Once deemed the dinosaurs of healthcare, Blue Cross and Blue Shield plans are making a resounding comeback.
Profits at the nation's Blues plans climbed 40% to $2.9 billion in 2001-accounting for a solid 70% of the entire health insurance industry's earnings, which rose 25% to $4.1 billion last year, according to a report released last week by the independent ratings firm Weiss Ratings, Palm Beach Garden, Fla.
Meanwhile, profits at the nation's 573 HMOs fell 7% to $1.01 billion last year as medical costs continued to soar and consumers rebelled against tight managed-care restrictions. Reversing a three-year trend of losses, the HMO industry had returned to profitability in 2000 by raising premiums and dropping money-losing businesses.
"Like HMOs, Blues plans have benefited from rate increases over the past several years," said Melissa Gannon, vice president of Weiss Ratings. "But the Blues are taking advantage of consumers' growing disillusionment with traditional HMOs by offering a wide range of less-restrictive alternatives," such as PPOs and indemnity plans.
Indeed, consumers steadily have been migrating back to Blues plans, which-with their long history and familiar trademark-now often are seen as safe havens amid the increasingly turbulent health insurance industry.
A decade ago, as large employers flocked to cost-slashing HMOs that pledged to control overuse of services, Blues plans were largely viewed as stodgy and not nimble enough to survive in an increasingly competitive environment. As a result, nationwide Blues enrollment dropped from a peak of 86 million in 1981 to 65.2 million in 1994 (See chart, p. 15).
But now, as managed care has gone from revolution to retreat, the Blues have quietly rebuilt their position as the nation's dominant health insurers. By March 31, overall Blues enrollment had rebounded to a 20-year high of 84.4 million as other insurers, including giants Aetna and Cigna Corp., have lost membership.
"Consumers are returning to the Blues with a sense that they represent stability," said Edward O'Neil, director of the Center for the Health Professions at the University of California, San Francisco.
"People seem to feel that having a Blues policy is somehow the antithesis of managed care, even if the product they happen to be in is intensively managed," he said, pointing out that collectively the nation's Blues plans still have far more HMO members than any other insurer.
The Blues have benefited over the years from their unique systemwide structure, which gives the plans enough independence to meet local market demands yet allows them to enjoy the benefits of national integration, said Scott Serota, president of the Chicago-based Blue Cross and Blue Shield Association.
For instance, the Blue Card program, which lets members receive service through any Blues network in the country, has allowed individual Blues plans to compete head-to-head with large, multistate insurers for national contracts. Since the program was fine-tuned in 1996, the Blues' national-account membership has surged from 9 million to a projected 15 million this year.
Serota also attributed the Blues' resurgence to the stricter financial standards implemented by the national Blues association after the 1990 bankruptcy of Blue Cross and Blue Shield of West Virginia. In order to remain licensees, all Blues plans are required to have a positive net worth and to hold reserves well above the minimum required by most state insurance departments (See Special Report, p. 30).
The requirements "were designed to ensure the financial stability that the Blues trademark represents," Serota said. "And in uncertain times, people flock to things that are secure."
Blue Cross and Blue Shield of Massachusetts has benefited from precisely that reputation, company officials said.
After suffering an $89 million loss in 1996, the Boston-based health plan secured its financial footing by selling 10 health clinics, cutting 3,000 jobs and shedding several noncore businesses. Its membership has since jumped about 35% to 2.4 million as crosstown rivals Fallon Community Health Plan, Harvard Pilgrim Health Care and Tufts Health Plan have struggled under mounting losses. The company is among the five most profitable Blues plans, with 2001 net income of $103.7 million.
"When some of the other plans hit hard times, their customers and corporate clients looked to us for brand stability," said Susan Leahy, spokeswoman for the Massachusetts Blues. "We've become a sort of safe harbor."
To be sure, the Blues have struggled under the same market pressures that have plagued other health insurers and have adapted in many of the same ways-namely through consolidation and for-profit conversions.
Mergers and acquisitions, for instance, have reduced the number of independent Blues plans to 43 today from 77 in 1990 and 114 in 1980. And since 1994, when the Blues association first permitted licensees to go for-profit, five plans have made the switch and at least five others are exploring similar conversions.
"In many respects, Blues plans have had to become much more like other commercial insurers," O'Neil said.
These changes have earned some Blues plans their fair share of critics. Pennsylvania's four not-for-profit Blues plans, for instance, face lawsuits accusing them of holding excessive amounts of money in their financial reserves (See story below). And for-profit Blues consolidator Anthem, which now covers 10.5 million members in eight states, has been scrutinized for reducing services, boosting premiums and cutting reimbursement rates.
But overall, the Blues have made great strides to ensure their long-term survival, Gannon said. According to the Weiss report, only five of 54 Blues plans operating last year (including those that are now units of larger companies) posted a loss, down from eight in 2000.
"They're positioning themselves well for the future," she said.