Can old Blues plans learn new tricks? According to one new study, their survival depends on it.
Many of the nation's Blue Cross and Blue Shield plans, faced with insufficient access to capital, will be forced to merge with each other or go public to remain competitive with for-profit rivals like Aetna, UnitedHealth Group and Cigna Corp., according to a report released last week by the Hartford, Conn.-based research and consulting firm Conning & Co.
Samuel Levitt, the study's author and vice president of Conning, said he projected continued consolidation in the next five years could whittle the number of Blues plans to as few as 20 from 47 today and 72 in 1990 (See chart). And up to half of those remaining plans could eventually become for-profit, he said.
Of the 47 Blues plans, six are for-profit.
"One of the red flags for us is that, although Blues plans have been successful at attracting new customers, their increasing enrollments haven't been enough to offset their meager profit margins," Levitt said. "Running a healthcare company requires raising a lot of capital, and that's been a particular challenge for the smaller, not-for-profit Blues plans."
Even during a relatively robust market in 1999, Blues plans overall generated a pretax profit margin of just 0.8%, compared with 2.5% at for-profit Blues plans. But after taxes, even the for-profit Blues showed signs of lagging behind the industry, posting a net profit margin of 2%, compared with 2.4% for all for-profit health plans, Levitt said.
"There's going to be a lot of experimentation (among Blues plans) with different formats and operating structures as they look for ways to level the playing field," he said.
The national Blue Cross and Blue Shield Association defended its member plans, calling them "financially strong" and "effective competitors" in their respective markets.
"Based on preliminary results for the year 2000, the Blues plans collectively reported financial net gains of approximately $2.3 billion and added more than 5 million customers," said Teri Vlasak, spokeswoman for the Chicago-based association. "In total, Blues plans now provide health insurance for more than 80 million-one in four Americans."
The Blues' recent push to restructure and consolidate has been consistent with efforts by the rest of the industry, Vlasak added.
Levitt, however, asserts that the exclusivity of the Blues trademark creates an extra competitive hurdle. Blues plans can only use the brand name to market their services within licensed, mutually exclusive boundaries, which often run along state lines. While this grants the plans a monopoly of sorts, it also stymies their ability to grow organically by expanding into new markets.