Medicaid is the new frontier for Blue Cross Blue Shield plans, and the recent announcement that two Blue plans are buying a sizeable Medicaid plan signals the changes to come.

The Affordable Care Act calls for an expansion of the state/federal program by 16 million people from 2014 to 2019. In addition, the health benefits exchanges that are also part of the ACA could cover an additional 24 million. It's likely that companies with Medicaid managed care operations will lead the charge into the exchanges. Having prior Medicaid experience could be a huge advantage as states begin assembling players for the exchanges.

Independence Blue Cross, which already had a 50 percent interest in AmeriHealth Mercy, announced this week that it is partnering with Blue Cross Blue Shield of Michigan to buy out the share owned by Mercy Health System. The group is seeking other Blue Cross Blue Shield investors.

Blue plans interest in Medicaid has been spotty. They are the dominant commercial players in most states, with a strong influence on legislative and regulatory affairs and a historic role as the insurer of last resort, providing policies for individuals (although not always affordable ones). But they have often been leery of the reimbursement offered by state Medicaid programs. Anthem Blue Cross and Blue Shield dropped out of Ohio's Medicaid program in 2008 when the state decreased reimbursement rates; the Rhode Island Blue plan pulled out of that state's Medicaid program in 2010. Regence Blue Cross and Blue Shield exited the Oregon Medicaid market in the late 1990s. But recently Oregon's Medicaid director speculated that Regence could become interested in Medicaid again; elsewhere, Blue Cross Blue Shield of Florida is participating in Florida's dramatic managed Medicaid expansion.

The reform law calls for newly eligible adult Medicaid members to have a benefit package available as a benchmark plan within the state's insurance exchange, so that those who transition into or out of Medicaid eligibility will have less disruption in their healthcare coverage. That makes participation in Medicaid a critical path to the individual market, a strong suit for Blue plans. Investing in AmeriHealth could be the easiest way for Blue Cross Blue Shield insurers to acquire Medicaid expertise and systems.

Blue Cross Blue Shield plans are the Starbucks of health insurance: they have the most complete networks, they offer numerous plan designs, they have terrific brand recognition, and they are as ubiquitous as the Seattle-based coffee emporium. Starbucks is getting a run for its money from McDonald's, which now offers premium coffee and specialty drinks; Blue Cross Blue Shield plans can't afford to let their competitors do the same in the race for 32 million new members.

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