WellStar executives said the two anticipate spending a combined $75 million over four years to start the new company. It’s not yet known whether the insurance arm will be a non-profit, though it will be a separate entity from the Marietta-based health system. It is anticipated to break even by 2016.
Last month, Piedmont and WellStar announced they had created the Georgia Health Collaborative, a not-for-profit entity to share clinical-care knowledge and seek cost reductions through economies of scale.
The idea of WellStar, a healthcare provider, selling health insurance has been considered for several years, Chief Financial Officer Jim Budzinski said.
“Even before the Accountable Care Act of 2010, there were strategic assessments of whether we should be in the insurance business,” Budzinski said.
After the federal reform law was passed, he said, WellStar approached major insurers to see how they and WellStar could share data on the various places patients seek treatment.
“Frankly, few were interested in talking to us,” he said.
The new insurance company, which does not have a name but will launch on Jan. 1, 2014, will offer Medicare Advantage plans, as well as plans to the general public.
“We expect it to provide a broad spectrum of competitive products, like HMOs, PPOs, some with deductibles, some with copays,” Budzinski said. “Whatever the market needs.”
HMO stands for health maintenance organization, and PPO is a preferred provider organization.
Evolent Health, a Washington, D.C., company, will help launch the new insurance company and will ultimately handle some claims processing, said Reynold Jennings, WellStar’s chief executive officer, though there will also be a local office with new employees.
All WellStar employees — which now number 12,628 — will be offered the insurance in 2014, he said. WellStar currently has a self-insurance program for employees.
Jennings said insurance companies have contributed to the out-of-control costs of recent decades.
“A small number of individuals consume the vast majority of healthcare dollars,” Jennings said, and many insurance companies have refused to share data about their members with providers. That refusal has inhibited efforts to control costs, he said.
“They didn’t cause it, but they certainly didn’t help it,” Jennings said of insurers.
And, Jennings said the next decade is going to be a time of complication in the healthcare world.
“The healthcare law is going to go through an evaluation period of what works and doesn’t work,” he said. “The average consumer is going to find all of this extremely confusing. We’re trying to explain the steps in the system to make it as clear and simple as possible.”
David Bottoms, an executive of benefits-consulting firm the Bottoms Group in Marietta who is well-versed in the details of the 2010 Affordable Care Act, called the announcement a smart strategic move for Piedmont and WellStar amid a shrinking insurance market.
“Their ability to successfully drive to the intersection of healthy outcomes and cost efficiency will dictate the degree of success,” Bottoms said. “Making people healthy won’t work if you do it in an expensive way.”
That will likely require more guidance for doctors on how they treat patients in particular situations, he said.
“There’s going to be, potentially, more oversight in how decisions get made around what procedure is performed,” Bottoms said. “I don’t necessarily see that as a bad thing, but it’s going to be a cultural change. Kaiser Permanente physicians, by contrast, are used to that, but it’s not easy to pull off.”
Also, WellStar will continue to accept other insurance while essentially competing with those firms.
“They’ll still have to play nice in the sandbox,” he said.
The nonprofit WellStar Health System operates five hospitals and employs hundreds of physicians in its WellStar Medical Group.
The system reported fiscal 2012 net operating income of $97 million. Its 2012 bottom line was $86 million, after an $11 million investment loss.