Keep the Remaining Blue Cross Plans Non-Profits

by: Michael Steinberg August 26, 2008 | about stocks: AET / HUM / UNH / WLP    

Michael Steinberg

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The Wall Street Journal “Blue Cross Plans Feeling Pressure to Consolidate” reports that Pennsylvania’s two largest non-profit Blue Cross plans are seeking regulatory approval to merge and New Jersey’s largest health insurer filed an application to convert from non-profit to for-profit. At this point, Pittsburgh’s Highmark and Philadelphia’s Independence Blue Cross are not requesting a for-profit conversion. New Jersey’s residents are lucky that they live in a guaranteed issue health insurance state if Horizon Blue Cross is allowed to convert.

Unfortunately, Pennsylvania is not a guaranteed issue state so a for-profit conversion would leave their residents with no insurer of last resort. The Pennsylvania Blues still offer a selection of plans with no medical underwriting. Do any of the for-profit health insurers offer guaranteed issue for individuals in Pennsylvania?

WellPoint (WLP) controls 14 for-profit Blue Cross plans, and these three holdouts look appetizing. These Blues have large memberships and high quality operations. Large insurers such as UnitedHealth Group (UNH), Humana (HUM), and Aetna (AET) don’t like the competition from the non-profits. The non-profits are required to cap cash surpluses incentivizing them to lower premiums.

Conversion to for-profit would bring management higher pay, bonuses and perhaps stock and option incentives. Mergers could bring economies of scale, but these three are already very large. I see no public good coming from any of these transactions.

It appears that the Pennsylvania Blues are building mass to be in a better merger negotiating position after the combined company turns for-profit in the future. Then WellPoint or another monster will come calling. There should be a moratorium on for-profit health insurance conversions until we have federally mandated guaranteed issue.

Disclosure: Author is long UNH.

 

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This article has 5 comments:

  •  
    Aug 26 12:50 PM
    WellPoint ruined the great reputation and decency of what was Blue Cross Blue Shield. Corruption, office politics exeeding that of Washington, and very poor management have taken a good company to ruins. No ethics, no problem. Steal from the stockholders, the employees and don't think twice about it. Those multimillion dollar bonuses given to the CEO and others are coming directly from premium dollars. Greed is the name of the game. Politicians point to high healthcare costs--why not start with the "bonuses" given to some worthless executives who have taken the company into the ground? Anyone with any intelligence and ETHICS is scooted out the door. The remaining "management team" couldn't spell cat if one spotted them the "c" and the"a". How about oursourcing the management as WellPoint has done with claims and other departments? What a thrill to call about a claim and get someone who can't even speak English. WellPoint can sit on it and rotate!
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  •  
    Aug 26 03:05 PM
    I am troubled by the words "regulatory approval" . . . like, who is really in charge? A total free-enterprise system would sort out such conversions and competitions. With regulators, the picture becomes murky in a hurry, and those who want the government out of health care feel increasingly compromised.
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  •  
    Aug 27 09:51 AM
    Wadhamite.....sadly, your comments are very indicative of public perception of these issues. Those of you who are 'totally free enterprise' types on everything need to understand that not everything can be solved by 'totally free markets'.
    I worked in corporate health insurance for 20 years. It is a different animal 'totally'. Our drinking water, if totally provided by a free market, would be very unjustly distributed - the best to the rich, the poor quality to the poor.
    Regulation/oversight/c... has to be given those goods that the public need for 'life, and pursuit of happiness'........not threat of bankruptcy due to a greed-filled, broken system as is healthcare financing that leaves 50m uninsured because they cannot afford $1,200 a month for family coverage.

    You better hope the gov't gets more involved in healthcare.....or one day your employer will 'reduce you at age 55' and you'll have to go find your own quotes. Then you'll understand - just like my 56 yr old brother now understands what I have been telling him for years.

    Now, he is a true disciple of a national healthcare plan.
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  •  
    Aug 28 12:08 PM
    The author does a good job of telling half the story. While I tend to agree that there should be an insurer of last resort or a high-risk pool available in all states, the idea of forcing guaranteed issue without mandatory covereage is part of what makes insurance so expensive. It's impossible to produce affordable rates when people can go without coverage when they are healthy, but expect guaranteed issue subsidized coverage for when they are not. Insurers would gladly accept all risks if it truly mean ALL risks, not just unhealthy risks for whom it is now financially convenient.
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  •  
    Aug 28 11:15 PM
    We have many problems in this area. Primary-care physicians are a vanishing breed.
    The poor guy who doesn't have coverage gets billed at arate that is often double what a "Plan" would be billed because of negotiated rates.
    New treatments (read complicated and thus expensive) are being developed at a rapid rate.
    85% of your health-care expenditures occur in the last 15 years of your life.
    We need a thoughtful honest debate to find the best solutions.
    Small countries like Denmark can manage national health-care, but in larger countries it usually turns into a disaster. Look at Canada.
    A partisan political "solution" won't "git er dun.'
    Reply | Link to Comment
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