(Bloomberg) — UnitedHealth Group Inc. (NYSE:UNH) and Humana Inc. (NYSE:HUM), two of the largest U.S. health insurers, are leaving the Patient Protection and Affordable Care Act (PPACA) public exchange in Colorado next year.
Bright Health, a startup that hasn’t yet signed up its first customer, sees opportunity.
The new health insurer, led by former UnitedHealth executive Bob Sheehy, picked Colorado as its initial state market. The Minneapolis-based company is pursuing an increasingly popular model, teaming up with one health system — Centura Health in this case — to provide hospitals and doctors for its members.
“What we’ve seen, particularly in the individual market, is that the old insurance model doesn’t work,” Sheehy said in a phone interview. “A better model is one that really aligns the care provider, the physicians and the hospitals, financially, with the insurance company.”
Insurers are experimenting with new strategies in the markets created by PPACA, which is also known as Obamacare, and also as the ACA, where large firms like Humana and UnitedHealth have recorded big losses. Oscar Health Insurance Corp., the New York insurance startup valued at $2.7 billion, struck deals with tight hospital networks when it expanded into Texas and California this year. It also has narrowed its network in its home state.
Sheehy, 58, said Bright Health’s partnership with Centura will let the firms focus on bringing down costs while improving health care for clients. He said the company will pursue a similar model as it expands into three to five additional markets over the next five years. Bright Health is also considering sales of Medicare Advantage plans, he said.
“The model of working in a collaborative way with a care partner like Centura will work well in each of those marketplaces,” he said.
Pam Nicholson, Centura’s senior vice president of strategy, said the health system, Colorado’s biggest, isn’t taking a financial risk in its agreement with Bright Health. Sheehy said the firms are “financially aligned,” without providing details.
Centura had previously served as an exclusive provider for plans sold by Colorado HealthOP, the so-called co-op insurer started with federal funds under PPACA.
The insurer said in October that it was closing, one in a string of failures of government-backed firms after a shortfall in federal funds designed to prop up the PPACA market.
See also: Colorado PPACA CO-OP strategy unclear