Why isn’t workers comp a good business for group health plans? Several clients and industry types have asked for my take on the recent move by Aetna, Coventry, Wellpoint, and possibly UnitedHealth into workers comp. Without giving away too much (as a consultant I have to make a living), here’s the synopsis.
1. The group health world is saturated. It is rapidly approaching oligopoly status, wherein a few players control most of the market. Therefore, market share is tough (and expensive) to come by.
2. Health plans are seeking alternative revenue sources, and workers comp seems attractive – it is, after all, health care delivered to insured workers by physicians, hospitals, etc.
3. Health plans are arrogant – most look at the workers comp field with disdain, as a modern homo sapiens would consider a Neanderthal. Managed care in comp is behind the times, networks are sloppy, systems are antiquated, and medical management is poorly done. No argument there.
Sound good? Not so fast.
While there are many factors that should give a group health entity pause, the most important one is the tiny size of the potential market.
Total annual medical spend in workers comp, from all payers is around $30 billion. Let’s say one health plan captured all that revenue from all payers. Here’s how the numbers work, or rather don’t.
Out of that $30 billion, about 60% will flow through a network, or $18 billion. Of that $18 billion, a very good health plan will save about 10%, or $1.8 billion. The health plan will be paid up to 20% of those savings (likely considerably less), or $360 million.
So, if one health plan has 100% market share in workers comp networks, the total revenue (not profit) is $360 million.
By way of comparison, Aetna’s annual revenues are around $20 billion and net profits of about $1.6 billion. United HealthGroup’s revenues are $44 billion, $3.6 billion in profits; Wellpoint also has $44 billion in revenues and $2.4 billion in profit.
So, while $360 million sounds good, it is about 1% of the average annual revenues of one of the top HMOs. And that is only if one HMO has 100% market share, a rather unlikely scenario.
More like a rounding error than a business opportunity.
What does this mean for you?
If you are a WC payers, beware health plans bearing gifts. If you can get by their talk of “members” and pricing based on “per member per month” and interest in including ob/gyns in their network and inability to understand the “tail” of workers comp, remain skeptical of their long term staying power.
May
27
