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Volume 14, Number 4
Contents
Top 10 Insurers
3 Table:
in North Carolina, by
Medical Enrollment
Michigan Blues
3 Former
Employee Is Charged
With Identity Theft
AG Says Excellus
4 NY
Wrongfully Denied
Mental Health Requests
Blues Plan
6 Michigan
Sees Continued Potential
As Nonprofit Mutual
10 Insurers in
6 Top
Michigan, Ranked by
Total Medical Enrollment
Plans, Providers
7 Blues
Pledge Commitment to
Value-Based Deals
Is Latest Blues
7 Premera
Plan to Suffer Cyber
Attack
Rx Cost Share
8 Table:
Amounts for Plans in
North Carolina
9
Table: Top 10 Insurers
In California, Ranked by
Total Medical Enrollment
11 News in Brief
Managing Editor
Steve Davis
[email protected]
Assistant Editor
Lauren Clason
Executive Editor
Jill Brown
April 2015
Blue Shield of Calif.’s Tax-Exemption Loss
May Prompt Scrutiny of Other Nonprofits
News surfaced March 18 that nonprofit Blue Shield of California lost its tax-exempt
status back in August 2014. As a result, the company must pay about $40 million a year
in state taxes retroactive to 2013. Growing criticism of financial reserves, combined
with cash-starved state budgets, could mean greater scrutiny for nonprofit Blues plans
as well as for other nonprofit organizations such as hospitals, according to industry
observers.
In a prepared statement, Blue Shield said “we believe we meet the requirements for
a state income tax exemption and have challenged the California Franchise Tax Board’s
finding to revoke our tax exempt status. We filed California state income tax returns
beginning in 2013.”
Three ratings firms contacted by The AIS Report agree that the revocation is unlikely
to have a negative impact on the Blues plan’s financial strength rating. Mark Rouck,
senior director at Fitch Ratings, says that while the loss of its tax-exempt status will
increase the cost of doing business for the company, it doesn’t rise to the level of a rating
implication. Analysts from ratings companies Standard & Poor’s and A.M. Best agree.
California lawmakers, consumer groups and Blue Shield’s former director of policy
are pressuring the company’s board to convert the insurer to for-profit status and return
reserves to the state in the form of lower premiums and/or investments in safety-net
programs. The company, however, says it has no intention of considering such a move
and is fighting the state Franchise Tax Board’s decision to revoke its status.
“This is a bellwether of increased pressure on nonprofit healthcare organizations to
prove that they’re delivering on their community missions,” says Sam Glick, a principal in the San Francisco office of Oliver Wyman, a global management and consulting
firm. “The need for a social safety net is greater than ever, state budgets are squeezed
continued on p. 8
ACA Boosted Membership for Blues Plans,
But Took Its Toll on 2014 Profit Margins
Blues plans dominate the public insurance exchanges in a majority of markets,
and have seen enrollment and revenue surge as a result. But for many Blues plans, the
increased membership and revenue have come at a cost — more and larger claim costs
and higher medical loss ratios (MLRs). Unlike their for-profit peers, Blues plans generally can’t pull out of unprofitable markets and can be disproportionally affected by
negative conditions in a region.
During the first nine months of 2014, earnings collectively were down significantly
among Blues plans, despite overall enrollment and revenue gains, according to a report
released in March by Fitch Ratings, Inc. During the same period, however, for-profit
health plan operators generally posted “very strong” financial results, says Mark
Rouck, a senior director at Fitch.
Case in point: Blue Cross and Blue Shield of North Carolina says it ended 2014 with
a net loss of $50.6 million — a year after posting net income of $92.6 million — due
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2 The AIS Report on Blue Cross and Blue Shield Plans largely to higher medical costs tied to people who gained
coverage as a result of the Affordable Care Act (ACA).
Fitch anticipates that Blues plans will report solid
increases in enrollment and revenues for full year 2014,
but also will have significantly lower earnings largely
reflecting ACA-related increases in enrollment and revenues that were more than offset by higher spending. And
with a massive stake in the public exchanges, Blues plans
would likely take a larger financial hit than their peers if
the Supreme Court determines federal premium subsidies can’t be distributed in the 35 states where exchanges
are operated by the federal government.
“If you’re a Blues plan in Texas or Florida, and you
rely on the federally run exchange, it could have a big
impact on you. The area that was a source of their growth
in enrollment and revenue in 2014 could face some pressure,” Rouck says.
The report looks at Blues plans as a whole, examining strengths and weaknesses and discussing historic
growth, in addition to comparing company-specific
information. Fitch listed several challenges that could
beset Blues plans, including pension plan obligations and
fallout from the forthcoming Supreme Court ruling on
King v. Burwell.
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April 2015
Taxes, Fees and Claims Hit Margins
“Despite being in favor of the accessibility to health
care that ACA allows for, this privilege does not come
without added costs,” says Joe Butera, spokesperson for
Harrisburg, Pa.-based Capital BlueCross. Taxes and fees
attributed to the ACA account for a 5% to 6% premium
increase each year, he tells The AIS Report. Implementing the ACA also resulted in new administrative costs to
meet all the law’s requirements, such as member-level
rating and billing, mandated benefits, and marketing and
communications.
In response, Butera says some group customers are
moving to self-insure themselves. And some small employers in Pennsylvania are shifting from group coverage
to potentially lower-priced individual plans.
Here’s a look at the impact some Blues plans say
the ACA had on their enrollment and financial results in
2014:
u Blue Cross Blue Shield of Massachusetts: On Feb. 27,
the Massachusetts Blues plan and Blue Cross Blue Shield
of Massachusetts HMO Blue, Inc. posted combined aftertax net income of $8 million in 2014, which reflects an
operating loss of $118.8 million, non-operating income
of $16 million and investment income of $110.8 million.
The health plan operator says overall enrollment has
increased for the past two years. An operating loss was
expected and necessary to keep rate increases as low as
possible and to fund investments in new technologies
and services, according to Chief Financial Officer Allen
Maltz. But the operating loss was higher than anticipated
due to a 30% increase in the cost of specialty drugs and
“the taxes, fees and expenses” related to the ACA. The
company says it paid $286 million in federal, state and
municipal taxes and assessments in 2014, up from $177
million in 2013.
u Blue Cross Blue Shield of Michigan on March 2 said
it recorded net income of $272 million for 2014, which
represents a 1% margin on revenue totaling $23.1 billion.
“Careful management of its investment portfolio and
solid performance by BCBSM subsidiaries contributed
to consolidated results,” the insurer said. The Blues plan
posted an underwriting gain of $83.3 million on its core
insurance business. Investment gains totaled $290 million on a consolidated basis. The insurer also experienced
its fourth straight year of membership growth — an
increase of 115,376 members overall, including more than
80,000 new members residing in Michigan. The Blues
plan and its HMO subsidiary, Blue Care Network of
Michigan, had a combined total membership of 4.53 million at year-end 2014.
u Blue Cross Blue Shield of North Carolina: Between
2013 and 2014, overall enrollment grew from 3.84 million
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April 2015
The AIS Report on Blue Cross and Blue Shield Plans
to 3.91 million, and revenue soared from $6.4 billion
to $8.0 billion (see table, this page). At the same time,
the company says its net revenue plunged. During
that period, the company’s MLR increased from 85.9%
to 87% . However, the North Carolina Blues plan said
it could receive federal payments via the ACA’s risk
corridor payment program to offset up to $120 million
in losses stemming from more costly public exchange
medical claims. Medical costs increased to $6.4 billion,
up nearly $1.4 billion or 28% compared to 2013. Medical
trend also increased to 22.6%, up from last year’s
4.2%. The company says “ACA individual members”
incurred medical costs of $435 per member per month
while individuals who enrolled outside of the public
exchange had medical costs that averaged $256 PMPM
in 2014. ACA members were high users of emergency
room procedures and specialty drugs, such as those
to treat Hepatitis C. Procedures that drove medical
expense trend were orthopedics, cardiology procedures
and cancer treatment. Spending on specialty pharmacy
increased more than 12%, according to the company. It
also blamed much of the loss on its Medicare Advantage
(MA) plans. While the company declined to specify the
size of its MA losses, last September the insurer said it
would cancel MA plans in 11 counties for 2015, affecting
50,000 members, one-third of its MA enrollment. The
Blues plan paid $266.7 million in federal, state and local
taxes last year, more than double the $118.3 million paid
in 2013.
u Health Care Service Corp.: HCSC, which operates
Blues plans in five states, says it has seen strong membership growth across all lines of business — group, government programs and retail — including the exchanges.
HCSC “made a deliberate decision to expand access to
coverage across all lines of business and, as expected, this
impacted earnings in the short-term in 2014, as compared
to prior years,” says spokesperson Lauren Perlstein. The
company did not disclose its financial results.
u HealthNow New York: The parent company of
BlueCross BlueShield of Western New York and
BlueShield of Northeastern New York ended 2014 with
a $53 million loss, which the company blames on fewer
members, higher medical claims and more administrative costs. The company had $2.44 billion in premium
revenue in 2014 and operating losses of nearly $70 million, Buffalo Business First reported March 3. The company cited inadequate reimbursement for government
programs like Medicare and Medicaid as a major source
of the losses, according to the article.
Contact Perlstein at [email protected],
Rouck at [email protected] and Butera at joe.
[email protected]. G
3
Former Michigan Blues Employee
Is Charged With Identity Theft
Federal authorities have charged a former Blue Cross
Blue Shield of Michigan (BCBSM) customer service representative and 10 alleged co-conspirators with fraud
after busting an identity theft ring that spanned several
states and racked up hundreds of thousands of dollars
in fraudulent charges. In a prepared statement March 10,
the Blues plan said the accused identity thieves had acquired the personal information of 5,514 Blue Care Network and Blue Cross Blue Shield of Michigan members.
The U.S. Attorney’s office contends that Angela
Patton sold screenshots of member profiles to known
accomplices for nearly one-and-a-half years, accessing
hundreds of member profiles per month beyond what
was required to perform her normal job duties. In May
2013 alone, Patton — who worked for BCBSM from
July 2001 to June 2013 — printed 934 screenshots, when
her job duties required her to print fewer than 100 per
month. She is now facing five charges, including wrongful disclosure of health information and aiding and abetting aggravated identity theft. In total, the 11 defendants
face nine charges, including multiple counts of aiding
and abetting wire fraud and the production, use or
trafficking in counterfeit access devices. They have all
pleaded not guilty.
According to the indictment, co-defendant Sam Patton allegedly recruited the nine other defendants and
supplied them with fake IDs, which allowed them to
Top 10 Insurers in North Carolina,
Ranked by 2014 Medical Enrollment
Insurer
Enrollment
Market
Share in
State
Blue Cross and Blue Shield of North Carolina
2,825,601
42.69%
Community Care of North Carolina
1,400,000
21.15%
North Carolina State Health Plan
680,449
10.28%
Aetna, Inc.
486,855
7.36%
Cigna Corp.
426,808
6.45%
State of North Carolina
305,725
4.62%
UnitedHealthcare
199,281
3.01%
Humana, Inc.
121,500
1.84%
Blue Cross and Blue Shield of Alabama
58,685
0.89%
BlueCross BlueShield of Tennessee
27,838
0.42%
SOURCE/METHODOLOGY: AIS’s Directory of Health Plans: 2015.
Visit http://aishealth.com/marketplace/aiss-directory-health-plans
for ordering information or call (800) 521-4323. Researched by
AIS editorial staff. Includes health insurers operating as of Dec. 31,
2014. Enrollment data are as of the third quarter. Data do not include
specialty enrollment. BCBS enrollment may include non-Blues licensed
health plans owned and operated by BCBS affiliates. Market share
as percentage of total reported managed care enrollment in state.
Shaded rows indicate BCBS licensees.
Web addresses cited in this issue are live links in the PDF version, which is accessible at The AIS Report’s
subscriber-only page at http://aishealth.com/newsletters/bluecrossblueshield.
4 The AIS Report on Blue Cross and Blue Shield Plans open credit cards in Ohio and Texas, where they then
shipped purchased items back to him in Michigan. Authorities discovered charge accounts with the likes of
Lowe’s, Cabela’s, Macy’s, Sears, J.C. Penney and Kohl’s.
At Sam’s Club alone, the defendants allegedly made
$724,000 worth of fraudulent purchases.
BCBSM said in a statement that corporate investigators played an “active role” in the arrest of Angela Patton, but declined to comment further. The indictment,
however, indicated there were identifying marks on the
screenshots that were traceable, including log notes and
portions of worksheets. Police officials conducted two
searches in 2013 that turned up the screenshots, one in
May of a hotel room in Irving, Texas, where three of the
defendants were staying and allegedly operating the
scams, and another in July of one co-defendant’s car in
Ohio.
“That means they were watching these people for
quite a while,” says Allan Bachman, education manager
for the Association of Certified Fraud Examiners, calling
the scheme “low-tech” but “very effective.” Bachman
tells The AIS Report that even if BCBSM flagged Patton’s
activities from the beginning and immediately took them
to the authorities, the investigation process could continue for quite some time before police felt the case was
solid enough to prosecute.
“We are pleased that assistance provided by our
company’s investigative team was used to secure the
arrest of these individuals, including our former employee,” Daniel Loepp, BCBSM president and CEO said
in the statement. “I am personally saddened by this former employee’s involvement. Their alleged behavior in
no way represents the ethical standards brought to work
every day by our more than 7,000 employees, who are
committed to serving our members with integrity and
honesty.”
Insurer Implements Precautions
The Blues plan has since limited employee access
to Social Security numbers and installed new printers
that require workers to scan their badges, an approach
Bachman says is more secure than the anomaly detection
monitoring that likely first flagged Patton’s activities.
While employees generally are aware of internal audit
controls, they’re typically unaware of the extent to which
they’re monitored. Placing an additional control device
on the printer itself serves as another deterrent for employees considering stealing information, without revealing the extent to which their activities can raise internal
flags. Nothing, however, says Bachman, is foolproof.
“The scan badge is probably best, because if I know
somebody else’s access code I could be printing all day
on their number,” Bachman says. “That said, if people
April 2015
aren’t wearing their badges, I could pick one up and
walk off.”
Reasons for employee identity theft are “as many as
there are people who do it,” Bachman says, citing greed,
discontent, financial difficulty and addiction as motivations. Sometimes, theft occurs because an employee
simply figures out how to cheat the system and thinks
she can get away with it. Other times the reasons could
be legitimate, such as helping a loved one pay his or
her medical bills. While there is no lock-tight method to
secure company information, maintaining control measures and educating employees on company policies,
as well as potential punishments for violating them, are
important prevention techniques.
“What the organization has to do is understand the
magnitude of the problem, figure out what controls were
bypassed, if any, and fix those, and create a stronger environment whereby this type of situation can’t happen in
the future,” Bachman says. “The other thing they can do
is make it very clear that employees who do something
like this will not be tolerated; they will be terminated and
prosecuted.”
To see the Blues plan’s prepared statement, visit
http://tinyurl.com/qdmat5d.
Contact Bachman at [email protected]. G
NY AG Says Excellus Wrongfully
Denied Mental Health Requests
The New York Attorney General’s office said March
18 that it reached a settlement with Rochester, N.Y.-based
Excellus Health Plan after an AG investigation determined the Blues plan operator had wrongfully denied
treatment requests for mental health and addiction services. Excellus has 1.5 million members and is the largest
health plan operator based in New York.
As part of the settlement, Excellus neither admits nor
denies wrongdoing, but has agreed to cover residential
treatment for behavioral health conditions and reform its
procedures for evaluating behavioral health treatment
claims, according to a prepared statement released March
18 by AG Eric Schneiderman’s (D) office. The settlement
also requires Excellus to contact 3,300 members — whose
requests for treatment were denied between 2011 and
2014 — and allow them to appeal the decision. They
could recoup out-of-pocket costs if Excellus denied treatment coverage. The estimated value of the treatment
denials could be as much as $9 million, according to
Schneiderman’s office. Excellus also will provide additional training to its staff, file regular compliance reports
with the AG, and pay $500,000 in fees and costs.
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April 2015
The AIS Report on Blue Cross and Blue Shield Plans
In a prepared statement to The AIS Report, Excellus
said it has been working closely with the AG’s office for
the past two years to respond to the issues. “During that
time, we’ve made a number of behavioral health benefit
and policy changes prompted by recent revisions in the
law and regulations as implemented by the New York
State Dept. of Financial Services. We have also agreed to
adopt future changes to improve our delivery of services
to, and our communications with, our members.”
Non-Blues Plans Targeted, Too
The investigation found that Excellus denied inpatient substance use disorder rehabilitation recovery services seven times as often as it denied inpatient medical
services. Excellus isn’t the only carrier that has been investigated for mental health care denials. The AG’s office
previously announced similar settlements with Cigna
Corp. and EmblemHealth, Inc. A week before the Excellus settlement, Schneiderman entered into a settlement
with ValueOptions, Inc., the behavioral health vendor for
MVP Health Care, Inc. and Emblem.
Last March, the AG’s office reached a settlement
with MVP, requiring the health insurer to reform its behavioral health claims review process to meet state mental health parity laws. As part of the arrangement, the
carrier also was required to cover residential treatment
and charge the lower primary care copayment for outpatient visits to most mental health and substance abuse
treatment providers. MVP had to submit previously denied mental health and substance abuse treatment claims
for independent review, which was expected to result
in more than $6 million being returned to its members,
¾¾
¾¾
¾¾
¾¾
¾¾
¾¾
5
Schneiderman said. MVP also agreed to pay a $300,000
civil penalty.
New York’s Timothy’s law, which went into effect in
2006, is named after Timothy O’Clair, a Schenectady boy
who committed suicide in 2001. It requires that insurers
provide mental health coverage at least equal to coverage
provided for other health conditions. The federal Mental
Health Parity and Addiction Equity Act, which went into
effect two years later, prohibits health plans from imposing greater financial requirements or treatment limitations on mental health or substance use disorder benefits
than on medical or surgical benefits.
Federal Law Brings More Scrutiny
New York isn’t the only state where carriers are facing more scrutiny over mental health coverage requirements. Last December, in reaction to a report on the
news program “60 Minutes,” California Insurance Commissioner Dave Jones (D) said his office was pressuring
insurers to make sure mental health parity requirements
are met. The news piece concerned Anthem Blue Cross’
denial of coverage for members requiring mental health
treatment. Jones cited the insurance department’s “aggressive action” to enforce the state’s mental health parity law, including the filing of amicus briefs on behalf of
the patients denied such coverage in the Harlick v. Blue
Shield and Rea v. Blue Shield cases.
See the New York AG’s settlement agreement with
Excellus at http://tinyurl.com/ofef2fy. G
Contact Jim Redmond for Excellus at jim.redmond@
excellus.com. G
Private Exchange Strategies for Insurers:
What’s Working Today? What’s Next?
Which private exchange sponsors are winning the most market share? What strategies are
they pursuing?
Which private exchange product designs are selling the best...with what size purchasers?
What are the pros and cons of proprietary exchanges versus multi-carrier designs versus
both...under what circumstances?
How are insurers attempting to differentiate themselves from their competition on private
exchanges? Other than price, what add-ons or other factors are being employed? With what
success?
What 10 pitfalls have successful private exchange sponsors had to overcome?
Will there be consolidation in private exchange platforms? If so, when? Are benefits
consultants likely to remain market leaders?
Join Jay Godla and Ashish Kaura of Strategy& for an April 21 Webinar.
Visit www.AISHealth.com/webinars or call 800-521-4323
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6 The AIS Report on Blue Cross and Blue Shield Plans April 2015
Michigan Blues Plan Sees Continued
Potential as Nonprofit Mutual
One year after converting from a tax-exempt nonprofit insurer to a nonprofit mutual insurer, Blue Cross
Blue Shield of Michigan (BCBSM) says the switch has
afforded it new business opportunities while simultaneously leveling the playing field (see table, this page).
The conversion came in 2014 as the Affordable Care
Act (ACA) provision preventing discrimination based
on pre-existing conditions went into effect, eliminating the need for Michigan to have an “insurer of last
resort,” a title assigned to BCBSM in 1980 in exchange
for its tax-exempt status (The AIS Report 2/13, p. 1). As a
mutual, BCBSM has enjoyed freedoms that state regulations previously denied under its former structure, such
as striking partnerships with companies like LifeSecure
Insurance Co. and Dearborn National Benefits Administration, a unit of Blues plan operator Health Care Service
Corp., to deliver hospital recovery and personal accident
insurance. BCBSM now also has the ability to partner in
business ventures with other Blues plans.
BCBSM spokesperson Andy Hetzel tells The AIS
Report that aside from business alliances, the insurer has
been able to evolve and compete in several other ways.
BCBSM’s board of directors previously was controlled
by the state, for instance. Now, however, the board is
appointed by its members. Hetzel says the first meeting
was held this year and board elections will be held in the
coming months.
Top 10 Insurers in Michigan, Ranked by
Total Medical Enrollment
Market
Share
MCO Name
Enrollment
Blue Cross Blue Shield of Michigan
2,261,052 36.37%
Health Alliance Plan of Michigan
686,171 11.04%
Priority Health
587,005
9.44%
State of Michigan
491,892
7.91%
Meridian Health Plan of Michigan
356,287
5.73%
Aetna, Inc.
298,523
4.80%
UnitedHealthcare
269,339
4.33%
Molina Healthcare, Inc.
238,000
3.83%
HealthPlus of Michigan and HealthPlus
Insurance
225,559
3.63%
McLaren Health Plan
223,168
3.59%
SOURCE/METHODOLOGY: AIS’s Directory of Health Plans: 2015.
Visit http://aishealth.com/marketplace/aiss-directory-health-plans
for ordering information or call (800) 521-4323. Researched by
AIS editorial staff. Includes health insurers operating as of Dec. 31,
2014. Enrollment data are as of the third quarter. Data do not include
specialty enrollment. BCBS enrollment may include non-Blues licensed
health plans owned and operated by BCBS affiliates. Shaded rows
indicate BCBS licensees.
“A level playing field among all insurers was an
important part of the transition for us, giving us the
ability to increase competition, reduce health care costs,
improve quality, and give customers more choice,”
Hetzel says. The switch, he adds, allows the insurer to
submit premium rates at the same time as its competition, whereas before it was required to publish them well
in advance, allowing other insurers to adjust based on
BCBSM was proposing.
On the flip side, the Blues plan is now subject to state
and local taxes, and agreed to dedicate $1.56 billion to
the Michigan Health Endowment Fund over the next 18
years. Hetzel says the company contributed its first $100
million last year, and is on track to contribute $50 million
this year. Additionally, BCBSM lost the right to negotiate
“most-favored nation” contract clauses, which require
providers to charge the Michigan Blues plan a lower
reimbursement rate than any other insurer.
“That’s no longer the case by statute, but the practice
continues,” contends Rick Murdock, executive director of
the Michigan Association of Health Plans (MAHP).
Murdock says the “size and magnitude” of BCBSM
didn’t change as a result of the legislation, and that it
continues to enjoy benefits from operating under the
previous statutes as well as from its brand name power.
Michigan Blue Excels on Exchange
The Blues plan operated much the same as the rest
of its competition on the exchange this past year, “holding its own” or maybe even increasing its enrollment, he
says. BCBSM captured 72% of the individual group market this year and claimed 36% of market share overall.
Hetzel says there were 16 plans operating on Michigan’s federally run exchange this year, tying the state for
the most competitive spot on HealthCare.gov. But the
American Medical Association recently downgraded its
rating of Michigan’s insurance competition (based on
2012 data), ranking the state the third-least competitive
in the country, largely due to the massive portion of the
market that BCBSM controls.
“We disagree with the AMA, and invite them to
come to Michigan and learn the facts on the ground
here,” says Hetzel. “Michigan has among the most
competitive individual health insurance markets in the
country, with 16 carriers competing offering numerous
product choices at all benefit tiers. Pricing is very competitive. Carriers have lowered rates in both the individual and small group markets this year in response to the
competitive environment.”
Mark Rouck, a senior analyst at Fitch Ratings, Inc.,
says there are trade-offs between operating at a publicly traded for-profit and operating under the mutual
insurance structure. While their access to capital is not
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April 2015
The AIS Report on Blue Cross and Blue Shield Plans
as “prevalent,” they also don’t have to answer to stockholders or are pressured to report year-on-year growth.
“At the end of the day, the mutuals don’t have as robust
access to capital markets, but they also don’t have everything that brings with it, so they might be able to take
a longer-term view, they might be able to retain more
capital — things of that nature — relative to a stock company,” he says. “So we consider that kind of a wash from
a ratings perspective.”
Apart from competition concerns, Murdock says
little has changed for the consumer, since most of the alterations were internal. Hetzel says there are currently 12
other Blues plans operating as a mutual insurance company, one of the most recent being Blue Cross Blue Shield
of Florida, whose request for the change was approved
by the state in August 2013. But nonprofit mutuals are
also still subject to regulatory measures that could cause
trouble, such as scrutiny of excess reserves, which has
raised issues for nonprofit Blue Shield of California (see
story, p. 1). Hetzel says the Michigan Blues plan devotes
a “great deal of effort” to keeping its margins at levels
that are comfortable yet well within the state’s restrictions. BCBSM’s risk-based capital reserves decreased 42
points to 677% in 2014, he says.
Contact Hetzel via Helen Stojic at hstojic@bcbsm.
com, Murdock via Dave Waymire at dwaymire@
martinwaymire.com and Rouck via Alyssa Castelli at
[email protected]. G
Blues Plans, Providers Pledge
Commitment to Value-Based Deals
A group of influential health care providers and
insurers — including several Blues plan operators — is
pledging to put 75% of their business into value-based
arrangements by 2020, a move that signals the deep
commitment of major health care stakeholders in these
models.
The Health Care Transformation Task Force’s members include 16 provider groups (such as Advocate,
Dartmouth-Hitchcock Health, Heritage Provider Network and Partners HealthCare), four insurers (Aetna
Inc., Blue Cross Blue Shield of Massachusetts, Blue Shield
of California and Health Care Service Corp.), and two
purchasers (Caesar’s Entertainment, Inc., and the Pacific
Business Group on Health). Members also include the
National Partnership for Women & Families, plus several
policy experts.
“We think 75% is realistic over the next five years,”
says Lee Sacks, M.D., chief medical officer of Advocate
Health Care and CEO of Advocate Physician Partners.
Approximately 32% of payments for the providers participating in the initiative are now value-based, Sacks
7
recently told ACO Business News, The AIS Report’s sister
publication.
The task force’s announcement of its 75% goal came
just two days after CMS said Medicare would shift half
of its provider payments into value-based arrangements,
such as accountable care organizations and bundled payments, by 2018. The two pledges signal strong momentum for value-based care.
The task force will serve as a think tank, but “we
also want to influence policy and application,” Sacks
says. “This will not be a success if we don’t help facilitate
adoption” of improved value-based models, he says. The
group defines “value-based payment arrangements” as
“those which successfully incentivize and hold providers accountable for the total cost, patient experience and
quality of care for a population of patients, either across
an entire population over the course of a year or during a
defined episode that spans multiple sites of care.”
The value-based models in use right now are first
generation, Sacks says. “While we may be moving in the
right direction, we have discovered lots of flaws — things
like attribution, benefit plan design, data exchange and
Premera Is Latest Blues Plan to Suffer
Cyber Attack
Premera Blue Cross suffered a “sophisticated”
cyberattack that potentially compromised the protected information of 11 million members dating
back to 2002, the insurer said in a prepared statement March 17. The initial attack occurred on May
14, 2014, but Premera said it discovered the breach
on Jan. 29 of this year — coincidentally the same
day that Anthem, Inc. officials said it discovered
the data breach that potentially affected 80 million
members (The AIS Report 3/15, p. 1).
The Office of Personnel Management had
audited Premera three weeks prior to the attack
and warned the insurer of vulnerabilities in its security system. Compromised information includes
names, dates of birth, contact information, member
ID numbers and Social Security numbers, and
affected Premera Blue Cross, Premera Blue Cross
of Alaska, Vivacity and Connexion Insurance Solutions, Inc. Washington Insurance Commissioner
Mike Kreidler (D) said in a statement he was unhappy that it took six weeks for Premera to notify
his office, even though it was working with the FBI
during that time, and said he would be reviewing
the situation. Premera said it is offering two years
of credit monitoring and identity theft protection.
Visit http://tinyurl.com/lpo8fh8.
Call 800-521-4323 or visit the MarketPlace at www.AISHealth.com for more information
on the comprehensive book, The AIS Guide to Blue Cross and Blue Shield Plans.
8 The AIS Report on Blue Cross and Blue Shield Plans April 2015
timeliness. These all have to work for payers, purchasers
and providers. There are going to be a lot of experiments,
and we’re going to see what provides the best value.”
The group intends to develop policy and program
design recommendations for both the private and
public sectors. Initial priorities include improving the
ACO model, developing common bundled payment
frameworks and improving care for high-cost patients,
according to the group, which last month submitted its
comments to CMS on the proposed Medicare Shared
Savings Program rule.
Contact Sacks via Advocate spokesman Vincent
Pierri at [email protected]. G
The above article was reprinted from the March 2015 issue
of ACO Business News. For more information or to order,
visit the MarketPlace at http://AISHealth.com or call (800)
521-4323.
Calif. Blue Shield Loses Exemption
continued from p. 1
and governments are looking at every option for closing that gap.” Glick says nonprofit hospitals also could
face pressure as the expansion of Medicaid reduces the
amount of uncompensated care they’re providing.
Henry Loubet, chief strategy officer for Keenan, a
California-based health care consulting and brokerage
firm, and former CEO of UnitedHealthcare’s Western
operations, agrees that other large nonprofits, including
health systems, could come under more scrutiny over
how they serve the public.
The decision by the Franchise Tax Board goes beyond just requiring the company to pay state taxes.
The loss of its tax-exempt status illustrates that the state
determined the company “is not doing public good,”
contends Michael Johnson, who resigned in March after
Average Rx Cost Share Amounts for Individual and Small-Group Plans in
North Carolina, 2015
Blue Cross and Blue Shield of North Carolina, the state’s largest insurer, offers the largest number of products for the individual and
small-group commercial markets. BCBSNC also has the highest cost-sharing requirements for prescription drugs, on average, on the
preferred, non-preferred and specialty tiers. According to AIS’s Directory of Health Plans: 2015, as of the fourth quarter of 2014,
the North Carolina Blues plan had 553,642 enrolled in individual plans and 198,106 in small-group plans, for a total of 751,748 in
both markets.
Generic
MCO Name
Aetna Inc.
Blue Cross and
Blue Shield of
North Carolina
Preferred
Non-Preferred
Specialty
Average
Average
Copay Coinsurance
Metal Tier
Bronze
HMO
4
NA
0%
NA
0.00%
NA
0.00%
NA
0.00%
Bronze
POS
6
$19.00
0%
$49.00
0.00%
$75.00
0.00%
NA
33.33%
Catastrophic HMO
4
NA
0%
NA
0.00%
NA
0.00%
NA
0.00%
Catastrophic POS
1
NA
0%
NA
0.00%
NA
0.00%
NA
0.00%
Gold
POS
5
$10.00
NA
$31.00
NA
$66.00
NA
NA
30.00%
Silver
POS
2
$15.00
NA
$42.50
NA
$75.00
NA
NA
40.00%
Bronze
POS
5
$25.00
20%
$75.00
20.00% $100.00
20.00%
NA
21.88%
Bronze
PPO
7
$25.00
13%
$75.00
12.50% $100.00
12.50%
NA
15.00%
Catastrophic POS
1
NA
0%
NA
0.00%
NA
0.00%
NA
0.00%
Catastrophic PPO
1
NA
0%
NA
0.00%
NA
0.00%
NA
0.00%
Gold
POS
4
$10.00
30%
$45.00
30.00%
$65.00
30.00%
NA
27.00%
Gold
PPO
6
$10.00
30%
$45.00
30.00%
$65.00
30.00%
NA
26.25%
Platinum
POS
2
$4.00
NA
$30.00
NA
$50.00
NA
NA
25.00%
Platinum
PPO
4
$4.00
NA
$30.00
NA
$50.00
NA
NA
25.00%
Silver
POS
8
$10.00
50%
$50.00
50.00%
$70.00
50.00%
NA
29.17%
Silver
PPO
10
$10.00
50%
$50.00
50.00%
$70.00
50.00%
NA
28.57%
Bronze
HMO
3
$10.00
20%
$40.00
20.00%
$80.00
20.00% $160.00
20.00%
Catastrophic HMO
1
NA
0%
NA
0.00%
NA
HMO
2
$5.00
10%
$30.00
10.00%
$60.00
Platinum
HMO
1
$5.00
NA
$30.00
NA
$60.00
NA $120.00
NA
Silver
HMO
3
$10.00
0%
$40.00
0.00%
$80.00
0.00% $160.00
0.00%
UnitedHealthcare Gold
# of Average
Average Average
Average
Products
Copay Coinsurance
Copay Coinsurance
Average
Average
Copay Coinsurance
Plan
Type
0.00%
NA
0.00%
10.00% $120.00
10.00%
NA=Cost share strategy is not employed for the product type/metal tier.
SOURCE/METHODOLOGY: Calculated from data in RxB, AIS’s new online subscription database of drug benefit design parameters. Cost share is for innetwork retail only. Visit http://aishealthdata.com/dashboard/rxb/demo to access a free interactive demo, or visit http://aishealthdata.com/rxb for more
information.
Subscribers who have not yet signed up for Web access — with searchable newsletter archives, Recent Stories and more —
should click the blue “Login” button at www.AISHealth.com, then follow the “Forgot your password?” link to receive further instructions.
April 2015
The AIS Report on Blue Cross and Blue Shield Plans
12 years as Blue Shield of California’s director of public policy. “If Blue Shield isn’t doing public good, what
about that $10 billion asset that they have control over?
Does it make sense for them to continue to have control
of that public money?” he asks.
Johnson has launched a campaign aimed at raising
public awareness and pressuring the company’s board
to convert to a for-profit entity. The health plan operator
had $13.6 billion in 2014 revenue and holds $4.2 billion
in reserves. Kaiser Permanente, also a nonprofit provider
and health plan operator, netted $2.7 billion in 2013 on
$53.1 billion in operating revenue.
California is a unique market, and there’s often a
blurred line between for-profit and nonprofit health
insurance firms, says Loubet. Moreover, Blue Shield of
California, a nonprofit, competes directly with for-profit
Anthem Blue Cross of California, and from a business
perspective, they don’t necessarily operate much differently, he notes.
“Blue Shield has a long-standing history as a nonprofit and mission-driven plan, and they’ve positioned
themselves that way,” he says. “But as they’ve gotten
larger and larger, it becomes increasingly difficult to
justify being a nonprofit.”
Johnson says Blue Shield should follow in the footsteps of Blue Cross of California, which in 1996 converted
to for-profit status as WellPoint Health Networks, Inc.
Blue Cross’ for-profit conversion generated $3 billion in
funding and created the California Health Care Foundation and the California Endowment.
Mission Trumps Surplus
The surplus level of a nonprofit isn’t as important as
how well it serves the public interest, Johnson says. “If
they’re not doing that well, then the issue isn’t just the
surplus, the issue is all of the assets that it holds and the
fact that those assets aren’t being deployed for the public
benefit the taxpayers have paid for.”
While consumer groups have criticized Blue Shield
for failing to serve Medi-Cal beneficiaries, Joseph
Zazzera, assistant vice president at A.M. Best, points out
that the insurer capped its profits at 2% a couple of years
ago and pledged to return anything over that amount to
policyholders in the form of premium rebates.
The company also has been making “sizable”
charitable foundation contributions over the years, he
adds. Over the past decade, Blue Shield’s foundation
has donated $325 million to improve health care in poor
communities.
Last December, the company announced plans to
acquired Care1st Health Plan, a managed care company that has nearly 500,000 Medicaid members, 46,000
Medicare members and 5,300 members who are eligible
9
for both programs. In a December 2014 prepared statement, Blue Shield CEO Paul Markovich said the acquisition would allow it to “fulfill our not-for-profit access
and affordability mission by serving this population.”
The San Francisco Business Times reported March 23 that
the company expects to pay $1.2 billion for the acquisition. Financial terms hadn’t previously been disclosed.
Blue Shield intends to fund the deal with excess reserves.
Blue Shield of California has about 3.4 million
members.
California Insurance Commissioner Dave Jones (D)
held a press conference the day news broke regarding
Blue Shield’s tax status, and used the platform to criticize the company’s rates as excessive. He likened Blue
Shield’s operations to those of a for-profit insurer. In a
prepared statement, Jones said Blue Shield also is dodging the payment of premium taxes, by way of a legal
loophole that allows it to move its health insurance products from the Dept. of Insurance’s regulation to Dept. of
Managed Health Care.
That loophole, according to Jones, costs the state
$100 billion a year in premium taxes. He has lobbied for
greater rate-approval authority over California health
insurers. Blue Shield spokesperson Sean Barry declined
to comment on Jones’ accusation, which isn’t related to
the dispute with the Franchise Tax Board.
Exemption Was a Seven-Month Secret
California Physician Services, Blue Shield of California’s legal name, was one of hundreds of companies
listed on a 1,300-page document of organizations that
Top 10 Insurers in California, Ranked by
Total Medical Enrollment
Insurer
Profit Status
Calif.
Enrollment
Kaiser Foundation Health Plan, Inc.
Not-for-profit
7,585,016
Anthem, Inc.
For-profit
4,527,271
Blue Shield of California
Not-for-profit
3,549,479
Health Net, Inc.
For-profit
2,652,000
LA Care Health Plan
Not-for-profit
1,679,737
Aetna
For-profit
1,483,184
Cigna Corporation
For-profit
1,024,474
Inland Empire Health Plan
Not-for-profit
970,175
UnitedHealthcare
For-profit
778,701
CalOptima
Not-for-profit
675,700
SOURCE/METHODOLOGY: AIS’s Directory of Health Plans: 2015.
Visit http://aishealth.com/marketplace/aiss-directory-health-plans
for ordering information or call (800) 521-4323. Researched by
AIS editorial staff. Includes health insurers operating as of Dec. 31,
2014. Enrollment data are as of the third quarter. Data do not include
specialty enrollment. BCBS enrollment may include non-Blues licensed
health plans owned and operated by BCBS affiliates. Shaded rows
indicate BCBS licensees.
Copyright © 2015 by Atlantic Information Services, Inc. All rights reserved.
Please see the box on page 2 for permitted and prohibited uses of The AIS Report content.
10 The AIS Report on Blue Cross and Blue Shield Plans have lost their not-for-profit tax exemption, according to
The Los Angeles Times, which broke the story March 17.
As a matter of practice, the Franchise Tax Board says it
doesn’t publicize the names of companies that have lost
tax-exempt status. A spokesperson declined to explain
why Blue Shield’s status had been revoked.
Acting on a tip, Chad Terhune, the Times reporter
who broke the story, tells The AIS Report that he sifted
through the Franchise Tax Board’s website. The reaction
from readers, he says, has been surprise — not only that
the company is a nonprofit, but also that it has $4 billion
in reserves. “Why was this a secret for seven months?”
has been another reaction, he says.
News of the revocation prompted state lawmakers to
call for hearings. Consumer Watchdog held a press conference the day the news broke and criticized Blue Shield
and the Franchise Tax Board for not announcing the
tax-status revocation earlier, which allowed the company
to continue to promote itself as a tax-exempt nonprofit.
The advocacy group is calling on state lawmakers to hold
oversight hearings into why the decision wasn’t publicly
disclosed.
By requiring the company to pay state taxes, the state
indicates that Blue Shield “is making enough money,
enough profits that they need to pay taxes on them...just
like any for-profit company,” asserted Executive Director
Carmen Balber. The nearly $4 billion that the company
held in reserves last year, she added, is almost 1,300%
more than is required by the state.
Blue Shield of California is not alone among nonprofit Blues plans that have surpluses far above what is
April 2015
required by regulators, notes Wendell Potter, who headed Cigna Corp.’s communications department before
turning against the industry during the lead up to the
enactment of the ACA. But he says a move to for-profit
status might not be in the state’s best interest.
“However, nonprofit insurers should have similar
disclosure requirements as the for-profits,” he says. “We
should know, for example, the total compensation of
their top five most highly paid executives.” California
does not require health insurers to disclose compensation
data.
Blue Shield typically isn’t the lowest-priced health
plan in the market “although they are usually competitive. The added taxes could impact rates but would not
be known for some time,” Loubet says.
Are other nonprofit Blues plans at risk? A March 22
editorial in The Pittsburgh Tribune-Review draws parallels
between Blue Shield of California and Pennsylvania’s
Highmark Health, which runs a hospital network in addition to its insurance arm. Highmark, according to the
article, sought double-digit rate hikes for individual policies in 2015, paid six executives $1 million-plus in 2013
and has reserves of about $4 billion itself.
Visit http://tinyurl.com/ostdg35 to see Johnson’s
letter and petition.
Contact Potter at [email protected], Loubet at
[email protected], Rouck at mark.rouck@fitchratings.
com, Glick at [email protected], Zazzera
at [email protected] or Balber at carmenb@
consumerwatchdog.org. G
People on the Move
Jill Michal was named vice president of sales
services and client experience at Philadelphia-based
Independence Blue Cross. She previously was president and CEO at the United Way of Greater Philadelphia and Southern New Jersey....Anthem, Inc.
named Michael Malouf to head its dental operations.
He previously was president and CEO of Dearborn
National Insurance Co....Blues plan operator Health
Care Service Corp. named Maurice Smith president
of Blue Cross and Blue Shield of Illinois. He succeeds
Karen Atwood, who was promoted to a new position
over service and technology for HCSC’s multi-state
operations. Smith previously led HCSC’s corporate
development initiatives....Kathleen Billingsley, a former executive with the California Public Employees’
Retirement System, is Blue Shield of California’s new
vice president for its CalPERS and University of Cali-
fornia accounts. Kristen Miranda was named senior
vice president of strategic partnerships and innovation
at Blue Shield of California. She led the creation of an
accountable care organization network and program.
Amy Yao was promoted to senior vice president and
will continue to serve as chief actuary....Dan Stevens
was named director of provider network operations
at Arkansas Blue Cross & Blue Shield. He previously
was operations engineer and manager of provider
network operations....Arezou Jolly, assistant general
counsel for Blue Cross Blue Shield of Florida, was
appointed to the Jacksonville Transportation Authority by Florida Gov. Rick Scott (R)….The Nebraska
Health Network, an accountable care organization,
named Lee Handke as its CEO. Handke most recently
was senior vice president of providers and products at
Blue Cross and Blue Shield of Nebraska.
Web addresses cited in this issue are live links in the PDF version, which is accessible at The AIS Report’s
subscriber-only page at http://aishealth.com/newsletters/bluecrossblueshield.
April 2015
The AIS Report on Blue Cross and Blue Shield Plans
11
NEWS IN BRIEF
u Blue Cross and Blue Shield of Illinois (BCBSIL)
launched four new accountable care organizations
(ACOs) in the Chicago area, according to a March 17
Crain’s Chicago Business article. The contracts are with
Alexian Brothers Health System, Kane County IPA,
NorthShore University HealthSystem and Presence
Health, bringing the total number of BCBSIL’s ACOs
in the state to nine and extending coverage to 450,000
patients. The Health Care Service Corp. (HCSC) unit
told Crain’s there are four more in the works. Visit
http://tinyurl.com/n3kfmob.
u Texas-based diagnostic lab service provider
med fusion is partnering with Highmark Health to
offer lab services for its commercial and Medicare
Advantage plans, med fusion said on March 17. The
company focuses on three specific areas — oncology,
women’s health and urology — and previously partnered with Blue Cross and Blue Shield of Illinois, a
unit of HCSC. Visit http://tinyurl.com/o2b2wfx.
u Anthem Blue Cross Blue Shield Kentucky, a unit
of Anthem, Inc., and dental provider DentaQuest
expanded their partnership to include the insurer’s
Medicaid members, DentaQuest said March 16.
Covered services include emergency visits, extractions, fillings and oral exams for children and adults,
with additional services such as crowns, root canal
therapy and sealants available to children. Further
services will be authorized on a case-by-case basis.
According to DentaQuest, Kentucky has the thirdhighest tooth loss rate among adults in the country,
and roughly half of children have tooth decay. Visit
http://tinyurl.com/n8zxu52.
u Wellmark Blue Cross and Blue Shield, which
operates Blues plans in Iowa and Nebraska, says
it has expanded collaboration with four new accountable care organizations in Iowa. The new
ACOs include Great River Health System, Mercy
Iowa City, Nebraska Methodist Jennie Edmundson
Hospital and Pella Regional Health Center, Wellmark said March 12. Participating providers can earn
financial rewards if they reach established quality
goals and slow the rate of increase in health care
spending for members. They cannot earn rewards
if quality declines or their costs run higher than expected. Wellmark’s 13 ACOs serve more than 525,000
Wellmark members and include 2,000+ doctors. Wellmark recently announced that its five initial ACO
collaborations saved more than $12 million during
their first two years. Visit the newsroom at www.
wellmark.com.
u Regence BlueCross BlueShield of Utah partnered with Health Choice Preferred, a unit of IASIS
Healthcare, in an accountable care agreement, the
provider said on March 9. The contract covers 10,000
Utahans under Regence’s full insured PPO plans and
will use methods such as community wellness programs, disease management programs and predictive analytics to achieve better quality care at a lower
cost. Visit http://tinyurl.com/pe7nfv3.
u Blue Cross Blue Shield of Michigan is collaborating with the University of Michigan Health System to improve genetic testing with providers and
laboratories statewide, the insurer said on March
5. The initiative, called the Genetic Testing Resource
and Quality Consortium, is designed to determine
when and if genetic testing is appropriate and effective, as well as to develop best practices and provide
proper guidance to patients through evidence-based
research. The project is the first in a series of 21 under
the Michigan Blues’ Collaborative Quality Initiative
program. Visit http://tinyurl.com/mx3zjf9.
u Blue Cross Blue Shield of Massachusetts will
make available its Alternative Quality Contract
(AQC) to not only its HMO members but also to
PPO customers, increasing the breadth of the
value-based program to more than 1 million
members from its current 680,000, according to
a March 5 Boston Globe article. The AQC has been
in place since 2009. The newspaper article, quoting
Blues plan executives, said the success of the pay-forperformance program in the HMO setting led it to
design the initiative for 615,000 patients in PPOs. The
Blues plan is considered a pioneer in moving payment away from fee-for-service with the AQC effort.
Visit http://tinyurl.com/l8lnexv.
u Anthem, Inc. has not acted quickly enough to
inform all 78.8 million Americans who may have
had their personal information exposed in a cyberattack that was discovered in January, according
to a letter that Senate Health, Education, Labor and
Pensions Committee Chairman Lamar Alexander
(R-Tenn.) and Ranking Member Patty Murray (DWash.) sent to the insurer on March 18. “[T]he highly
sensitive nature of this information makes early notification essential, and we are concerned with your
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should click the blue “Login” button at www.AISHealth.com, then follow the “Forgot your password?” link to receive further instructions.
12 The AIS Report on Blue Cross and Blue Shield Plans April 2015
NEWS IN BRIEF
slow pace of notification and outreach thus far. We
are writing to formally request that you speed up the
pace of notifications, and share with our committee
what steps you plan to take in the next few days, to
dramatically increase the pace of notification,” the
letter said. In a prepared statement, Anthem said it
took “quick action” when it discovered the hack of
its systems and began notifying people who were
potentially impacted. Within four business days of
the hack announcement, the insurer established a
dedicated website to answer breach-related questions, made credit protection available and sent thousands of emails to members. Visit http://tinyurl.
com/q9tk2lb.
u Preventing a cyber attack calls for far more
sophisticated measures than simply meeting
the minimum security requirements set forth by
HIPAA. Other potentially critical tools include anomaly detection (the identification of unusual data patterns) and multiple layers of encryption, private and
health plan IT security experts said during a panel
discussion at the America’s Health Insurance Plans
(AHIP) National Health Policy Conference on March
11 in Washington, D.C. Following in the wake of the
cyber attack that Premera Blue Cross disclosed on
March 17 (see box, p. 7), which potentially affected 11
million customers, and Anthem, Inc.’s cyber attack
in January, which potentially affected upward of 80
million customers (see brief, p. 11), health carriers are
focused more than ever on health IT (The AIS Report
3/15, p. 1). Internal controls, the security executives
said, are crucial in shutting down a breach as soon as
one occurs, because breaches will occur, whether that
be from a cyberattack or from a piece of hardware
forgotten by a traveling employee. As FireEye Chief
Privacy Officer Shane McGee puts it: “Compromise
is inevitable.”
u Increased focus on the consumer appears to
be paying off for health plan operators, including
several Blues plans, according to J.D. Power’s 2015
Member Health Plan Study. The study examined
satisfaction among members of 134 health plans in 18
regions of the U.S. Overall, the biggest improvement
jump was in information and communication — a
reflection of better messaging, improved message
frequency and website upgrades, according to the
results. Blue Cross Blue Shield of Arizona ranked
slightly behind Cigna Corp. and Aetna Inc. in the
Southwest region. Kaiser Foundation Health Plan
ranked highest in California and Colorado and the
Northwest region. Blue Cross and Blue Shield of
Kansas and Blue Cross and Blue Shield of Oklahoma,
a unit of Health Care Service Corp., ranked highest
among health plan operators in the Midwest. Visit
www.jdpower.com.
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