Defying the laws of physics, the Blue Cross and Blue Shield Association's empire continues to expand and contract simultaneously.
Financial results for the nation's Blues plans suffered from what association officials call a "tough underwriting environment." The plans last year lost at least $1 billion on operations for the second straight year. Similar losses are expected this year, officials disclosed recently.
However, revenues for and enrollment in the remaining Blues plans continue to climb, with aggregate enrollment jumping at the end of 1998 to the highest total in at least eight years. But thanks to a continuing cycle of mergers and acquisitions, the number of health plans in the group is shrinking rapidly.
Because of a strong showing on the investment front, Blues plans recorded aggregate net income of $1.4 billion in 1998, a 27% improvement on 1997's bottom line of $1.1 billion.
Analysts at Weiss Ratings, Palm Beach Gardens, Fla., said the Blues' dependence on investment income could become a significant problem.
"The stock market has been a life-saver for many of these companies," Martin Weiss, the rating agency's chairman, said last December in a statement on the Blues' financial results for the first half of 1998. "What remains to be seen is how they will fare if the stock market does not continue to rise."
Ted Brownstein, Weiss Ratings' director of insurance safety, interprets the Blues' continuing operational losses and dependence on Wall Street as a "negative sign" that could point to "some insolvencies" if the stock market falters.
As a group, the Blues are down to 52 independent plans from 69 four years ago and 128 in 1975. This year, the total will shrink further with the completion of several consolidations already under way.
Anthem, the Indianapolis-based parent of Blues plans in Connecticut, Indiana, Kentucky and Ohio, has deals pending to acquire Blues plans in New Hampshire (Feb. 22, p. 4) and Colorado (March 15, p. 4), and is reported to be shopping around Rhode Island and other New England states for additional acquisitions.
WellPoint Health Networks, of Thousand Oaks, Calif., which operates Blue Cross of California and a national subsidiary called Unicare, is poised to complete its $500 million acquisition of Cerulean Cos., the parent of Blue Cross and Blue Shield of Georgia. When the deal was announced last July, officials expected it to close by March 31, but legal wrangles involving Cerulean's 1996 conversion to for-profit status have postponed the closing.
"The consolidation continues apace," said Patrick Hays, the Blues association's chief executive officer, at a recent press briefing. Hays stressed that the Blues are collectively increasing market share, after reversing a 15-year market-share slump four years ago. In 1998, aggregate enrollment in the plans jumped nearly 3.5% to 71.4 million, up from 69 million in the previous year.
A flurry of affiliations marked the tail end of 1998. Blue Cross and Blue Shield of Delaware agreed late last year (Jan. 4, p. 10) to join CareFirst, the year-old Owings Mills, Md.-based holding company linking Blues plans in Maryland and the District of Columbia.
Blues plans in Texas and Illinois quietly consummated their long-delayed merger Dec. 31, 1998, to form a 5-million-enrollee giant in two of the nation's most populous states. And three Upstate New York Blues plans joined forces as Excellus, also effective Dec. 31, 1998.
Last June, Medical Service Corporation of Eastern Washington merged into Blue Cross of Washington and Alaska, part of Mountlake Terrace, Wash.-based Premera Blue Cross.
Despite growth in revenues and enrollment, in 1998 the Blues suffered underwriting losses of $1.1 billion on revenues of $94.7 billion. That compares with underwriting losses in 1997 of $1 billion on $87 billion in revenues.
In addition, "the Blues are looking at another pretty tough underwriting year" in 1999, Hays said, warning that improved underwriting results are probably at least a year away.
Aggregate revenues, however, increased by a healthy 8.9% last year.
Meanwhile, more Blues plans are converting to for-profit status.
Under a revised settlement reached March 12 with the Missouri attorney general, the state insurance department and 100 consumer groups, Blue Cross and Blue Shield of Missouri will convert into a completely for-profit company.
The proposed settlement is designed to resolve lingering concerns about a previous agreement, reached last September, which was rejected by a special master appointed by a Missouri circuit court.
Under the new agreement, the not-for-profit assets of the Missouri Blues would be used to form a healthcare foundation, which would receive $12.8 million and own 80% of the stock of RightChoice, the health plan's for-profit subsidiary. The Missouri Blues would merge into RightChoice, and the foundation would liquidate its holdings in the company over seven years. The proposal requires approval from the court, RightChoice shareholders and the Blues association.
Other recent for-profit conversions include Trigon Healthcare, formerly Blue Cross and Blue Shield of Virginia, in 1997, and Blue Cross and Blue Shield of Georgia, now part of Cerulean, a year earlier.