Blue Cross Blue Shield “Circling the Wagons” –Seeking Finality to ObamaCare’s New Regulations

Do they consolidate even further or lobby for changes that serve their independence? That’s what the “Blues” are asking themselves these days and, of course, the answer is, “both.” Providing health insurance for almost one third of all Americans, the nation’s Blue Cross and Blue Shield (BCBS) plans are poised for a new wave of consolidation. And while they’re at it, they’re lobbying hard to influence what the final implementation of the health law is going to look like. Call it a little extra insurance.

Sarah Cliff of the Washington Post reported that the Blues have been arguing for more regulation, larger deductibles and an expansion of the age rating bands. They’re not alone. In fact, the Blues’ arguments are shared by big portion of their industry brethren. They’re just being conspicuously loud about it –about the need for the government to get its act together and provide some finality. After all, the core set of new regulation that has been pending since 2010 will only serve to redefine an entire industry, so its actors would like to know their lines prior to opening night.

More regulation? Yes. Shortly after the Affordable Care Act passed, BCBSA sent the Obama administration a list of its recommendations for implementation. Chief among them: Get all the new pieces of regulation sorted in early 2012 so the industry would have ample time to make the necessary changes. Well, it’s Thanksgiving and everyone continues to wait…

Allowing larger deductibles would be one way to make health insurance more affordable –for the insurance companies. Specifically, the BCBSA wants the $2,000 out-of-pocket proposed deductible limit on individual plans increased. If the government caps the deductible at $2,000, it argues that it (and other insurers) cannot create the “bronze plans” envisioned under the Act, where the average consumer picks up 40 percent of the average annual tab. “When you think about building a bronze package, which many may look to for affordability purposes, having those out of pocket deductible limits makes it incredibly difficult,” says Justine Handelman, BCBSA vice president for regulatory policy.

The BSBSA also wants the age rating band increased. Under the proposed dictates of the Act, a plan’s oldest members can only pay three times as much as the youngest members. The Act’s goal was to make sure that insurance remains affordable for seniors. BCBSA argues that this policy makes health insurance too expensive for the younger subscribers who will tend to be the healthier and have lower medical costs –the exact ones you want to sign up and balance out the costs of older, less healthy subscribers. BCBSA backs expanding the age rating band upward, allowing insurers to charge older subscribers five times as much as its youngest members. Stay tuned on this front. This issue has a lot of teeth.

So how do you hedge against such uncertainty? You keep consolidating and you shore up your operating deficiencies.  From nearly 130 plans back in the 70s, there are now only 38 independently operated BCBS plans in existence today –and that number will continue to drop. Just last week, Health Care Service Corp., a mutual company owned by policyholders that operates Blues plans in Illinois, Texas, Oklahoma and New Mexico, sought regulatory approval for its acquisition of Blue Cross and Blue Shield of Montana. Health Care Service, which has also talked partnerships and acquisitions with other Blues plans, is now the nation’s fourth-largest health insurer with more than 13 million health plan members across the country. According to a recent Forbes article, Blues plans are re-positioning themselves for similar mergers, partnerships and new forms of alliances all over the nation. In Florida, for example, Blue Cross and Blue Shield of Florida has discussed and negotiated partnerships with other Blues plans and continues to do so, according to various reports. And in Michigan, the Blue Cross Blue Shield plan there is trying to convert to a mutual plan from nonprofit in what many observers see as a move that will be replicated elsewhere.

Where they operate, the Blues tend to be leaders in the insurance markets for individuals and small businesses, the very same markets that will receive subsidies under Obamacare (including about $5,000 per head for those who don’t now have any coverage at all). And because plans on the future exchanges will be required to spend 80% of their premiums on medical care, they’re having to learn what lean operations actually means. Not a bad price to pay with 30 million “paid” new subscribers waiting in the wings? The point is, no one knows for sure. What is known is that the old guard doesn’t want the government to institute regulation that rewards the newest players. For one of the nation’s oldest insurers, “last in wins” would be a tough pill to swallow.

Sources: Washington Post, Forbes

—Tom Finn

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