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Archive for Monday, July 9, 2001

MON Blue Cross change leaves doctors, patients nervous

July 9, 2001

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They say the state's biggest insurer, long a mutual company owned by its policyholders, is about to be gobbled up by a publicly traded, profit-driven company that is beholden to Wall Street, not patients.

The shift, say Blue Cross Blue Shield of Kansas officials, will make the company stronger and more efficient.

But the state's medical community isn't so sure.

"At this point we're cautious, we're concerned," said Gene Meyer, chief executive officer at Lawrence Memorial Hospital. "Blue Cross Blue Shield is a very well-functioning company that's developed an outstanding relationship with health-care providers. We're hoping that doesn't change."

Meyer and others fear the move will make Blue Cross Blue Shield more interested in profits than service.

"The question is: What happens when a company goes from one that's run by policyholders to one that's publicly traded? And, how does that change the culture within the company?" asked Jerry Slaughter, executive director of the Kansas Medical Society, an association representing the state's doctors.

Policyholders nervous

Policyholders want to know, too. Kansas Insurance Commissioner Kathleen Sebelius said her office has received several letters and telephone calls from worried Blue Cross Blue Shield customers.

Dr. Ralph Hale, who practiced medicine in Wichita from 1957 to 1984 before retiring and moving to Hutchinson, wrote one of the letters.

"I'm afraid the 'everyday person' isn't going to fare too well because the minute a company (like Blue Cross Blue Shield) is owned by stockholders, the policyholders become secondary. They have to, there's no way around it," said Hale, 83.

As soon as Blue Cross Blue Shield's profits fall below stockholders' expectations, Hale said the company would either raise premiums or reduce coverage.

"The money is going to have to come from somewhere," he said.

Five weeks ago, Blue Cross Blue Shield of Kansas announced plans to become a wholly owned subsidiary of Anthem Blue Cross Blue Shield, an Indianapolis-based company.

Anthem and Blue Cross Blue Shield of Kansas are both mutual insurance companies owned by their policyholders. But Anthem is in the process of "demutualizing," converting itself to a for-profit company.

Already in eight states

Blue Cross Blue Shield of Kansas, too, is demutualizing, after which all of its stock will be bought by Anthem for $370 million, minus conversion costs.

Anthem already has Blue Cross Blue Shield subsidiaries in eight states: Indiana, Kentucky, Ohio, Connecticut, New Hampshire, Colorado, Nevada and Maine. The company insures 7.5 million people.

In Kansas, Blue Cross Blue Shield's 715,000 customers make it the state's largest health insurer, controlling about one-third of the state market. Preferred Health Systems is the second largest, with about 10 percent of the market.

In 2000, Blue Cross of Kansas had $873 million in revenue, a surplus of $328 million, and assets of $730 million.

Anthem and Blue Cross Blue Shield hope to complete the affiliation later this year. There are two hurdles:

l Policyholders must approve the deal.

l After a series of public hearings, Sebelius has to declare the deal to be good for consumers.

A timetable for the hearings is not expected until next month.

Sebelius told the Journal-World her office is already hiring experts to help analyze the proposal.

'Very apprehensive'

"People are very apprehensive about this -- that's understandable," Sebelius said. "Fortunately, my job is very clearly written out in the (state) statutes. I'm here to look out for the policyholders. So if it isn't good for policyholders and public at large, then it shouldn't happen."

Sebelius, who's also president of the National Association of Insurance Commissioners, said her office is contacting other states for critiques of their experiences with Anthem.

"That's an advantage I see in this," she said. "We have eight states we can go to for before-and-after perspectives. That's rare."

Sebelius said she's keeping an open mind. So far, she said, the fears of Blue Cross Blue Shield turning into a ruthless seeker of corporate profits have not played out in the other states.

"There's a perception that Blue Cross is a not-for-profit because it's a mutual that's owned by the policyholders," Sebelius said. "But, realistically, it's run like a for-profit. How much that would change with Anthem in the picture is one of the things we'll take a look at."

Though Sebelius said Blue Cross Blue Shield is "very solvent," its future is hardly trouble-free. For starters, the company's license and bylaws limit its territory to 103 of the state's 105 counties Johnson and Wyandotte counties are in Blue Cross Blue Shield of Kansas City's territory.

Dwindling market

But there's nothing to stop companies from taking their business out of state.

The Boeing Co., for example, is the state's largest private employer. It recently moved its health-insurance contract to Seattle. Other companies are following suit.

And last year, lawmakers voted to open the state's health insurance program to school districts, many of which now contract with Blue Cross Blue Shield.

Blue Cross Blue Shield is still involved with Boeing and the school districts, but in a much-reduced role compared with the past.

"The number of companies we're able to sell to is dwindling," said Graham Bailey, head of corporate communications for Blue Cross Blue Shield of Kansas. "That makes it very difficult to hold on to your market share."

And to succeed, insurance companies have to have enough market share to offset their risks, Bailey said.

"Right now, we're a very successful company, but it's become clear that five years from now we're going to have to be bigger than we are now. But how do you do that?" he said.

Many Blue Cross Blue Shields already have aligned themselves with bigger companies. "In 1984 there were 130 Blue Cross Blue Shields," Bailey said. "Today, there are 45; 10 years from now, the projections show there'll be 22 or 25. This is going on all over the country."

Similar philosophies

Bailey said Blue Cross Blue Shield's board voted to align itself with Anthem because the two companies share similar philosophies.

"They want to grow, but they want local management to stay in place," he said, noting that Anthem's corporate office has about 100 employees. The other 15,000 are spread across its eight states.

"That tells me they want things handled on the local level," Bailey said. The arrangement, he said, includes "no sweetheart deals, no golden parachutes" for Blue Cross Blue Shield executives.

"This is about finding the best possible fit," he said. "We've chosen Anthem because they have a wonderful track record. We think they'll make us better."

Deborah Chollet, a senior fellow at the Research Division of Mathematica Policy Research Inc. in Washington, D.C., has studied the consequences for nonprofit hospitals that become for-profits. She's been watching Anthem's courting Blue Cross Blue Shields in Kansas and other states.

"I cannot offer examples of Blue Crosses that have gone for-profit and terrible things have happened," she said. "But I cannot cite examples of wonderful things happening, either. And that's not necessarily a bad thing."

She offered a couple of warnings:

l Most states are ill-prepared to regulate a marketplace dominated by a handful of insurance companies.

l Because publicly traded companies are under intense pressure to grow, they often find themselves branching into markets they know little about. Trouble soon follows.

"Your doctors in Kansas are right," she said. "There is reason to be concerned. Going from non-profit to for-profit hasn't proven out to be a bad thing, but there are other issues to keep an eye on."

Anthem took over Blue Cross Blue Shield of New Hampshire about two years ago.

"Our situation was somewhat different from the situation in Kansas," said Alex Feldvebel, deputy commissioner at the New Hampshire Insurance Department, "in that our Blue Cross was having financial difficulty. But like Kansas, we had a number of parties raise concerns over how all this was going to work."

The insurance department, Feldvebel said, responded by tying to deal to Anthem's agreeing to maintain its network of local offices, create an advisory board made up of customers, and seek department approval before discontinuing any of its product line.

"It's been good so far," Feldvebel said. "There haven't been any huge problems, but as we all know, change is slow."

-- Staff writer Dave Ranney can be reached at 832-7222.

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