $18,764 last year, according to the Kaiser Family Foundation. And in many cases, there’s less bang for those bucks—more companies have migrated to high-deductible plans, which reduces costs but creates significant financial toxicity for employees.
Direct contracting enables large companies to offer a cheaper option that doesn’t have to rely on massive deductibles. GM says its plan will save employees $300 to $900 a year relative to the cheapest traditional plan. The tradeoff is accepting less choice—employees who pick this option will largely be limited to providers connected to Henry Ford—but that’s arguably preferable to thousands of dollars of additional annual spending on premiums or medical costs.
In addition to its network of doctors across the seven-county eligibility area, Henry Ford was also chosen for the success of its value-based care platform, which includes integrated electronic medical records systems; patient engagement tools, ensuring that at-risk patients receive robust clinical support programs; and innovative physician alignment, to engage healthcare purchasers in value-based solutions that properly align improved patient outcomes with rewards.
This is still very much a nascent trend, and one that has some clear limits. It requires a significant employee presence in a concentrated area to work. And insurers have a lot more experience in negotiating contracts with providers and keeping costs down, so there are bound to be bumps in the road.
But early adopters have reported cost savings, and more companies plan to emulate them. Some 11 percent of companies queried in a recent survey of large employers by the National Business Group on Health said they plan some kind of direct contracting in 2019.
So far, what we’re seeing is just a trickle of corporate defections away from healthcare business as usual. But if, as seems likely, this movement builds into more of a steady stream, the industry may start hurting long before Amazon becomes a threat.