Accord could allow other Blues to enter Highmark’s market
More competition could benefit consumers
Highmark has been a big player in Pennsylvania’s health insurance market for decades, but a change that could bring new competition from fellow Blue plans — of all places — presents both opportunity and peril for the Pittsburghbased insurer.
And consumers could be the winners.
A tentative agreement reached in a longstanding Alabama lawsuit calls for three dozen Blue Cross Blue Shield plans, including Highmark, to pay $ 2.67 billion to settle claims of suppressing competition in the insurance market as a way to drive up premiums.
Included in the settlement is the end of a decades- old Blue Cross Blue Shield Association limit on sales of health insurance outside of a Blue plan’s defined service area.
“It’s a very big thing,” said lead
plaintiff attorney David Boies, chairman of the New York City firm of Boies Schiller Flexner. “It really opens up the market.”
A Blue Cross Blue Shield Association spokesperson played down the impact of the settlement, saying only some national employers would be affected.
“Blue Cross and Blue Shield companies are only permitted to sell branded products and services in their licensed service areas,” the spokesperson said in a statement. “As an operational change to reach this mutually agreed settlement, both parties agreed to add the opportunity for certain large, national employers to request a second Blue bid as a fair and reasonable settlement term.”
Highmark referred questions to the Chicago- based association, which declined to disclose Highmark’s share of the settlement payment. Highmark is among three independent Blue Cross plan licensees serving Pennsylvania, with little overlap in regions that are set by the Blue Cross Blue Shield Association, a trade association that manages the Blue brand.
The settlement agreement would free Highmark to expand its sales of nonBlue branded products in Harrisburg, for example, which is controlled by Capital BlueCross, a fierce Highmark competitor in the central part of the state. But it would also open the Pittsburgh market for other Blue plans to make inroads with products minus the Blue Cross Blue Shield trademark.
The association, which was formed in 1982 by the merger of its two namesake organization, is made up of 36 independent plans that carry the trademark Blues seal. Blue companies provide health insurance to more than 106 million people in all 50 states.
Blue plans are often big players in the markets where they sell coverage. Highmark, for example, controls 69% of the large group market in Delaware; 80% in West Virginia; and 40% in Pennsylvania, according to a 2018 analysis by the Kaiser Family Foundation.
The proposed settlement, which has yet to be approved by U. S. District Court Judge R. David Proctor, will test the market value of Blue Cross Blue Shield’s jealously guarded emblem, which dates to 1948 and has been associated with coverage that is accepted virtually everywhere.
BCBSA said it would be at least a year before Judge Proctor signed off on the deal.
The settlement agreement will also test the value of Highmark’s 2011 decision to buy the then- ailing West Penn Allegheny Health System, adding the heft of a complementary hospital arm to Highmark’s health insurance business, which can be leveraged as a marketing tool.
The Alabama lawsuit was filed in 2012 by a retired chiropractor who claimed that Blue plan dominance stifled competition, drove up premiums and lowered reimbursement to hospitals and other medical providers. In Alabama, for example, Blue Cross Blue Shield controls 93% of subscribers in the state, and Blue carriers insure about 1 in 3 Americans nationwide.
A related part of the lawsuit that was filed by hospitals and other medical providers against the Blue plans is still pending in the U. S. District Court for the Northern District of Alabama. Also pending is whether health care systems can negotiate directly with Blue plans nationwide other than Highmark, which Pittsburgh- based UPMC tried to do for several years starting in 2014.
In 2019, UPMC sought an injunction in the Alabama lawsuit to stop a Blue prohibition against plans contracting with hospitals outside their exclusive services areas. The petition was dismissed by the court.
The lawsuit faulted limits on non- Blue product sales for stopping Blue plans from expanding outside their defined regions. A 2005 BCBSA rule caps Blue plans’ revenue from nonBlue products at 20% of total revenue from a given service area.
Elimination of that cap would allow Blue plans to compete against other Blue plans with coverage that is sold out from under the Blue umbrella, Mr. Boies said.
“Any Blue Cross plan can go anywhere,” he said, adding that Blue plans have indicated an interest in doing just that. “Nobody out there ought to be able to sit on 80% or 90% of the market. That doesn’t give consumers a fair shot.”
The Blue Cross Blue Shield Association declined to comment on licensee interest in expanding nonBlue branded sales. But an industry observer said marketing health insurance without the Blue mark, regardless of region, would be challenging.
“In the market, Acme Health Insurance is a nothingburger,” this person said, who asked to remain anonymous because they were not authorized to speak about the issue.