Anthem's June 20 proposal to purchase Cigna Corp. has stumbled in part because of one big unknown: how the deal would hold up against the licensing rules of the Blue Cross and Blue Shield Association, which controls utilization of the Blue brand by all BCBS carriers, including Anthem's 14 Blue subsidiaries.
Anthem is the largest and most powerful member of that association, and Anthem CEO Joseph Swedish has said his board is sure that it?made up of all 37 Blue carriers?won?t stand in the way of a merger that essentially puts for-profit Anthem in direct competition with every independent Blue plan. Swedish, in a conference call with investment analysts, also noted that the combined company would aggressively pursue Medicare Advantage business in Florida, Texas, and other non-Anthem states.
BCBSA licensing agreements disallow Blue carriers from selling Blue-branded products in another Blue plan's territory. Further, Blue plans are limited in the amount of nonBlue-branded business they can do in direct competition with their Blue brethren. Anthem, as the only shareholder-owned Blue entity, has been poking holes in these requirements for years, most significantly with its 2012 purchase of national Medicaid giant Amerigroup. But in that situation, most of the Blue plans shrugged it off due to their own lack of interest in the Medicaid business.
So the question is, will Anthem be able to convince BCBS Association members to give its merger the green light? And with what limitations or conditions?
Consider what happens if BCBSA members refuse; Anthem could simply abandon the Blue Cross and Blue Shield brand and exit the association altogether. If so, the company would have to pay a significant fine for exiting, would have to rebrand its subsidiaries and products as Anthem, and would lose the best-known and most highly regarded brand in the business.
That scenario also holds potentially ruinous consequences for the BCBS Association's remaining members, which would have a 14-state hole in their national Blue Card network, the reciprocal collaborative that allows all Blue plans to compete for national and multistate employer accounts. The Blue Card is critical to the viability of state-based independent Blue plans, which need to retain their national network to remain competitive.
In addition, a now-larger Anthem would then be free to expand as it wished beyond its 14-state Blue plan boundaries, becoming a truly national for-profit health insurer.
The Cigna purchase clearly puts Anthem in direct competition with independent Blue plans on their home turf for their bread-and-butter business: employer-based health insurance. BCBS Association members, understandably, will be loath to permit such a clear violation of the letter and spirit of the licensing agreement. But on the other hand, given each one's need to keep the Blue Card network intact, do they have a choice?
And with a potential rash of consolidation happening among the other major national insurers (see my June 18 blog on this topic), can the BCBS Association members afford to weaken their own plans? ability to offer national coverage?
The Blue brand?the most popular and well-known in the industry?is a major asset. In most states, the Blues function as nonprofits with deep ties to their local communities. They?re also typically the only coverage option available in many rural areas.
Certainly, a unified BCBS Association could seek out an arrangement with a rental network that could fill national network gaps left by an Anthem exit. And the largest and more ambitious Blue plans?such as those of Florida, Massachusetts, Michigan, and Tennessee?might welcome the chance to expand their territory into Anthem states like Connecticut, Georgia, Ohio, Virginia, and Wisconsin with Blue-branded products.
But one thing is certain, as national health carriers continue to rush toward further consolidation, the independent Blue plans may be in a real fight for survival.
Follow Paula Wade on Twitter @PaulaWadeDRG