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The Little-Known Way Obamacare Could Revolutionize Insurance

By Keith Speights – Mar 9, 2014 at 12:15PM

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How ACOs could affect the insurance landscape over the long term.

In a recent article in New Republic, Dr. Ezekiel Emanuel said that you should "be prepared to kiss your insurance company goodbye forever" because health insurers "as we know them are about to die."

If Dr. Emanuel's diagnosis proves to be correct, the landscape of the U.S. health care industry is headed for even bigger changes than we have seen in recent years. How will this upheaval impact you?

WellPoint's Blue Cross of California Headquarters-Source: Wikimedia Commons 

Changes to ACOs
Dr. Emanuel believes that the Accountable Care Organizations, or ACOs, promoted by Obamacare, along with hospital systems, will elbow health insurers out of the picture. These ACOs bring physicians, hospitals, and other health care providers together to provide coordinated care to patients.

Already, hundreds of ACOs operate throughout the nation. Emanuel maintains that the quality of care provided by these organizations will increasingly improve over the next few years. He predicts that ACOs will either develop or buy the only part of the health care puzzle that they don't currently possess but the health insurers do -- actuarial skills to manage financial risk. Once ACOs master the actuarial side of the business, there won't be a need for insurance companies.

This seismic shift perhaps won't impact Americans as much as you might think. Over 9 million people already use Kaiser Permanente's integrated health care delivery system. If Dr. Emanuel's view is on target, premiums will be paid directly to ACOs or hospital systems instead of insurers. Essentially, only the name you write on the check will change.

There will likely be a catch that could impact you, though. By definition, ACOs represent a restrictive group of health care providers. If you don't like limited provider networks that are currently part of health insurance plans, you might not be thrilled with the prospects of obtaining health care through an ACO or directly from a hospital system. 

Postmortem analysis
This doesn't mean that insurance stocks may collapse overnight (or at all if this prediction doesn't come true). Even Emanuel thinks the extinction of insurance companies -- if it occurs -- will take several years.

More importantly, many health insurers aren't sitting around just waiting to kick the bucket. Some are scooping up provider networks. Humana (HUM 0.48%), for example, bought Concentra in 2010 and Metropolitan Health in 2012. Concentra claims 300 health clinics located in 40 states, while Metropolitan Health operates a network of physicians and other clinical professionals.

WellPoint (ELV -0.52%) also made a big provider acquisition in 2011. The health insurer spent close to $800 million for CareMore Health Group, which operates a network of clinics in California, Arizona and Nevada. At the time, WellPoint noted that the deal represented a "longer-term strategic bet" on an integrated delivery system comprised of both insurer and providers.

The nation's largest health insurer appears to be taking a two-pronged approach. UnitedHealth Group (UNH -1.27%) jumped into the provider arena in 2011 with its purchases of several physicians groups in California, including AppleCare Medical Group, Memorial HealthCare Independent Practice Association, and Monarch Health Group. UnitedHealth also markets services including analytics and risk management to ACOs, hospital systems, and other health care providers through its Optum business unit.  

Additionally, all three of these big health insurers participate in ACOs or very similar organizations. Humana signed an accountable care agreement with St. Luke's University Health Network in Pennsylvania last year. WellPoint includes ACOs in its list of models with which the company is experimenting. UnitedHealth has made ACOs an important part of its strategy.

What will the future hold?
I remember another prediction of a fatality decades ago that didn't pan out like some thought it would. MTV picked "Video Killed the Radio Star" as its inaugural video. But video really never killed radio. Radio stations are still very much alive and kicking -- with many of them showing videos on their websites. MTV itself doesn't show that many videos anymore on its flagship network. Instead of the new model killing off the old model, they both flourished -- and both changed along the way.

Kiss your insurance company goodbye forever? Probably not. The industry is surely changing, and changing rapidly, but rumors of insurers' deaths are greatly exaggerated.

Keith Speights has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group and WellPoint. The Motley Fool owns shares of WellPoint. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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