One of the nation's smaller Blues plans, Blue Cross and Blue Shield of Kansas City, Mo., will merge with its larger neighbor to the west, Blue Cross and Blue Shield of Kansas, the companies announced last week.
For the Kansas City plan, the merger is an alternative to creating a for-profit subsidiary, a strategy that was chilled by regulatory scrutiny of a similar move by Blue Cross and Blue Shield of Missouri (Oct. 14, p. 70).
The partners cover roughly the same number of beneficiaries. "This will be a merger of equals," they said in a written statement issued Nov. 6.
The two insurers intend to present a letter of intent to merge to the insurance directors in Kansas and Missouri. They will form a joint committee to draft a definitive agreement. Richard P. Krecker, president and chief executive officer of the Kansas City Blues, will be CEO of the merged organization.
The Kansas City Blues serves 700,000 beneficiaries in 30 counties in western Missouri, plus Johnson and Wyandotte counties in Kansas. It employs 1,600 workers. Blue Cross of Kansas, based in Topeka, serves 700,000 beneficiaries in the remainder of that state. It also serves 1 million Medicare and 200,000 Medicaid beneficiaries. It has 2,000 employees.
But the Kansas Blues enjoys a 36% market share, while the Kansas City Blues has only 24% of a much more competitive environment.
United HealthCare Corp., a managed-care giant that already has a strong presence in the St. Louis market, entered the Kansa City market last summer and will begin offering a new plan there Dec. 1.
"The merger will enable us to compete effectively with large, well-capitalized managed-care organizations that exist in our markets or that will be entering our markets," said Janet Cooper, spokeswoman for the Kansas City Blues. The two companies also want "to take advantage of economies of scale."
The merger is expected to boost operating income, Cooper said. Last year, the Kansas City plan had a $5.7 million operating loss, which was offset by a gain in investment income of $26.5 million, resulting in a $14.5 million after-tax profit.