In an unusual cross-country deal, Blues plans in Illinois and Texas are hoping to merge into the second-largest Blue Cross and Blue Shield firm in the country.
With $6 billion in combined annual revenues and reserves of just over $1 billion, Blue Cross and Blue Shield of Illinois and Blue Cross and Blue Shield of Texas said last week they have agreed to affiliate. Executives said the agreement is intended to lead to a full-asset merger of the two plans, which have $2.75 billion in assets and 3.8 million subscribers.
"Philosophical alignment is more important than geography," said Raymond McCaskey, president and chief executive officer of Blue Cross and Blue Shield of Illinois. "This gives us critical mass, immediately."
Blues plans across the country are talking about ways to merge or affiliate as local healthcare providers and insurers chip away at their market share. In the last 10 years, Blues plans have consolidated to 66 from 86. Analysts have said mergers could lead to fewer than 20 Blues plans nationally.
In Illinois, the Blues have a 24% market share but just 12% of the Texas market, executives said.
"Texas and Illinois count for one-eighth of the total population of the U.S.," McCaskey said. "We have room to expand in both markets. We are looking for the individual and group health plan member."
A merger will help the plans reduce costs by eliminating duplication of services such as claims processing and information systems. Initially, the plans expect to save at least $30 million by developing a single information system instead of two.
The move comes two years after the Illinois Blues called off its merger with Blue Cross and Blue Shield of Iowa. That venture broke over governance issues that would have led to Iowa Blues president and CEO Robert Ray sitting in the top executive position of the combined organization.
This time, McCaskey will be CEO of the Illinois-Texas plan. Rogers Coleman, M.D., CEO of the Texas Blues, will become chairman of the board. The governance structure and a business plan, which will be developed this spring, still have to be approved by both boards.
The plans will continue as one company with two different divisions operating in Dallas and Chicago.
The two plans say they welcome the addition of other Blues plans.
But their deal still faces approvals by insurance commissioners in both states. Texas regulators may have the final say since its plan, a not-for-profit, could run into problems trying to merge with the Illinois Blues, a mutual plan owned by its policyholders.
Executives said their lawyers are reviewing Texas law and hope the venture doesn't require an act by the Texas Legislature for it to clear. A biennial legislative body, the Texas Legislature doesn't meet again until next year.