Blue Cross and Blue Shield companies Highmark and HealthNow New York have agreed to form an affiliation that they say will lead to better services and lower costs for health plan members.
Under the agreement, Pittsburgh-based Highmark, which serves members in Pennsylvania, Delaware and West Virginia, would acquire the Blue Cross and Blue Shield license that HealthNow maintains. Together, the companies would provide insurance to nearly 6 million members.
Highmark entered similar agreements with Blues plans in Delaware in 2010 and in West Virginia in 1999.
"The objectives driving this affiliation are focused on our shared desire for better health solutions for HealthNow members that can increase customer and clinician engagement, create better health outcomes, manage costs and improve affordability," David Holmberg, chairman of Highmark, said in the news release. "This affiliation will also enable HealthNow to take advantage of Highmark's resources, tools and advanced technologies."Operationally, the deal looks like a merger, except that no money will change hands between the two not-for-profits. While HealthNow plans would be branded as Highmark plans, executives from the two companies emphasized that HealthNow would maintain its local presence. It would keep its headquarters and regional office in New York and continue to be governed by its current board of directors.
During a conference call with journalists on Tuesday, HealthNow CEO David Anderson explained that the affiliation, which has taken six to eight months to hammer out, is largely about attaining scale. Integrating with Highmark would allow HealthNow members access to advanced technology and innovative products. It will help the two insurers compete with large, national companies.
While conversations around the agreement predated the COVID-19 crisis, the pandemic created significant risks to local health plans and reaffirmed why the combination was needed, Anderson said.
"At the end of the day, a company's size matters, particularly in healthcare," he said. "This affiliation gives us more leverage across the healthcare spectrum."
Highmark would also benefit from the affiliation through increased scale, efficiencies, access to talented workers and credibility with policymakers, according to Highmark President Deborah Rice-Johnson. She said the deal would add about 600,000 members to Highmark's insurance rolls, increasing its government business by a "couple hundred thousand" members. Highmark executives declined to provide an estimate of the amount of cost savings the combination would produce.
When asked if the agreement would lead to job cuts, Holmberg said that Highmark's past affiliations resulted in the addition of more jobs. "Our objective is to figure out how do we bring more talent onto the team," he said.
The affiliation requires approval from regulators in New York and Pennsylvania. The companies hope to gain approval by the end of the year.
Highmark served 5.6 million members in 2019. Highmark Health, the parent company of Highmark, reported net income of $843 million on revenue of $18 billion in 2019. Highmark Health also includes Allegheny Health Network, an integrated delivery system.
According to its website, HealthNow brings in $2.6 billion in annual revenue. Beyond the health plans, the affiliation agreement also includes HealthNow Administrative Services, which serves 100,000 customers. The agreement was unanimously approved by both health plans' boards of directors.