When the hospital becomes the health insurer

On Friday, a big hospital chain in Massachusetts made a big gamble: consumers will accept fewer choices in health care when they’re charged less for it.

(Spencer Platt - GETTY IMAGES)

Right now, health insurers and hospitals are separate entities. This is something different: a hospital selling coverage, with the restriction that  you only seek care at its locations. The hospital chain is Steward, a Massachusetts-based business that has been buying up community-based hospitals for more than a year now. And the gamble it made was rolling out a health insurance plan that almost-exclusively serve its hospitals (there are a few exceptions). The plan, administered through Tufts Health Plans, is called Steward Community Choice.

The Community Choice plan, as outlined Friday, is targeted at small businesses in Massachusetts. It offers them a trade-off. Premiums will be 20 to 30 percent less than what other Massachusetts insurers charge. In return, subscribers will by-and-large be limited to treatment at Steward locations (there are some exceptions to this, helpfully outlined in this report from WBUR’s Martha Bebinger).

In a conversation Friday, Steward CEO Ralph de la Torre explained how Massachusetts’ health reforms played into his decision to pursue such a plan.  “In Massachusetts, we have the advantage or disadvantage of having begun health reform earlier than the rest of the United States,” he said. “If you want to get everyone covered, how do you pay for it? We’ve grappled with that in Massachusetts and looked for different solutions. This is one of them.”

There’s at least some reason to be skeptical of such a plan working. Health insurance companies have made wagers similar to Steward’s in the past - and lost. Most notably was the rise of Health Maintenance Organizations, or HMOs, in the 1990s. The plans offered a similar trade off between choice and cost. And while they flourished for a few years, consumer backlash against limited options has led to HMO enrollment declining steadily for over a decade now.

De la Torre argues that the health insurance landscape looks a lot different than it did two decades ago. For starters, health insurance is much more expensive. But in Massachusetts, and soon in the rest of the country, it’s also guaranteed.

“A lot of what health reform is is a public finance problem,” he told me. “As we’ve done health reform in Massachusetts, it’s been a lot about how do we pay for coverage. A lot of these small businesses are really struggling as premiums keep going up. This is about making insurance affordable for them.”

That could create more of a space for a less expensive, more limited insurance product. As de la Torre described Steward’s strategy to investors recently, “In a world of Neiman Marcuses, we’re OK being Filene’s. “ Now that we have a hospital that wants to be the Filene’s of health insurance, we’re about to find out whether Americans are willing to shop there.