From The AIS Report on Blue Cross and Blue Shield Plans. Not affiliated with the Blue Cross Blue Shield Association or its member companies.

Del. Blues/Highmark Affiliation Will Boost Pittsburgh-Based Insurer

- January 2012 - Volume 11 Issue 1

Highmark Inc.’s affiliation with Blue Cross and Blue Shield of Delaware, approved on Dec. 30, will strengthen the Pittsburgh-based insurer, while the integration of the Delaware Blues plan into Highmark should not create many issues, one former insurance executive tells The AIS Report.

“Highmark is one of the most progressive, risk-taking and forward-thinking of all the Blues plans, even though they don’t operate in one of the larger U.S. markets,” says Henry Loubet, vice president and chief strategy officer at Keenan, a California-based consulting and insurance brokerage firm.

“I believe this transaction will further strengthen Highmark and not be much of a transaction,” adds Loubet, a former CEO for UnitedHealthcare’s western region. “Acquisitions like this invariably create some distractions during the integration but given the size of Delaware, I don’t see it as overly problematic.”

The affiliation won the blessing of Delaware Insurance Commissioner Karen Weldin Stewart (D), but not without 49 conditions attached to the approval. However, the Delaware Blues plan tells The AIS Report that both insurers do not have objections to any of those conditions and expect all aspects of the affiliation to be complete over the next 18 months.

Delaware Blues plan spokesperson Gail Street says that the most visible change as part of the affiliation is that the insurer’s name will change to Highmark Blue Cross Blue Shield Delaware, which will take place later this year along with a branding campaign.

“Representatives from BCBSD and Highmark worked together during 2011 to develop a detailed affiliation plan, which provides a roadmap for the next 18 months,” she tells The AIS Report. “Accordingly, BCBSD and Highmark will begin implementation of the plan immediately.”

Affiliation Provides Tech Upgrades

The affiliation, which would provide much-needed upgrades to the Delaware Blues’ technology platforms, originally was proposed in October 2010. After 14 months of evaluation and public hearings on the matter, Weldin Stewart agreed with the Blues plan’s arguments that affiliation with a larger non-profit insurer would provide for additional development of new products, more prompt payments of claims, improved technology, regulatory compliance improvements and more professional expertise.

“I have watched with great concern as [the Delaware Blues] and other small health insurers have struggled to compete with large national insurers who have billions of dollars of capital and resources,” she said. “These small companies have limited ability to make the changes required by today’s health care reforms.”

Weldin Stewart’s approval did not come as a surprise, as former Delaware Family Court Judge Battle Robinson, hired by the Delaware Department of Insurance to hold hearings and evaluate the affiliation, in November recommended that the affiliation be approved.

However, the approval was not welcomed by everyone. State Attorney General Beau Biden (D), who throughout the review process voiced concern that the Delaware Blues plan’s reserves could get moved to Pittsburgh, said the affiliation was a “bad deal for Delawareans and should not have been approved.” His request that the Delaware Blues plan set aside $45 million to support uninsured residents was not included as one of the conditions (HPW 10/3/11, p. 1).

“The insurance commissioner should have at least required that an independent foundation, not one controlled by BCBSD and Highmark, be established to ensure that the $45 million in reserves stay in Delaware for the benefit of Delawareans,” Biden said.

Still, Weldin Stewart did include several conditions requiring the Delaware Blues plan to set aside $35 million for community support programs, including $20 million for the Blue Prints for the Community Fund. In addition, the Blues plan must set aside $10 million in reserves to reduce premium growth for individual and small-group subscribers from 2012 to 2015. Also, the Blues plan will devote an additional $3 million into Delaware’s Children’s Health Insurance Program, a stipulation added by Stewart.

The commissioner also included a condition that the Blues plan’s reserves must be used only for the benefit of the plan’s subscribers. Moreover, its board of directors must include five Delaware residents who have no ties to Highmark or the Delaware Blues.

The affiliation approval comes nearly three years after Highmark and Independence Blue Cross, which is based in Philadelphia, abandoned plans in January 2009 to merge once it became clear the Pennsylvania Insurance Department would not approve the deal. If that deal had gone through, it would have created the largest health insurer in the state (The AIS Report 2/08, p. 7).

Contact Weldin Stewart via Elliott Jacobson at (302) 674-7303 and Street at gail.street@bcbsde.com.