The Financial Performance of PSOs During the First Year of the ACA Mandated Coverage

Abstract

Purpose: The passage of the ACA regulation in 2014 requiring mandated coverage for individual health insurance, has sparked a recent wave of health care providers sponsoring their own health insurance plans, which are called  “provider-sponsored organizations” ( PSOs). The aim of this study is to assess the financial performance of PSOs during the first year of mandated coverage under the ACA.

 Methods: The study identified 35 PSOs and computed the median values of their financial performance ratios: medical loss, administrative cost and profit margin ratios.  The study conducted a pair-wise Wilcoxon signed rank tests of differences in median values between 2013 and 2014, the first year of the mandated coverage.  In addition, the study developed profit margin categories based on the bottom and top 25th quartiles of the profit margin ratio.

 Results: Assessing the change in financial performance from 2013 to 2014 of 35 provider-sponsored organizations, reflects a significant decline in administrative costs of 2.3 percent, which contributed to a 5.2 percent increase in profit margin. Overall, PSOs offered primarily HMO plans and “on” exchange plans.  However, PSOs in the top profit margin quartile increased their profit margin by 26.8 percentage points while PSOs in the bottom profit margin quartile decreased the profit margin by 19.7 percentage points.

 Conclusion: For the overall sample of 35 PSOs, these findings imply that PSOs were able to reduce their operating losses by controlling their administrative costs.  However, within the top profit margin quartile, PSOs were able to better manage and control their medical costs during the first year of the individual mandate, which contributed to a positive profit margin.