Blue Cross plans jump to early lead

On the first day that people could buy
coverage under the federal health care
law last week, the chief executive of
Independence Blue Cross in Philadelphia
had just learned that his company’s plans
were the area’s least expensive available
through the new state exchanges. “We
were thrilled,” said Daniel J. Hilferty, the
nonprofit insurer’s chief executive.
A 36-year-old can buy a so-called silver
policy — a midrange plan — for $246 a
month, not including the federal subsidies
that could lower the cost even further.
Out-of-pocket costs would vary,
depending on the choice of hospital and
While other brand-name insurers like
UnitedHealth Group, Aetna and Cigna are
selling coverage only sporadically on the
exchanges, consumers will find local
nonprofit Blue Cross and Blue Shield
plans in nearly every state and market in
much the same way they did before the
federal health law was enacted.
WellPoint , which became one of the
nation’s largest insurers by combining
more than a dozen Blue Cross plans into a
profit-making company, is also actively
participating in the exchanges in all 14
states where it operates. “We expect to be
a strong competitor in most regions
because our brand and local market
experience are meaningful differentiating
factors,” the company’s chief executive,
Joseph R. Swedish, recently told investors.
The dominance of Blues plans and their
aggressive stance illustrates just how little
— and how much — the health insurance
market is changing under the Affordable
Care Act. The nation’s Blue Cross and Blue
Shield plans have typically been the
largest insurers providing coverage
primarily to individuals and small
businesses, and they remain a staple on
the new exchanges.
Originally created by hospitals and
doctors to help patients pay for medical
care, the nonprofit Blue Cross and Blue
Shield plans do not have to generate a
return to investors, so they say they can
afford to offer policies that may not yield
much profit.
What is not yet clear is whether the Blues
plans are offering low prices to gain
customers, only to raise prices in later
years. And while people may be drawn to
their strong brand name, the Blues are
offering some plans that are very different
from the ones people have through
employers, with many fewer choices of
doctors and hospitals.
The Blue Cross plans, including the profit-
making ones run by WellPoint, also have
the most to lose if they do not participate
in the exchanges. Because so much of
their existing business comes from selling
policies to individuals and small groups,
unlike the national insurers that cater to
large employers, they cannot risk having
their existing customers switch to a
The Blues plans “have to play,” said Dr.
Sanjay B. Saxena, an executive with Booz
& Company, the consulting firm.
The health care law has fundamentally
altered the competitive landscape by
encouraging a new wave of competitors
and creating a marketplace that puts a
much sharper focus on price, because
individuals can so easily compare
premiums on a single Web site. About a
quarter of the insurers competing are new
to the market. These newcomers —
including insurers that had served the
low-income Medicaid market, and plans
offered directly by large hospital systems
— often seek to offer the least expensive
But the Blues plans, by exploiting their
size and longstanding presence in a
market, are also emerging as low-cost
alternatives. They are frequently among
the least expensive policies being offered,
according to early analysis by Avalere
Health, a Washington research firm, of the
premiums being made public by the states
and federal government.
In 8 of the 13 largest state markets in
which the federal government is
operating the exchanges, the Blue Cross
plan is among the second-lowest-priced
silver options, one of the four tiers
established under the law. The silver plans
are moderately priced policies that can
require sizable out-of-pocket payments.
“The Blues are very well positioned,” said
Dan Mendelson, the chief executive of
Avalere. “They have great name
recognition. They have a very strong
understanding of the local market because
they have been operating there forever.”
Industry analysts say the Blue Cross plans
are frequently able to negotiate lower
prices for medical care because they have
so many customers to offer to hospitals
and doctors. And despite the uncertainty
over how many people will sign up and
how many will have expensive medical
conditions, they may also be more
comfortable in their estimates about how
much it will cost to offer coverage under
the law than some of their new
“Any actuary will feel more comfortable if
they have a basis of experience,” said
Janice Knight, chief actuary with the
Health Care Service Corporation , which
operates Blues plans in a number of states
like Illinois and Texas.
The national profit-making insurers have
chosen not to offer policies in most of the
state exchanges. UnitedHealth, for
example, is not offering individual
coverage on any of the federally run
marketplaces. In New York City, its plan is
the most expensive silver plan being
offered through the exchange, more than
$200 more each month than the lowest-
cost plan in the same category.
UnitedHealth says it has not ruled out
participating more in the exchanges in the
Aetna , which is also offering plans under
its new Coventry unit, declined to
participate in several states, including
New York and Connecticut, but has a
major presence in nine states and the
District of Columbia. The company says it
is taking a measured approach over
several years.
The exception is WellPoint, which needs
to protect and potentially expand its
major presence in policies sold to
individuals and small businesses. The
company views the exchanges as a
business opportunity, saying it expects
billions of dollars in additional revenue.
For WellPoint, the challenge is to have
prices that are low enough but not too
low. Its chief financial officer, Wayne S.
DeVeydt, says its goal was never to be the
low-cost offering but to be competitive
enough to attract enough people in any
given market to make the business viable.
To achieve those lower prices, WellPoint
is employing a variety of strategies,
including offering plans that exclude
some hospitals and doctors. In New
Hampshire, for example, where WellPoint
is the only carrier in the marketplace, its
Anthem Blue Cross plan was able to
reduce premiums an average of 25
percent by limiting the hospitals and
doctors it offered. By WellPoint’s count,
its plans will still allow customers to go to
most of the state’s hospitals and some 85
percent of its specialists. In other markets
as well, WellPoint has purposefully
excluded hospital systems as a way of
trying to lower its costs.