Health Plan Providers Worried About Employer Exits

August 28, 2012 ( - Health care and pharmaceutical executives are uncertain whether or not existing business models are sustainable over the next five years, according to a survey by KPMG.

In response to cost shifting, health plans expect employers will demand lower cost offerings and increased use of wellness and health management initiatives. Health plans also see their biggest growth coming from consumer-directed or high deductible plans, while they expect declines in small group employers and large, fully insured groups. More than half of the plans surveyed said they are concerned about an exit by large employers.  

Small group employers will likely migrate to exchanges with individuals,” said Cynthia Ambres, a principal, physician and U.S. member of the KPMG Global Healthcare Center of Excellence. “But health plans are also concerned about large employers exiting, as some are already assuming risk and using health care plans for administrative services only. Health plans must focus on differentiating themselves to attract the individual market.”  

In surveying over 200 senior executives at leading U.S. health care systems, health plans and pharmaceutical organizations, KPMG found that the largest percentage of respondents—40%, 53% and 43% of systems, plans and pharmaceuticals, respectively—said that their current business model was somewhat sustainable over the next five years, while 20% to 27% of respondents in each group said current business models were either not very or not at all sustainable over the next five years.   

Despite their majority opinion that current business models are at least somewhat sustainable, many provider (65%) and health plan (41%) executives do expect major business model changes in the next five years, while a majority of pharmaceutical executives (63%) expect only moderate changes. Nearly half of providers and health plans, and one-third of pharmaceutical executives would like to see a more rapid progression to some type of value-based payment, but most anticipate that transition will in fact be accomplished more gradually, with less than one-quarter of all provider reimbursement fashioned as some type of value-based payment, according to the findings.    

“Organizations are clearly considering the effectiveness of their fee-for-service business models, but migration to more value-based models will take some time, and will include a mix of old and new delivery and payment systems,” said Ed Giniat, national sector leader, KPMG Healthcare & Pharmaceuticals.