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 (NYSE:UNH), Humana (NYSE:HUM), and Aetna (NYSE: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.