Payvider: Health Insurance Payer and Healthcare Provider Combination Explained

This video provides an in-depth explanation of the "Payvider" model, which describes organizations that combine the functions of a health insurance company (payer) and a healthcare service provider. Dr. Eric Bricker begins by defining a Payvider as an entity that collects premiums and assumes risk, while also directly owning and operating healthcare facilities such as hospitals, clinics, and employing medical staff. He establishes that this integrated model is not new, citing Kaiser Permanente, founded in 1945, as the oldest and largest example, boasting over 12 million members, 40 hospitals, and 618 clinics.

The presentation then delves into the evolving landscape of healthcare, highlighting a growing trend where more entities are adopting the Payvider structure. While a limited number of hospital systems, such as the University of Pittsburgh Medical Center (UPMC) and Intermountain Health System (through its Select Health insurance company), have expanded into the payer role, the more significant and widespread movement involves major health insurance carriers becoming providers. Dr. Bricker provides concrete examples of this vertical integration: UnitedHealthcare's extensive provider arm, Optum, which saw substantial growth post-Affordable Care Act (ACA) in 2010; Aetna's acquisition of Oak Street Health; Cigna's $2.5 billion investment in VillageMD, operating under its Evernorth provider arm; and Elevance (Anthem)'s Carelon, which has recently expanded through acquisitions like Apri (a health navigation firm) and Millennium (a large Florida medical group with over 150 clinics). This demonstrates a clear strategic shift by major insurers to control both the financing and delivery of healthcare.

A central focus of the video is to explain the primary motivation behind this Payvider trend, which is largely financial, driven by the ACA's 85% Medical Loss Ratio (MLR) rule. This rule mandates that health insurers spend at least 85% of premium revenue on healthcare services, limiting administrative costs and profits to 15%. Dr. Bricker elucidates how insurers circumvent this rule through "intercompany eliminations." By owning provider subsidiaries, they can pay these internal entities a substantial portion of the premium (e.g., $15,300 out of an $18,000 Medicare Advantage premium). These internal provider groups, particularly primary care, can then deliver care for less than the allocated amount (e.g., $9,180), retaining the difference ($6,120). This retained amount within the provider subsidiary is not subject to the MLR, allowing the parent insurance company to effectively keep a much larger portion of the total premium (e.g., $8,820, nearly half) than the 15% allowed by the MLR.

This financial strategy has significant repercussions for traditional, independent hospital systems and, indirectly, for employers. Traditional providers, who previously received the 85% MLR allocation, now face a substantial reduction in payments from these integrated Payviders, experiencing up to a 40% decrease in revenue for services. Dr. Bricker characterizes this as insurance companies "eating the lunch" of traditional hospitals. In response, hospitals are increasingly demanding higher reimbursement rates from commercially insured plans, effectively shifting the financial burden onto employers. The video concludes by emphasizing that this trend is intensifying, with insurers adeptly navigating regulatory frameworks to maximize profitability, a dynamic that will continue to reshape the American healthcare system.

Detailed Key Takeaways:

• Understanding the Payvider Model: A Payvider is an organization that integrates both health insurance (payer) and direct healthcare service provision. This model allows for unified control over both the financing and delivery of care, aiming for greater efficiency and cost management.
• Historical Precedent and Modern Expansion: The Payvider concept is not new, with Kaiser Permanente serving as a long-standing example since 1945. However, there's a significant modern trend of major health insurance carriers (e.g., UnitedHealthcare, Aetna, Cigna, Elevance) increasingly acquiring or developing extensive provider networks.
• Financial Motivation: The MLR Loophole: The primary driver for insurers to become Payviders is to navigate the Affordable Care Act's 85% Medical Loss Ratio (MLR) rule. By owning provider entities, insurers can pay these internal providers, and the profits retained within the provider arm are not subject to the MLR calculation, allowing the parent company to retain a larger overall profit margin.
• Medicare Advantage as a Key Enabler: The rapid growth of Medicare Advantage plans provides a substantial revenue stream for insurers. The per-beneficiary payments (e.g., $18,000 annually) offer a significant pool of funds that Payviders can leverage through internal payments to their provider arms, thereby maximizing retained profits beyond MLR constraints.
• Intercompany Eliminations as a Strategic Tool: Insurers employ accounting practices like "intercompany eliminations" to transfer funds between their insurance and provider subsidiaries. This allows them to effectively "pay themselves" for healthcare services, optimizing financial outcomes and circumventing the traditional MLR limits on profit retention.
• Significant Revenue Shift from Traditional Providers: The Payvider model diverts substantial healthcare spending away from traditional, independent hospital systems. Integrated Payviders direct a large portion of funds to their own provider networks, leading to a potential 40% decrease in payments to external hospitals and specialists for comparable services.
• Increased Burden on Employers: As traditional hospitals experience reduced payments from Payviders, they often seek to compensate by demanding higher reimbursement rates from commercially insured plans. This financial pressure is ultimately passed on to employers, leading to increased healthcare costs for businesses and their employees.
• Strategic Vertical Integration for Control: The Payvider model represents a powerful strategy of vertical integration, allowing organizations to control multiple stages of the healthcare value chain. This offers greater command over service delivery, patient pathways, quality metrics, and overall financial performance.
• Persistence of the Trend: The video emphasizes that the Payvider trend is expected to continue and intensify. Despite potential future adjustments to government payments (e.g., for Medicare Advantage), insurers are well-positioned to maintain profitability through their integrated structures and robust lobbying efforts, making this a lasting transformation in healthcare.

Key Concepts:

• Payvider: An organization that integrates both the functions of a health insurance company (payer) and a healthcare service provider.
• Medical Loss Ratio (MLR): A provision of the Affordable Care Act (ACA) requiring health insurance companies to spend a minimum percentage (typically 80% or 85%) of premium revenue on healthcare services and quality improvement.
• Medicare Advantage: Private health plans approved by Medicare that provide Part A and Part B benefits, often including additional benefits, and are a significant source of revenue for insurers.
• Intercompany Eliminations: An accounting method used in consolidated financial statements to remove transactions between a parent company and its subsidiaries, which Payviders leverage to manage internal financial flows and optimize profit retention.
• Vertical Integration: A business strategy where a company gains control over multiple stages of its supply chain or value chain, in this case, encompassing both health insurance and healthcare delivery.

Examples/Case Studies:

• Kaiser Permanente: The pioneering and largest Payvider in the U.S., founded in 1945, demonstrating the long-term viability of the integrated model.
• UPMC (University of Pittsburgh Medical Center) & Intermountain Health System (Select Health): Examples of hospital systems that have expanded into the payer role.
• UnitedHealth Group / Optum: A prominent example of a major insurer developing a vast provider arm, significantly expanding after the ACA.
• Aetna / Oak Street Health: Illustrates an insurer acquiring a primary care provider network.
• Cigna / VillageMD (under Evernorth): Shows a significant investment by an insurer in a clinic network.
• Elevance (Anthem) / Carelon (Apri, Millennium): Highlights an insurer's provider arm actively expanding through strategic acquisitions to increase its direct care footprint.
• Blue Cross Blue Shield of Kansas City / Spira Care: An example of a smaller, regional insurer also adopting the Payvider model.