Mass. Blues get healthy

It works: Massachusetts Blue Cross Blue Shield cut costs substantially in recent years, raising enough cash to underwrite health care for the poor via a foundation.

February 17, 2002|By M. William Salganik | M. William Salganik,SUN STAFF

BOSTON - As Blue Cross plans across the country are merging, acquiring or being acquired, and converting to for-profit status, Blue Cross Blue Shield of Massachusetts remains comfortably local and resolutely nonprofit.

It's not alone. A dozen other Blues plans, large and small, are members of a coalition called Advancing Non-Profit Health Care. But the Massachusetts Blues are among the most outspoken - and the most successful.

The nonprofit Blues seem to be swimming against the tide. Blues plans in about a dozen states have switched to for-profit operation in the past decade.

Maryland's largest health insurer, CareFirst BlueCross Blue- Shield wants to join them. It is seeking permission from regulators to convert from a nonprofit and sell itself to giant WellPoint Health Networks Inc. for $1.3 billion.

A conversion bill just passed New York's legislature, and one has been introduced in Pennsylvania's General Assembly. The North Carolina Blues also are seeking permission to convert.

WellPoint just closed a deal for the Missouri Blues, less than a year after it bought the Georgia plan. The Kansas Blues tried to sell themselves, but the state's insurance commissioner vetoed the sale last week.

In those deals, the same rationale is given again and again: The Blues plans need more size and more capital to thrive.

William L. Jews, CareFirst's president and chief executive officer, told Maryland legislators this month that if CareFirst can't move ahead with the WellPoint deal, "in three years, I'll be sitting in front of you saying our company is impaired."

William C. Van Faasen begs to differ.

Van Faasen, president and CEO of Blue Cross Blue Shield of Massachusetts, thinks that large or small, local or national, for-profit or nonprofit, well-run health plans can thrive.

He prefers nonprofit, saying, "I believe we've got a commitment to the community, and the community should realize some dividends." He doesn't think for-profit Blues plans are evil - "This isn't religion to me," he commented. But he certainly doesn't believe conversion is a necessity.

"I find it fascinating," he noted, "that the people who want to convert, and the investment bankers who benefit from conversion, have generated momentum for the intellectual idea that this is an imperative."

The Massachusetts Blues performance appears to back up his argument. Over the past few years, the insurer has posted big gains in membership, operating margin and reserves.

Of 15 Blues plans, both nonprofit and for-profit, tracked in a study in the current issue of the journal Health Affairs, the Massachusetts plan had the largest increase in revenue over the past three years (39.7 percent) and the second-largest increase in membership (23.1 percent, just behind WellPoint's 26.3 percent).

After overcoming financial troubles, the Massachusetts Blues have become so prosperous that the insurer set up a foundation a year ago to help the state cope with unmet health needs, pledging $55 million over four years.

"They've got so much dough they want to do something good with it," said John McDonough, a health policy professor at Brandeis University and a former Massachusetts legislator. "After years of focusing on profitability, they now have the luxury of doing this."

That luxury comes after the plan made some tough business decisions. Van Faasen doesn't agree with a contention of some of CareFirst's critics - that a nonprofit Blues plan should swallow operating losses in some lines of business in order to provide coverage to more people.

In the current market, he said, it is the Blue Cross Blue Shield of Massachusetts Foundation - but not the company directly - that will have to take on the task of expanding coverage.

"It's a contemporary expression of our historic mission," Van Faasen says

With competitors willing to insure the young and healthy, Van Faasen said, Blues plans can't afford losses on the poor, the elderly or the chronically ill, because that would drive up premiums for others.

"If it becomes a transfer tax onto your commercial base," he said, "you're setting up an invitation for your customers to leave."

When Blues plans were created in the Depression, the idea was that they would cover everyone at the same reasonable premium rate. That worked for decades, but changed quickly as rivals launched managed care plans that offered good rates to healthier patient groups, leaving the Blues with less healthy members.

Like other Blues insurers, the Massachusetts Blues suffered hard times as HMOs began aggressively winning business with lower premiums than Blues charged for traditional insurance. Two nonprofit HMOs, Harvard Pilgrim Health Care and Tufts Health Plan, grew quickly in the Bay State.

"The Blues of Massachusetts had a fair amount of financial trouble in the early '90s," said Joy Grossman, associate director of the Center for Studying Health System Change and author of a report on the changing role of Blues plans. "As the HMOs took off, they ... lost market share."

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