The Big Keep Getting Bigger
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Two cases in the Northeast show the trend toward consolidation and for-profit conversion is far from over.
Some major changes afoot for health insurance companies in the eastern United States have intensified concerns about the implications for the broader managed care landscape—and whether the next step is an industry ruled by a handful of insurance giants.
In New Jersey, Horizon BlueCross BlueShield has proposed a conversion from nonprofit to for-profit status. In Pennsylvania, Philadelphia-based Independence BlueCross and Highmark in Pittsburgh are seeking a merger that would put them in control of more than half of the state's insurance market share. Joseph Paduda, principal at Health Strategy Associates in Madison, CT, says the Pennsylvania and New Jersey situations are a continuation of a consolidation trend:
- WellPoint purchased Anthem in 2004.
- UnitedHealthcare swallowed PacifiCare in 2005.
- Health Plan of New York and Group Health Incorporated merged in 2006.
- UnitedHealthcare grabbed Sierra Health Plan in 2007.
- WellPoint has snatched 14 for-profit Blues plans and is the nation's largest health insurer with more than 35 million members.
Will the frequency of such deals begin to slow anytime soon? Paduda says no. "Once mergers and acquisitions and deals start to happen, they sort of fertilize the ground for others," says Paduda.
Bruce McPherson, president and CEO of the Alliance for Advancing Nonprofit Health Care in Washington, DC, says some nonprofits see consolidation as a way to reduce overhead and implement more efficient internal systems. This could become increasingly important with the growth of the individual market and health insurers needing money to market those plans.
Are more acquisitions next?
Some experts say there is another reason for consolidation—it sets health plans up for acquisition. Proposals like the one in New Jersey, for instance, are sometimes seen as a move to make the health plans more attractive to a large national insurer looking to expand its reach. Moving from nonprofit to for-profit, in Horizon's case, would remove potential barriers for a for-profit to purchase New Jersey's largest health plan.
"It's easier for for-profits to acquire another for-profit because there is much less regulatory process, which is why Horizon is becoming a for-profit, I believe personally," says Paduda.
Although some experts say the Blues are looking to both consolidation and for-profit status as a way to battle national insurers like UnitedHealthcare, McPherson doesn't buy that argument. "The reality is that in most of the markets the nonprofit Blues plans continue to be the major private insurer. It's not like the national players are typically dominant in any of the markets where these Blues plans are," says McPherson.
McPherson is also concerned that some states may nudge nonprofit health plans into the for-profit territory to help pay for healthcare reforms through health foundations created when there is a switch to a for-profit plan. In New Jersey, for instance, Horizon says it will pay $1 billion to a charitable foundation to help pay for healthcare for the needy. Some governors will salivate just thinking of that cash infusion, and may push nonprofits into the for-profit realm, McPherson says.
What about the little guy?
Should smaller health plans and integrated delivery systems that compete with large insurers be concerned about this trend? Not necessarily, Paduda says. Integrated provider delivery systems, in particular, enjoy better name recognition than large for-profit health plans because of their presence in the community. Plus, integrated delivery systems can manage costs better, he says.
Paduda says it's imperative for integrated delivery systems to play a bigger role as fewer health insurers consume larger segments of the market. "I think it's going to happen because otherwise these providers are going to be sitting across the table from the 800-pound gorilla and will have no alternative."
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