Stop Loss Carriers, Exchanges Might Be Eroding Blues Plans’ Risk-Based Business

Reprinted from THE AIS REPORT ON BLUE CROSS AND BLUE SHIELD PLANS, a hard-hitting independent monthly newsletter on new products, market share, strategies, conversions, financing, profitability and strategic alliances of BC/BS plans. (Not affiliated in with the Blue Cross and Blue Shield Association or its member companies.)

By Steve Davis, Managing Editor

February 2015 Volume 14 Issue 2

The nation’s not-for-profit Blue Cross and Blue Shield plans collectively shed close to 1 million lives in their group risk-based businesses last year. It’s unclear exactly what’s causing the migration, but industry observers tell The AIS Report that there are several possible explanations.

The decline of about 6% could be due in part to increased adoption of a self-insured strategy among employers. Another explanation could be that some employers have dropped health benefits and urged workers to find coverage through a public insurance exchange, equities analyst Carl McDonald wrote in a Jan. 5 note to investors. McDonald left Citigroup Global Markets Inc. on Jan. 21. The Blues have at least a 50% share of the commercial risk market in 30 states, he noted, and have had relatively stable enrollment since 2011.

“This suggests either that self-funded conversions are accelerating in 2014, or that small-group dumping has been more pronounced at the Blues than has been the case at most publicly traded plans,” he wrote.

Case in point: In an Oct. 29 conference call to discuss third-quarter earnings, Anthem, Inc.’s CEO noted that its small-business customers were dropping their group health plans and moving workers to the public exchanges at a faster clip than expected. Already in 2014, Anthem had watched 218,000 members of its health plans disappear because their employers have ended their group health plans. That’s a 12% drop in the insurer’s overall small-group membership.

While some employers might be encouraging workers to find coverage through a public insurance exchange, private exchanges might be having a more significant effect. Multi-carrier private exchanges often are able to offer more competitively priced products in exchange for narrow provider networks, says Ash Shehata, U.S. advisory lead for health plans at KPMG LLP. “Ironically, many of the Blues participate in private exchanges…so they might still be benefitting from the membership, but it just might not be showing up on the traditional small-group product line,” he notes. Most Blues plans also either have or are building their own proprietary private exchange that they think will bring more stability to their pricing.