Blue Cross and Blue Shield of Delaware has agreed to join CareFirst, the year-old holding company of neighboring Blues plans in Maryland and the District of Columbia.
The Delaware plan adds 200,000 enrollees and $441 million in revenues to the 2.3 million enrollees and $3.5 billion in revenues recorded by CareFirst in its first year of operation.
The deal continues the nationwide consolidation trend among individually licensed Blues plans that are trying to compete with for-profit insurers and managed-care plans.
The transaction, which requires regulatory clearance in three jurisdictions, will enable CareFirst to extend its market boundary for products bearing the cross and shield trademarks, said CareFirst spokesman Jeff Valentine. For the Delaware plan, the deal ends a search for a larger source of capital, enrollment growth and economies of scale, Valentine said.
Like the arrangement that created CareFirst, the Delaware plan's affiliation is not a full-asset merger but combines administrative and marketing functions, he said. Legally and financially the individual plans still exist, partly because of the regulatory requirement to separate statutory reserves.
That structure was debated in extensive public hearings before the original CareFirst deal was approved in January 1998.
Following informal talks with the various insurance commissioners since last fall, Blues executives have reason to believe the time-consuming scrutiny won't be repeated, Valentine said. "They seem pretty supportive of what we're trying to do."
The Delaware plan had agreed in 1996 to be acquired by Blue Cross and Blue Shield of New Jersey, which in turn was to merge with Anthem, a for-profit insurer operating Blues plans in Indiana, Kentucky and Ohio. But legal and regulatory obstacles prevented the transactions (April 28, 1997, p. 13).
Unlike that deal, the proposed combination with CareFirst allows the Delaware plan to maintain a measure of local control, Valentine said.
The arrangement also becomes part of a growth effort covering three licensed Blues service areas. The Delaware plan already enrolls nearly one in three state residents, but the resulting total in the nation's second-smallest state is dwarfed by most other Blues plans.
CareFirst already operates a 77,000-enrollee non-Blues HMO on Maryland's Eastern Shore. The HMO, Delmarva Health Plan, includes some Delaware enrollees. Even if Delmarva were licensed as a Blues plan, it would not be able to use the trademarks in Delaware under current boundary rules.