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Would Having More ‘Blues’ Make Us Happier?

Many of you residing in Iowa reading this post are probably covered by a Blue Cross and Blue Shield health insurance policy. Most likely your health plan is insured by Iowa-based Wellmark, Inc. or Wellmark Health Plan of Iowa.

Using data from the Iowa Insurance Division, a recent Des Moines Business Record article reported that both Wellmark plans “account for roughly 78 percent of the large group market in Iowa and 81 percent of the (Iowa) small group market.” Additionally, the individual market in Iowa has Wellmark companies accounting for 45 percent of individual health policies in the state.

Overview

For decades, Blue Cross and Blue Shield (BCBS) plans located in each state, Iowa included, did not compete with ‘sister’ BCBS plans in other states. Wellmark BCBS was, in essence, protected from competing with other Blue plans for Iowa business.

However, there was one large exception to this friendly competitive arrangement. Other Blue insurers can compete for large national-account business ONLY if the home state Blue plan chose to “cede” the client to them. As an example, if Hy-Vee, headquartered in Iowa, wished to use a larger BCBS plan, such as Anthem, Inc. – the largest of all BCBS plans – Wellmark would need to ‘cede’ this Iowa-based business to the desired Blue plan. Employers really had little recourse on fighting this arrangement, other than threaten to choose a non-Blue plan such as United Healthcare, Cigna, Aetna, etc.

It is important to mention that within the Blues system, if a large, Iowa-based organization is enrolled with Wellmark, they gain access to the BlueCard® PPO for their out-of-state employees – which offers any additional negotiated arrangements made by each state’s Blue plan. This is a big advantage to large national accounts, and has worked reasonably well for decades. However, if the employer was, for some reason, unhappy with the services provided by that ‘home’ Blues plan, they would need to apply leverage to move to another desired Blue plan outside that state. As a result, the pursuit for seamless customer service was rather ‘clunky.’

In 2012, a national class-action lawsuit was brought on behalf of employers and individual policyholders with Blue coverage. The lawsuit alleged that anticompetitive behavior among BCBS plans who conspired to divvy up markets and avoid competing against one another, consequently drove up customers’ prices.

Tentative Antitrust Settlement on Blues

In September, a tentative deal was reached whereby the BCBS Association agreed to pay $2.7 billion to settle the claims and curtail competitive practices that limited competition among all 36 BCBS insurers – which includes Wellmark, Inc. According to the Wall Street Journal, the deal is not yet final, as U.S. District Judge R. David Proctor of Birmingham, AL, who presides over the case, must approve the arrangement. Additionally, the boards from each of the 36 BCBS plans must endorse the settlement.

Under the draft settlement, each of the 36 BCBS insurers can no longer be restricted to a little-known rule that required two-thirds of each Blue plan’s national net revenue from health plans and related services come from Blue-branded business. This rule limited each company’s ability to expand and open new growth pathways for each insurer. Theoretically, each Blue plan could maximize profits both in and out of their assigned service areas, causing greater competition in new territories, if desired.

As for the $2.7 billion settlement, the BCBS Association and all 36 independent Blue plans have agreed to chip in money to settle antitrust charges. Presumably, the amount will be apportioned based on the size of each Blue plan.

What Will This Mean to Iowa and Elsewhere?

Assuming the settlement is approved by Judge Proctor and all 36 Blue plans, there could eventually be more consolidations between Blue plans and non-Blue companies. Additionally, the largest of Blue plans, Anthem and Chicago-based Health Care Services Corp., would likely expand into other territories that were otherwise off-limits to them in the past.

In addition to having access to Wellmark products, eligible Iowa-based employers would have access to other Blue plans desiring to enter Iowa. Wellmark, on the other hand, could expand into other states, hoping to grow new members and revenue. Conceivably, Wellmark could purchase other smaller Blue or non-Blue organizations, or possibly be acquired by a suitor.

With this settlement allowing more Blue plans to enter new territories or states, insurance premiums in those markets could possibly fall. But it’s unclear whether increased competition will push larger discounts from local hospitals and health systems. Over time, this settlement may prompt enough consolidations that some geographical markets could become less competitive, not more.

Healthcare providers, specifically the American Hospital Association and American Medical Association, will have keen interest in how this settlement will eventually affect the revenues and practices of their own respective members at the local level. Additionally, how will state and federal exchanges be affected by this settlement?

In the end, will having additional Blue plans competing in Iowa make us happier because of increased competition? I’m not quite sure. Any unintended consequences will need to be thoroughly assessed as this settlement plays out over time.

With that said, this will be one interesting situation to follow in the months (and years) ahead.

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The Illusion of Getting ‘Bigger’

Sometimes Size MattersAmerican culture is all about the belief that “bigger is better.” Heck, just stop by the local convenience store and you will find patrons walking away from the cash register with a ‘Big Gulp’ beverage. (No wonder obese Americans now outnumber overweight Americans.)

We seem obsessed with having the biggest ‘something’ – whether it is a city, town square, tallest building, largest (and most expensive) house or maybe a huge bicycle fortress crossing the state during late July. No doubt, it can be enticing to claim something enormous.

In both the hospital and health insurance industries, the fixation on growth is being taken to a whole new level. Nowadays, growth does not necessarily occur organically, such as through offering newly-innovative products and services that provide added value to customers. As customarily assumed, growth is intended to drive down costs, increase negotiating leverage and ultimately boost profits.

Controlled, organic growth seems to be much too slow for investors and today’s conventional wisdom of doing business. Enter acquisitions and mergers of competitors.

Insurance companies are making headlines with eye-popping takeover bids. For example, UnitedHealth Group, the nation’s largest health carrier, with expected revenue this year of $143 billion, has made a move to acquire Aetna, the nation’s third largest health carrier. The second largest carrier, Anthem, Inc., is pursuing Cigna Corp. They just made a takeover offer of $47.5 billion – which was subsequently rejected as being too cheap. If this isn’t enough, Aetna is reportedly interested in buying Humana, the fourth-largest carrier in the country. Big is better, right? After all, lobbying does matter a great deal in healthcare.

The impact on various markets across the country will most certainly affect local competition, and because of this, such takeovers will face rigorous antitrust scrutiny by the U.S. Justice Department for anti-competitive reasons. The reality is that healthcare markets are local, so unless a larger carrier gains a larger percentage of insureds in a given market, certain markets will not be impacted.

Hospitals have also made a myriad of moves in the recent past through mergers and acquisitions. Physician practices are gobbled up in Pac-Man fashion. Hospitals are concerned that larger insurance oligopolies will gain more clout by keeping provider payments lower – yet increase prices of insurance products to purchasers – employers and individuals. It appears the new arms race is not so much about nuclear bombs, but rather, healthcare purchasing clout. The hunger to grow escalates when the other side expands – a never-ending treadmill of activity.

So what does this mean for healthcare customers like you and me? Through sleight-of-hand, carriers and providers provide the illusion that patients are the focus in this post-ACA environment. But unfortunately, due primarily to the complexities inherent in healthcare, the public continues to buy into this perpetual illusion that care will somehow get better and become less expensive because our best interests are the center of this activity. The illusion continues.

Let’s be honest, it’s about the bottom line – healthcare is in the money business.

Third parties develop websites on price information coming from aged-claims data that usually are at least two years removed from the unknown prices now being used. Patient engagement is critical within healthcare, yet, according to research conducted by Nielsen/Harris Interactive Strategic Health Perspectives, patients with chronic conditions who have significant out-of-pocket exposure are increasingly feeling disillusioned by our healthcare ‘system.’

As mentioned in previous blogs, gaining the ‘public trust’ is the fundamental business in which the health provider community should be operating. But customers who feel hopeless about their healthcare most likely will not have the trust to use transparency tools to make optimal healthcare decisions – even when more relevant tools eventually become available.

Growth by acquisition and mergers will not gain public trust. If consumerism has a chance to work in healthcare, we must allow it to work by agreeing that, when seeking non-emergency care, consumers are entitled to receive accurate cost information about their out-of-pocket exposure. This information can be provided through the collaboration of providers and carriers. If they are unwilling or unable, other third parties can fill this role. Without a doubt, the healthcare and health insurance worlds are in a full state of disruption – complacency is NOT an option for those who wish to survive.

Further, consumers must have access to quality metrics about the provider care they seek. Gaining a consensus on quality metrics will be no easy task, but it is the right course to take when rewarding those providers who perform the care we assumed we were receiving in the past.

Mergers and acquisitions may be great for owners, stockholders, corporate executives and the M&A consultants who promote such activities. But it only prolongs the REAL work that is needed for healthcare to become safe and affordable to all.

Bigger is not better. Smarter is better.

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