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Health insurance start-up Oscar Health and Cleveland Clinic are teaming up on a new health plan, which will give Ohio residents on and off the state's Obamacare exchange access to one of the nation's top health systems.
For Oscar, the deal marks the first co-branded plan with a health system that goes beyond a network provider relationship.
"They are so far ahead… in moving themselves toward value and member orientation that we thought. There was a meeting of the minds there," said Mario Schlosser, Oscar's CEO.
For Cleveland Clinic, partnering with the insurer, which launched in the New York area in 2014, was a better option than starting its own health plan.
"There are a lot of core capabilities required to be successful in running an insurance company," said Kevin Sears, executive director of Cleveland Clinic market and network services. "It makes sense to try and collaborate instead of try and replicate capabilities."
The two plan to leverage Oscar's technology-focused plan management to attract young customers in Northeast Ohio, to provide the kind of integrated health care plan that has been the hallmark of providers like Kaiser Health System in California and the Geisinger Health System in Pennsylvania.
To try to recreate that model within the exchange market, which tends to attract sicker enrollees with high health costs, could be a challenge, ironically, because of Cleveland Clinic's reputation as one of the nation's premiere hospital systems.
"It's really essential to compete aggressively on your premium for consumers and to make sure you're attracting the right set of customers, that will let you earn money," on the exchange, said Mark Shepard, assistant professor at Harvard University's Kennedy School of Government.
Shepard's research on insurer networks on the Massachusetts health exchange found that including big-name hospitals in their networks resulted in big losses for insurers.
"Insurers have found it uneconomical to cover them because… they deliver some of the most advanced care and therefore tend to have high prices," Shepard said. "And I found that when you covered those star hospitals, you tended to attract sicker patients to your plan."
"That is something we took into consideration," said Cleveland Clinic's Sears, who says they plan to approach the exchange market in the same way they have with their Medicare accountable care organization model.
"Our first year performance in that program, we were the top performing ACO, generating significant savings for Medicare," Sears said. "We certainly are confident we'll be able to do that in (the exchange) segment."
The two are expanding into territory where larger insures are pulling out due to regulatory uncertainty. Earlier this month, Anthem said it will not be on the Ohio exchange next year, in part because of the risk that funding for Obamacare cost-reduction subsidies will be pulled. The subsidies known as CSRs help reduce out of pocket costs lower-income enrollees.
"I worry about a downside scenario… where you have a big disruption to the market by defunding CSRs... I certainly worry about that. That is not a zero possibility scenario," said Schlosser.
But like other insurers, he's increasingly convinced that officials in Washington will not carry out the threat to let the exchange markets fail.
"I think everybody understands its downsides in DC," he said. "I have a very hard time believing that is going to take place… it's just frankly, bad economics."
Watch: Cleveland Clinic CEO says health care uncertainty prompts anxiety