The Scranton Times-Tribune (Pennsylvania)

Twenty years ago, 82 Blue Cross and Blue Shield health insurance companies were spread across the 50 states, but consolidation among the independent, locally owned nonprofits has shrunken their total to 39.

That tally could dip to 38 if Pittsburgh-based Highmark Inc. and Philadelphia’s Independence Blue Cross successfully merge this year. Highmark also is tightening its ties with Blue Cross of Northeastern Pennsylvania this year, though a merger has not been publicly discussed. These days, all 50 states are served by at least one Blue company, but Pennsylvania is one of just six with more than one.

The trend suggests it may be a matter of when, not if, Pennsylvania’s four “Blues” will merge.

A slew of health care professionals, academics and industry insiders said consolidation will continue among America’s Blues, even though they disagreed about the trend’s potential ramifications.

Nearly one in three Americans, 98 million people, are insured through a Blue Cross plan. Pennsylvania’s Blues have a combined statewide market share of roughly 62 percent.

If Highmark and Independence merge, they would insure more than half the state.

“We’re getting closer and closer to one big Blue Cross plan in Pennsylvania,” said Lawton Robert Burns, Ph.D., director of the Wharton Center for Health Management and Economics at the University
of Pennsylvania.

Dr. Burns recently told federal and state senators Highmark and Independence could be dramatically overestimating the financial benefits of a merger, which he thinks could adversely affect
competition given the Blues’ already close relationships.

Besides Independence and Highmark, Capital Blue Cross serves consumers in central Pennsylvania, while Wilkes-Barre-based Blue Cross of Northeastern Pennsylvania operates in 13 regional counties.

Highmark and Independence partner to offer some products, plus Highmark owns a 40 percent stake and has partial control of Blue Cross of Northeastern Pennsylvania’s HMO, and PPO health plans, among others.

‘They owe accountability’

Born out of the Great Depression, the nonprofit companies that would eventually carry the Blue Cross and Blue Shield names were meant to improve access to health care and give back to their communities.

As they mushroomed around the U.S. for more than 70 years, Blue Cross companies traditionally provided health insurance for hospital stays, while Blue Shield paid for doctor visits.

Eventually regional Blue Cross and Blue Shield companies began marketing each other’s products and buying one another.

Some prosperous Blues have accumulated hundreds of millions of dollars in financial surpluses, which are commonly used for philanthropic purposes, but not always for reducing premiums. Critics, especially in Pennsylvania, accuse the companies of hoarding funds for monopolistic acquisition strategies and losing sight of their customer-first founding missions.

“They’re acting like nonprofits less and less,” said Dr. Burns. “My sense is the federal government cares if hospitals merge and become dominant. But I’m speculating the government doesn’t care as much if insurers combine because they’re used as a de-facto cost-control strategy to keep health care costs down in the private sector.”

Paula Bussard, a senior vice president at the Hospital and Healthsystem Association of Pennsylvania, said some regulators seem to forget Blue Cross and Blue Shield plans are supposed to be held to a higher standard than private insurance companies.

“Everybody wants to look at the Blues like they look at Aetna,” Ms. Bussard said. “But these plans were created under specific state statutes that gave them preferential treatment.”

“They could do discounts and provider payments others couldn’t, so they gained market share,” Ms. Bussard added. “But they’re supposed to have social missions, and they owe accountability to the citizens.”

Some could benefit

Yet not everyone is leery of the implications of consolidation among the Blues.

Some industry insiders say the merging Blues benefit from economies of scale and grab enough capital and market share to remain competitive given the rapid consolidation among commercial
competitors, hospitals and physicians’ groups.

“It’s very important for consumers to rest assured that what the industry is trying to accomplish through mergers is providing them with better services,” said Mohit Ghose, a spokesman for the industry trade group America’s Health Insurance Plans.

There have been 400 mergers of managed-care companies since 1994, according to Jerry Flanagan, health policy director at the California-based Foundation for Taxpayer and Consumer Rights.

Today, the top 15 health insurance companies control more than 50 percent of the national market, according to the National Association of Insurance Commissioners 2005 statistics.

“You have to ask yourself, ‘Can the remaining Blues remain independent?'” said Charles Moran, spokesman for the Pennsylvania Medical Society.

The medical society wants federal and state regulators to police for trusts and handle consolidation applications carefully, so powerful insurers don’t underpay doctors or wrongfully deny claims.

“I don’t know if doctors and insurance companies will ever trust one another, but they have to find ways to work together,” Mr. Moran said.

Who gets the savings?

Peter Kongstvedt, M.D., a senior executive with the global consulting firm Accenture, thinks the Blues will continue to consolidate, but not as rapidly because unifying the many large remaining firms is more complicated and risky.

He said one big insurance company generally dominates its respective market already, so it doesn’t have much to gain from acquiring or merging with another company.

“A lot of people worry about a negative impact from the consolidation, but I haven’t seen that as much as others,” Dr. Kongstvedt said. “There are significant negative consequences if a merger is not done well, but if it’s done well there are no problems and (there is) an ability to leverage resources and increase functionality.”

Consumer advocates, such as Mr. Flanagan with the Foundation for Taxpayer and Consumer Rights, agree with Dr. Kongstvedt on at least one point: Mergers can be highly profitable and successful.

But Mr. Flanagan said the money generated goes back into the companies or into Wall Street investors’ pockets.

Mr. Flanagan points to a deal three years ago, when two giant Blue Cross plans combined forces to create the largest health insurer in the nation.

Indianapolis-based Anthem bought Blue Cross of California parent WellPoint Health Networks in $16.4 billion deal.

Executives at WellPoint, the only for-profit Blue company in the U.S., told the San Francisco Chronicle the Anthem deal cut costs $150 million in 2005 alone. Enrollment in the company’s 14 states has since soared and profits rose, but Mr. Flanagan said consumers didn’t see a dime of relief from ever-higher premiums.

“The insurance industry is like a black hole,” Mr. Flanagan added. “It’s sucking all the other companies to the top three or four, and the fewer insurers in the market the more they can charge consumers and the less they pay doctors and hospitals.”

Steve Putziger, executive director of brand protection and financial services for the Blue Cross Blue Shield Association, contends the Blues could not thrive for decades by abusing customers and providers.

His association’s officials, who license all Blue Cross and Blue Shield plans, think the Blues continue to prosper because they carry a trusted name and improve health care everywhere they operate.

“I’d love to say that 50 years from the now the Blues are still going to be strong and we’ll have 200 million or more U.S. members,”Mr. Putziger added.