The Wall Street Journal “Blue Cross Plans Feeling Pressure to Consolidate” reports that Pennsylvania’s two largest non-profit Blue Cross plans are seeking regulatory approval to merge and New Jersey’s largest health insurer filed an application to convert from non-profit to for-profit. At this point Pittsburgh’s Highmark and Philadelphia’s Independence Blue Cross are not requesting a for-profit conversion. New Jersey’s residents are lucky that they live in a guaranteed issue health insurance state if Horizon Blue Cross is allowed to convert.
Unfortunately, Pennsylvania is not a guaranteed issue state so a for-profit conversion would leave their residents with no insurer of last resort. The Pennsylvania Blues still offer a selection of plans with no medical underwriting. Do any of the for-profit health insurers offer guaranteed issue for individuals in Pennsylvania?
WellPoint (WLP) controls 14 for-profit Blue Cross plans, and these three holdouts look appetizing. These Blues have large memberships and high quality operations. Large insurers such as UnitedHealth Group (UNH), Humana (HUM), and Aetna (AET) don’t like the competition from the non-profits. The non-profits are required to cap cash surpluses incentivizing them to lower premiums.
Conversion to for-profit would bring management higher pay, bonuses and perhaps stock and option incentives. Mergers could bring economies of scale, but these three are already very large. I see no public good coming from any of these transactions.
It appears that the Pennsylvania Blues are building mass to be in a better merger negotiating position after the combined company turns for-profit in the future. Then WellPoint or another monster will come calling. There should be a moratorium on for-profit health insurance conversions until we have federally mandated guaranteed issue.
Disclosure: Author is long UNH.
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Unfortunately, Pennsylvania is not a guaranteed issue state so a for-profit conversion would leave their residents with no insurer of last resort. The Pennsylvania Blues still offer a selection of plans with no medical underwriting. Do any of the for-profit health insurers offer guaranteed issue for individuals in Pennsylvania?
WellPoint (WLP) controls 14 for-profit Blue Cross plans, and these three holdouts look appetizing. These Blues have large memberships and high quality operations. Large insurers such as UnitedHealth Group (UNH), Humana (HUM), and Aetna (AET) don’t like the competition from the non-profits. The non-profits are required to cap cash surpluses incentivizing them to lower premiums.
Conversion to for-profit would bring management higher pay, bonuses and perhaps stock and option incentives. Mergers could bring economies of scale, but these three are already very large. I see no public good coming from any of these transactions.
It appears that the Pennsylvania Blues are building mass to be in a better merger negotiating position after the combined company turns for-profit in the future. Then WellPoint or another monster will come calling. There should be a moratorium on for-profit health insurance conversions until we have federally mandated guaranteed issue.
Disclosure: Author is long UNH.
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