Insurance Companies Dancing Without Touching

A story in the Washington Post talks about health insurance companies seeking new lines of unregulated business as the profitability of health insurance falls and as more and more requirements are placed on that line of business as a result of the federal health reform law. Here’s an excerpt: “Insurers have moved into technology, health-care delivery, physician management, workplace wellness, financial services and overseas ventures in wide-ranging efforts to mitigate the new rules imposed by the law.”

I raised some of these issues several months ago, where I also suggested that a merger of the Number 2 and Number 3 Massachusetts health plans might be forthcoming. Well, they tried, but decided not to, as they announced a few weeks ago.

Meanwhile, Blue Cross Blue Shield of Massachusetts is clearly laying the groundwork to shed its non-profit status. And, really, why not? It is in no way a charitable organization of the sort envisioned in earlier years, and the constraints of being a nonprofit bind in a number of ways.

When the HPHC and Tufts merger fell through, the operative statement was: “We have now determined that we are stronger as individual competitors than one company.”

I predict that will turn out to be a strategic error. In the new world order, scale matters. This statement is, to me, revealing in its own way: “Our operations are very different and, in many important aspects, not fully compatible without significant changes to existing processes and applications.” In other words, they chose not to merge because it felt like it was not currently cost-effective to change. This suggests that the operations of the two plans as presently configured are not scalable. But if they don’t merge, they will be left behind by those with stronger market power. For now, that is BCBS of MA. In the future, as the business becomes less about taking on insurance risk and more about other services, it could well include some major national players as well. Now, rather than later, would be a better time to consolidate assets and use the cash on hand to make the investments that will be needed to grab market opportunities in the future.

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4 replies »

  1. JIm, the quotation was taken from Paul Levy’s post.

    As for; “At least with an insurer there is an Insurance Commission in the state in which they do business…” in NC we have a state insurance commission which has next to zero influence on BCBS. When I had my complaint against BCBS the state commission only acted to pass my complaint to BCBS and pass their response to me – there was NO resolution attempt or investigation by the state.

    And for; “should we ever get unlucky enough to get a single payer system in the US, woe be to all of us. The Mother of All Non-Responsive bureaucracies would be deciding if we live or die.”

    I have lived under Canada’s system and had no access or provider payment problems as I had with BCBS here. My doctor was also the provider who determined what was medically necessary and what treatment I needed – the state had no hand in it. Ask a doctor if the multiple insurance companies they have to deal with here ( and hire extra staff for) is the octopus of all bureaucracies they enjoy dealing with. I can see why you would fear monger on single-pay (death panels) because with it you would be out of business.

  2. Hey, Peter —

    Not sure I understand exactly what you’re getting at in your “For now… ” quote. I didn’t write that, so not sure who you’re quoting or why.

    Nor am I qualified to comment in particular on the BCBSNC operations, as i am a MA practitioner in group insurance. That said, I will follow the general sentiment about BCBS being non-responsive.

    Name me a bureaucracy that isn’t. There aren’t any. It’s the nature of the beast. Bureaucracies, in my experience, tend to be totally absorbed in their own world. Internecine politics trump ANY insurer’s interests every time. And it’s worse the bigger the bureaucracy gets.

    At least with an insurer there is an Insurance Commission in the state in which they do business… should we ever get unlucky enough to get a single payer system in the US, woe be to all of us. The Mother of All Non-Responsive bureaucracies would be deciding if we live or die.

    WHen I was talking about the right track, I was referring specifically to the plan design in MA under which an insured who goes to a hospital of higher cost or lower quality standards or unsupportable cost/benefit ratio will be zapped for an extra deductible, copay or both. And I think that’s a WONDERFUL thing.

  3. “For now, that is BCBS of MA.”

    And also in NC it is BCBS who commands the largest market share with most of state health plans using it. No health insurance reform happens in this state without the “keep-the-bonuses-coming” blessing of BCBS.

    “That said, BCBS is on the right track,”

    My dealings with BCBS have always shown it to never be on the right track with policy holders. It is an arrogant behemoth that uses it’s bureaucracy to frustrate policy holders. BCBS might as well stop masquerading as a non-profit and come clean as a for-profit.

  4. Good post without any terribly specific positions. I don’t agree that scaling by itself is sufficient to solve all the problems, and diversification is wisely called by many astute investors “deworsification” as mindless bureaucracies try to jump on any bandwagon possible to look as if they’re doing something.

    In reality all they’re doing is bringing their own weaknesses to bear on an industry or a service that they know even less about than they do health care,. about which they’re pretty knowledgeable.

    BCBS’s mammoth size hasn’t helped them keep the likes of Tufts and Harvard from building a bigger market share now than they had 25 years ago. And mammoth size tends mostly to induce sclerotic behavior, which leads to less market-savvy practices than the smaller firms engage in.

    That said, BCBS is on the right track, I believe, with their Choice Network in which end users share in the cost of their decisions. Separating consumers from the cost of the services they consume, a la health insurance, is a big part of what leads to costs rising faster than inflation. There’s no downside to making a bad decision.