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Got the Blues? WellPoint keeps growing, so does Anthem

Yesterday the shareholders of the Wisconsin Blue Cross plan, Cobalt, OKed the WellPoint Merger originally announced back in June.  So Wellpoint keeps growing.  It now has Blue Cross of California, Missouri, Wisconsin and several other national products.  Anthem–originally Blue Cross of Indiana–now has Indiana, Ohio, Kentucky, much of the North-east including New Hampshire, Maine & Connecticut, Virginia (Trigon) and Colorado (which includes Nevada).  Meanwhile Regence in the northwest now has Utah, Oregon, Idaho, and one of the Washington Blues.  (Washington state is the Bosnia of the Blues with lots of little plans). 

Many of the rest of the big Blues have gone or are going for-profit, leaving them more open to takeovers such as Trigon’s by Anthem. For instance, Empire Blue Cross (in New York City) is now owned by Wellchoice, which operates plans in neighboring states like New Jersey. The process of these for-profit conversions (Wellpoint) or demutualizations (Anthem, Trigon), have not been without their problems. Carefirst (the nearly former Blues of Maryland & Washington DC) has experienced massive problems since the failure of its attempt to go for-profit and sell out to Wellpoint. Surprise, surprise the problems were associated with a too low price offered to the State/Foundation and sky high incentive payments to the Carefirst board. However, several smaller plans like Premera in Washington state, are still going for-profit.

The acquisition strategies of Anthem and Wellpoint demonstrate that health insurance is a local product. Instead of growing organically or trying to bring in new products, they’ve mostly been buying lookalike organizations that have big market share. Big market share equates to more power in negotiations with providers, although that’s less effective than it was a few years back (see this post).

Certainly Wellpoint’s historical stock performance shows a fourfold increase in market cap over 10 years–so financially it’s been a success even though much of that is due to health insurers being at the top of the underwriting cycle and will get worse in the next few years. Plus there are several very rich Foundations (such as California Endowment) which are doing good works with the money they made from the non-profit conversions.

I know this will produce squeals from the traditionalists, but I’ve always felt that  the non-profit Blues plans act just like for-profit plans. In fact at one meeting presenting to a senior management team at a very big non-profit Blue, I went around the table asking for people’s issues and interests. The CEO replied "Money".  So as the Foundations are spending far more money on good works than are the non-profit Blues, I don’t see a real reason why these accidents of history shouldn’t just become like other insurance companies.   However, given the complications of transition and the bad name of for-profit in health care (Anyone for Tenet?), the few remaining non-profit big guys (BS of California, Highmark in Pennsylvania, Illinois & Texas, and the biggest of all BC of Michigan) are probably staying that way.

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