How U.S. Health Plans Outsourced Their Core and What It Means for the Future of Payers

I was walking the exhibit floor at Becker’s, weaving through the noise of bright booths and polished sales pitches, when something unusual stopped me. A vendor was promoting a platform designed to help health plans manage product and benefit data. Automation, compliance support, efficiency gains. Nothing surprising on the surface.

Then the realization landed with a kind of somber force. 

If a payer cannot manage its own product and benefit data (i.e. the foundational function of a health plan), then something is incredibly wrong with the system.

The company was not the problem. It identified a growing gap inside payer organizations and built a solution to meet that need. The more interesting question was why the need existed at all. 

Case Studies Show a Systemic Breakdown in U.S. Health Plan Operations

After curiosity took over, I took a deeper dive into this vendor’s published case studies. A consistent picture emerged. Large, well-resourced plans were struggling with foundational operational tasks.

How Large, Well-Resourced Payers Are Struggling with Core Functions

In one case, a national plan expanding from ten states to fifty realized its product management processes were so manual and fragmented that expansion was impossible without outside help. Another plan with more than ten million members faced such overwhelming document production tasks that leaders anticipated hiring fifty full-time employees within a single quarter.

A third plan, serving 2.5 million members, had its designs spread across Excel sheets, Word documents, and Access databases sitting on shared drives. Not only was accuracy difficult to maintain, it was “nearly impossible” to ensure employees were looking at the same information.

A final case involved a multi-state plan with legacy systems so outdated that maintaining them consumed millions of dollars each year. Traditional enterprise vendors could not meet the level of data proficiency required. 

Product and Benefit Data as the Operational Backbone of a Health Plan

Individually, each case study shows a vendor solving a clear problem. Together, they reveal something much more important and difficult to ignore. This pattern isn’t just simple inefficiency. It’s the gradual decay of core payer capabilities.

Product data matters because benefit structures determine how everything else functions. When that foundation erodes, the entire organization feels the strain.

How U.S. Payers Outsourced Their Core Capabilities

This decline didn’t happen overnight.

Over the last two decades, payers have steadily outsourced many of the functions that once defined their identity. Functions such as care management, provider data, risk adjustment, Stars operations, utilization management, member engagement, and analytics, and even product governance, are owned by outside vendors.

These were not originally considered functions that could be handed off to a vendor. They relied on deep institutional knowledge and strategic continuity.

The Slow Externalization of Care Management, Risk, Stars, and Product Governance

Yet externalization grew as regulations expanded, member expectations rose, markets diversified, and technology cycles accelerated. Vendors matured faster than internal teams could evolve.

In isolation, these decisions seemed rational, but taken together they reshaped what it means to operate as a payer.

Little by little, the role of the payer has changed. What was once built and refined internally is now assembled from a constellation of external partners. Instead of developing core capabilities, plans piece together ecosystems of vendors to perform them. 

The approach delivers speed, specialization, and much-needed flexibility, but it also introduces a vulnerability in the system. 

When a plan loses the ability to manage its own benefit structure, the issue becomes one of identity rather than efficiency.

When Operational Efficiency Becomes an Existential Risk for Payers

I’ve spent years walking expo floors, advising plans, and watching the vendor ecosystem evolve. I’ve seen categories rise from legitimate gaps in care, technology, and operations.

But this is the first time I’ve seen a vendor category emerge that replaces the essential operational backbone of the health plan itself. This signals something deeper than innovation. 

It reflects internal fractures that formed under the radar, more and more over time.

The vendor is succeeding because capabilities that once anchored the plan have thinned.

That is what deserves attention.

The Myth of Point Solution Fatigue in the Payer Market

Payers often describe the market as saturated with point solutions. They feel overwhelmed by the volume of vendors. Yet the ecosystem keeps expanding.

Startups didn’t create that fatigue.

Fragmentation inside payer organizations did.

How Architectural Complexity Causes Payers to Reject Even Effective Solutions

When core capabilities weaken, gaps emerge. Vendors rush in to fill them. Over time, each new solution absorbs a function that previously lived inside the plan. The more functions are externalized, the more vendors are needed.

Eventually the organization becomes overwhelmed. Not by the market, but by its own architecture. And when that architecture strains, plans begin rejecting new solutions even when they work. This is not a contradiction. It is a system reacting to complexity it can no longer absorb.

The rapid success of this new vendor category is part of that same signal.

Who Created the Conditions for Payer Capability Erosion?

It is tempting to place the entire burden on the payers themselves, but the drift toward externalization was reinforced from many directions. 

Investors fueled vendor proliferation. Private equity rewarded outsourcing. Regulators added requirements without modernizing the underlying system. Employers demanded customization. Technology advanced faster than budgets. 

The consequence was predictable.

A vendor category emerged to perform work the payer could no longer reliably manage.

What U.S. Health Plans Must Reclaim to Remain Viable

The answer isn’t to stop working with vendors. Many partnerships create real value and will remain essential. But at this moment in the industry, a more fundamental question is needed:

Which capabilities define the identity of a health plan and, therefore, must remain internal?

Rebuilding Institutional Knowledge and Operational Resilience

Every payer must answer this differently, but the exercise itself cannot be avoided. 

Those that thrive over the next decade will be the plans that:

• clarify which capabilities form their operational core

• rebuild internal strengths where fragmentation has taken hold

• invest in institutional knowledge

• streamline architectures that have grown organically

• define clear boundaries for when a vendor supports capability versus substitutes for it

In a future defined by interoperability, value, outcomes, and precision, leadership will depend on internal resilience, not vendor volume.

A Closing Reflection on the Future of the U.S. Payer System

That small moment on the expo floor now feels like the clearest indicator of what is changing.

If Vendors Run the Health Plan, It’s Time for an Honest Reckoning

This story is not about one vendor. It’s about what that vendor’s existence reveals. A system drifting from its purpose, outsourcing deeper than ever before, and approaching a crossroads we can no longer ignore.

I still believe technology can solve many of healthcare’s most persistent challenges. But I also believe that when outside technology begins performing the core identity of an institution, something fundamental needs to be reexamined.

And if a vendor can now run the heart of the health plan, the question is no longer whether we’ve reached a tipping point. The question is whether we can acknowledge it and decide what comes next.