Managing Director & Senior Partner
Related Expertise: Health Care Payers, Providers, Systems & Services, Insurance Industry, Corporate Strategy
Of all the challenges faced by the Blue Cross and Blue Shield Plans, few are as significant as the likely mergers of the big US health care companies.
Players such as United Healthcare, Anthem, and Aetna (“the Nationals”) have grown substantially through acquisitions and will continue to do so if the proposed Cigna and Humana mergers go through as planned. These mergers will produce tough competitors with diversified portfolios, sturdy balance sheets, greater scale, and advanced capabilities, including consumer engagement, provider collaboration and informatics, population management, and digital channels.
With few exceptions, the Blues are less diversified than the Nationals, more focused on slower-growth commercial risk segments, and they have less capital to invest in new capabilities. Yes, their strong, entrenched local relationships, brand, and other advantages will remain relevant going forward. But the Blues will need to act assertively to maintain market relevance and a competitive financial footing in light of the Nationals’ pending mergers. Assuming that the Aetna-Humana and Anthem-Cigna deals are signed later this year, these plans will enjoy advantages over Blues in three main areas.
To begin with, the merged Nationals will benefit from cost synergies. The new plans have promised a 7% to 8% reduction in sales, general, and administrative (SG&A) costs—equivalent to $1 billion to $1.5 billion—which corresponds to a drop of $2 to $4 per member per month. In addition, these players will likely gain share in local markets and win new negotiating power with local providers, which could enable them to secure more competitive rates and ultimately lower medical costs. Second, the National plans will benefit from stronger balance sheets, helping them to invest in new initiatives and capabilities. For example, consolidation will make it easier for them to invest in best-in-class medical management approaches to improve member health outcomes. Third, the National plans will be better placed to capture pockets of market growth. (See Exhibit 1.) One prominent scenario: an Aetna-Humana combination will be geared for big wins in the high-growth government market.
An additional wrinkle is that consolidation is not evenly distributed. Depending on how Cigna and Anthem reorganize their holdings, some Blue plans may face more direct challenges than others. (See the sidebar.)
Not all Blue plans will feel the same impact from the combining of Cigna and Anthem. Much will depend on how the new entity is structured. Currently, Anthem holds the Blue Cross Blue Shield Association (BCBS) license to operate in 14 states, and it cannot compete under the Blue brand in the remaining states, where other companies hold exclusive BCBS licenses.
In addition, all Blue plans—including Anthem—collaborate to cover people at companies that operate across state lines. For example, an employer in Georgia (an Anthem state) may have employees in Florida (a non-Anthem state controlled by another Blue plan). To cover those employees, all BCBS plans coordinate through the BlueCard, a nationally accepted card that gives employees access to Blue providers regardless of the state in which their employer is based. The BlueCard program benefits local Blue plans in that they gain access to more members—giving them more clout to negotiate with providers—and they also generate fees through the arrangement.
The Cigna-Anthem deal threatens both aspects of Anthem’s arrangement with other Blue plans: the degree of competition and the collaboration through BlueCard. There are four possible scenarios:
1. Anthem’s $3 billion fee based on a “reestablishment fee” of $98.33 per member and 28.6 million members as of December 31, 2014.