Reprinted from HEALTH PLAN WEEK, the most reliable source of
objective business, financial and regulatory news of the health insurance
industry.
By Steve
Davis, Managing Editor
November 3,
2014 Volume 24 Issue 38
A new analysis by Deloitte LP warns
that single-state, non-profit and mutual Blue Cross and Blue Shield plans may
be missing out on vital business opportunities because of the expectations of
state regulators and their decades-old status as legacy health insurance
providers. Despite these Blues plans’ current strengths in garnering market
share, building their brand and selling coverage to all levels of the
marketplace, the future is less secure with the advent of Affordable Care Act
(ACA) reforms, like guaranteed issue and creation of public exchanges, the
report says.
Other market consultants agree with
many of the report’s findings, but question whether single-state Blues plans
are even competing in the same space as major carriers, and say the unique
status Blues plans enjoy in their home states gives them ample opportunities
even as non-profit or mutual entities.
Deloitte’s Bill Copeland, vice chairman
and U.S. life sciences and health care leader, contends that the limitations on
most single-state Blues plans are immense, given their inability to sell stock
to raise the capital needed to make changes necessary to attract new members
(see table, below). For instance, the report found that the “Big Five” publicly
traded insurers (Aetna Inc., Cigna Corp., Humana Inc., UnitedHealth Group and
WellPoint, Inc.) spend on average nearly six times more on capital expenditures
than do single-state Blues plans.
To compete, Blues plans, like other
carriers, need to make big investments in areas such as information systems and
customer analytics to transform their organizations into more retail-like
enterprises. The report also stresses that these Blues insurers are also
typically more regulated by states on how they can spend funds, and their
boards must have community representation, which could hurt in attempting major
business-oriented overhauls.
The Deloitte report, “Escaping
Rapunzel’s Tower: How Single-State Blue Cross Blue Shield Health Plans Can
Build Scale and Meet New Capability Demands,” also includes interviews with
former state insurance commissioners who discuss alternatives for the carriers
in seeking new pathways to capital flows, which include conversion to a
for-profit enterprise, engaging in mergers and acquisitions, and forming a
holding company. The models for some of these alternatives include Health Care
Service Corp., the holding company for Blues plans in Illinois, Montana, New
Mexico, Oklahoma and Texas, and WellPoint, which was born in 2004 through a
merger with Anthem, Inc.
Copeland says commissioners think it is
probably time “to rethink the right way to do this.” The mission of non-profit
Blues remains important, but the need to evolve is also apparent. But shifts
can be complicated. Suppose a non-profit Blues plan forms a holding company,
divided into one part for the regulated, licensed insurance business and one
part for the non-regulated, diversified services side. “Because insurance
commissioners have no direct hand in it, they don’t like that much because they
still want to have oversight over reserves,” he says.
Blues Plans Are Weighing Changes
Some single-state Blues plans have
shifted with the market in recent years. Last year, for instance, Michigan Gov.
Rick Snyder (R) signed legislation that changes the way Blue Cross Blue Shield
of Michigan operates, including provisions to end the plan’s tax-exempt status
and let it become a mutual entity to better function in the state’s health
insurance market (HPW 3/25/13, p. 8).
But that step in Michigan did not go as
far as some of the suggested options in the Deloitte report, and one consultant
says such large-scale changes are troublesome. William DeMarco, principal at
Rockford, Ill.-based Pendulum HealthCare Development Corp., tells HPW
that a single-state Blues consolidation “gives them temporary cover, but builds
a bigger problem in terms of vulnerability to losing larger regional and
national accounts and flips the original not-for-profit mission on its head.”
And Rosemarie Day, president of Day
Health Strategies, based in Massachusetts, tells HPW that in states like
hers, with a dominant Blues plan, there is the question of why would they want
to change their status. “I think about Medicaid managed care organizations that
are often even smaller. They may serve a region and not even a whole state. And
so if you compare to them, single-state Blues plans are so well off and
well-resourced and can do investments that these other, smaller organization
can barely dream of,” she says.
Joe Marinucci, a director with the
Insurance Ratings group at Standard & Poor’s Financial Services LLC, a
division of McGraw-Hill Financial, tells HPW the idea of insurers
needing to change their business model to account for marketplace shifts “has
been required for some time” and across the entire spectrum of the insurance
sector. “You can kind of look back at what has been done in the past and you
see various forms of affiliation. It is not a new argument,” he says, pointing
as an example to Highmark Inc. and its acquisition of West Penn Allegheny
Health System (now called Allegheny Health Network) in April 2013
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