A giant consolidation is under way to combine the operations of Blue Cross and Blue Shield plans in six states, creating the country's largest not-for-profit health plan.
The proposed deal, while not an asset merger, calls for a single governing board and a single management team to oversee Blues plans in Idaho, Illinois, Oregon, Texas, Utah and Washington.
The plans have combined enrollment of 9.8 million, annual revenue of $15.9 billion and 16,000 employees.
The deal, termed an affiliation, will bring together Chicago-based Health Care Service Corp. (HCSC), which operates Blues plans in Illinois and Texas, and Portland, Ore.-based Regence Group, which operates Blues plans in Idaho, Oregon, Utah and Washington.
It would be the largest consolidation among the country's 47 Blues plans. Late last week New York-based rating agency Standard & Poor's put HCSC on CreditWatch with negative implications because of the logistics of putting together and operating an affiliation of this size.
HCSC also seeks regulatory clearance to buy 213,000-member Blue Cross and Blue Shield of New Mexico (April 3, p. 26).
Blues officials said that combining will better position them to compete with the three for-profit insurance giants--Aetna U.S. Healthcare, UnitedHealth Group and Cigna HealthCare--that dominate the industry. Added size will let them bring their costs and charges in line with competitors'.
"As we looked at the cost of doing business, we concluded that the overall costs on a per-member basis would go down, the larger the organization was," said Raymond McCaskey, 56, president and chief executive officer of HCSC.
The deal, not expected to be completed for at least 18 months, requires regulatory approval from state insurance commissioners. Blues officials said it was unclear whether they would need to file for federal antitrust clearance.
McCaskey will oversee combined management of the plans. Collectively they will be known as the Regence Group, but individual plans will continue to operate under their current names.
The new Regence Group will have its headquarters in Chicago. Richard Woolworth, 59, will serve as chairman of the new governing board. He is chairman and CEO of the Regence Group.
Both HCSC and the Regence Group are profitable. Last year, HCSC earned net income of $110 million on revenue of $9.7 billion. The Regence Group posted net income of $17 million on revenue of $4.8 billion.