How aggressive is Highmark going to be with M&A of other Blue plans, specifically plans in Florida and Minnesota? Will government regulators be favorable to mergers outside Pennsylvania markets?
Highmark has focused its Blue plan acquisitions on plans near its western Pennsylvania home base, buying Blue plans in Delaware (2010) and West Virginia (1999), and preparing to take on Blue Cross of Northeastern Pennsylvania. So there is precedent for Highmark to acquire insurers outside Pennsylvania, but these have been situations where Highmark was the larger organization using smaller acquisitions to expand its service area. Highmark has about 2.9 million lives in Pennsylvania, compared with about 378,000 in Delaware and 208,000 in West Virginia.
Taking on the Blue plans of Florida or Minnesota would be a much larger undertaking, and out of line with Highmark's strategy up to this point. Florida Blue has 3.4 million total lives and Blue Cross and Blue Shield of Minnesota has 2.3 million. Highmark may be more likely to acquire, for example, a smaller regional Blue plan from upstate New York, such as The Lifetime Healthcare Cos. (aka Excellus BCBS) or HealthNow New York (BCBS of Western New York). But with the launch of its own integrated delivery network (Allegheny Health Network) and a protracted battle with longtime rival UPMC, Highmark may not be eager to launch aggressively into insurer M&A. (Interestingly, UPMC spinoff Evolent Health could give UPMC Health Plan influence over a wider geographic area than Highmark; the company specializes in advising health systems preparing to launch their own health plans, and may be using UPMC formularies and other items as templates).
The closest Highmark has come to taking on a large Blue plan was in the past decade, when the insurer attempted to merge with Philadelphia-based Independence Blue Cross. That deal was called off in 2009, and may have been rejected by state regulators anyway if it had gone forward. Highmark and IBC continue to cooperate on some administrative tasks, and the merger fires could once again be rekindled. Independence Blue Cross could be an interesting partner for Florida Blue and other Blue plans, something I explored in an earlier blog.
IBC received permission from the state in June 2014 to reorganize its corporate structure to create a nonprofit parent holding company, with different divisions organized underneath, including the nonprofit Independence insurance division and a for-profit AmeriHealth division. Florida Blue and BCBS of Michigan have undergone similar restructurings in recent years, and these three companies have partnered together on the AmeriHealth Medicaid product line. Of note, BCBS of Minnesota has had a similar structure, under the parent holding company of Aware Integrated Inc. This type of structure ostensibly gives the corporation greater flexibility in business dealings and streamlines the company's divisions.
These Blues could potentially form a new nonprofit Blue alliance, similar to Health Care Service Corp. or Regence. HCSC started with the 1998 merger of the Illinois and Texas Blue plans, and has since expanded to include Oklahoma, New Mexico, and Montana. Regence, a similar regional alliance of Blue plans in Oregon, Washington, Utah, and Idaho, attempted an affiliation with HCSC in 2001, but state regulators in Oregon and Washington pushed back. Portland, Ore.-based Regence rebranded itself as Cambia Health Solutions in November 2013.
As of right now, I suspect that Highmark will continue to focus on being a tightly structured insurer focused on the Mid-Atlantic, while the large nonprofit Blues of the eastern United States have the potential to form multistate health alliances.
Follow Mark Cherry on Twitter @MarkCherryDRG.