You’re hearing crickets from inside the headquarters of the Blue Cross and Blue Shield Association’s headquarters in the 200 block of North Michigan Avenue in Chicago when the topic of health plan mega mergers arises these days.
That’s because it’s largest member company, Anthem (ANTM), may be causing anxiety for fellow Blue Cross and Blue Shield plans across the country with its $54 billion purchase of Cigna (CI). The deal, which comes after Aetna (AET) announced plans to buy Humana (HUM), would seemingly make Anthem another stronger competitor with scale to negotiate better contracts with employers, potential national accounts and other clients.
Because the association’s rules prevent Anthem from using the well-recognized Blue Cross and Blue Shield brand in regions where Anthem doesn’t have the Blue Cross license or own a Blues plan, Anthem is forced to sell health insurance under a different brand like Amerigroup, which will fight for business against other Blues plans.
“The deal sets Anthem in direct competition against other Blue Cross Blue Shield plans nationwide,” Paula Wade, analyst with Decision Resources, a healthcare research and consulting firm based in Boston.
The Blue Cross and Blue Shield Association (BCBSA) is a trade group and lobby for 36 “locally operated” Blue Cross and Blue Shield companies, which are able to market their Blue brand via licenses with the association. Anthem operates as an investor-owned, publicly-traded Blue Cross plan, operating plans under the Blue Cross brand in 14 states. Other Blue Cross plans in the association include ownership structures that are either nonprofit or mutual plans owned by policyholders.
Inside Obamacare: The Fix For America’s Ailing Health Care System explores the ways the Affordable Care Act will impact your health care.
Anthem will gain 14 million Cigna health plan members across the country in states where other Blue Cross plans have the license to market under the Blues brand including states like Texas, Florida and Illinois where there are major corporate accounts and company headquarters. For example, the Texas and Illinois Blue Cross plans are owned by Health Care Service Corporation, a mutual insurer owned by policyholders.
The Blue Cross and Blue Shield Association requires member health plans use its licenses to operate a large amount of business under the Blue Cross brand so it’s unclear whether Anthem will at some point have to divest any business once the Cigna deal closes next year. In states where Anthem doesn’t have the Blue Cross license, it operates under the Amerigroup brand in 19 states where it’s predominantly known for its Medicare health benefits and Medicaid coverage for poor Americans.
Under association rules, Anthem would have two years after the close of a merger with Cigna to work out licensing issues, Anthem has said. The association isn't commenting.
In the meantime, it doesn’t appear that Anthem has done much to quell potential worries of Blues plans or the association that issues its licenses.
Anthem CEO Joe Swedish told analysts last week that “having conversations of any depth with the Blue Association at this stage would have been premature.”
“Internally, we've gone through lots of analytics regarding, I just call it the math of how the Blue rules apply to us and how will have - may have to adapt relative to those rules at closing, which is still many, many months away,” Swedish said. “We are a Blue Organization, and we will abide by those rules. And shortly after closing, then we will have to administer or deliver a plan that recognizes how we may adjust or adapt to those rules.”
In the past, Anthem’s commercial businesses that operated without the benefit of the Blue Cross license haven’t always done so well when they couldn’t market as “Blue.” Anthem used to sell commercial policies under the Unicare brand in Texas and Illinois, but was unable to compete and ended up transferring that business to Health Care Service Corp., according to media reports in 2009.
Swedish and his management team believe the addition of Cigna will do well against rival Blue Cross plans this time around.
“We view that bringing the two organizations together provides not only more choice but more opportunity for affordability and quality,” Anthem chief financial officer Wayne DeVeydt told analysts last week.
“There's amazing wellness programs that Cigna's developed,” DeVeydt said. “I think our Blue brethren, they compete today in those markets with us and others and have always welcomed competition. From our perspective, we hope the consumer can get the best of both brands, and that includes the value of the Blue network.”
Also on Forbes:
