The departure of top executives at Health
Care Service Corp. could open the door to an eventual merger with a number of
Blue Cross and Blue Shield plans including Anthem.
The regulatory and political hurdles could be
too steep to pull off given the different ownership structures of Health
Care Service Corp., also known as HCSC, and Anthem, but these
aren’t ordinary times when it comes to deals within the health insurance
industry.
Because Anthem, the nation’s
second-largest health insurer with 41 million
enrollees, is a for-profit publicly-traded operator of Blue Cross
plans, the acquisition of HCSC would face additional layers of approvals given
HCSC is a mutual health insurer owned by policyholders. HCSC, the nation’s
fourth-largest health insurer with 16 million health plan enrollees, owns and
operates Blue Cross plans in five states.
Such mergers of investor-owned for-profit
plans and a mutual that executives inside HCSC consider “not-for-profit”
typically face intense scrutiny among insurance regulators as well as attorneys
general and perhaps even state lawmakers given proceeds of such sales can be
considered charitable assets depending on state rules.
But sources close to HCSC say the board wasn’t happy with
departed chief executive Paula Steiner because she wasn’t
thinking big enough for their liking when it came to long-term strategy and
potential deals. Health Care Service made billions of dollars and
grew under Steiner but the board wants a more aggressive long-term strategy.
“HCSC’s board of directors and new leadership
intend to pursue a more forward leaning long term strategy, while continuing to
help our members access quality, affordable health care,” HCSC said in a
statement, adding that the health insurer “won’t speculate about its strategy
or future plans.”
Still, sources say some in executive
leadership at HCSC are open to at least looking into large mergers and
acquisitions given CVS Health’s $69 billion acquisition last year of Aetna and
health insurer Cigna’s $67 billion purchase of the pharmacy benefit manager
Express Scripts. Meanwhile, the nation’s largest health insurer, UnitedHealth
Group, is spending billions of dollars buying up providers of medical care from
urgent care centers to a chain of doctor practices.
Over the years, HCSC has added smaller Blue
Cross plans that are considered nonprofit or mutual, but there hasn’t been such
an acquisition in years. There have, however, been discussions between HCSC
with other Blue Cross plans over the years but such deals eventually failed to
come together.
Across the country, other Blue Cross and Blue
Shield plans are already forming partnerships to
compete with national health insurers like UnitedHealth, CVS-Aetna, Humana and
Cigna.
The last Blue Cross plan to join HCSC was Blue
Cross and Blue Shield of Montana six years ago. Health Care Service paid just
$40 million for the Montana plan, according to reports at the time.
A merger with Anthem would be huge and likely
not face the kind of federal antitrust scrutiny that has derailed other health
insurance mergers because Blue Cross and Blue Shield plans tend to operate within certain
markets and there’s little overlap among Blues plans.
Anthem operates Blue Cross and Blue Shield plans
in 14 states, including Wisconsin and Indiana, bordering the Chicago home base
of Health Care Service, which runs Blue Cross plans in Illinois, Texas,
Oklahoma, New Mexico and Montana. These plans get their licenses from the Blue
Cross Blue Shield Association which limits the number of health plan
enrollees a Blue Cross plan can have in another Blues plans
market already.
Anthem CEO Gail Boudreaux knows HCSC perhaps
better than any executive running a health insurance company today. She was the
top executive at HCSC’s Blue Cross and Blue Shield of Illinois flagship plan
and many of the health plan’s executives and insiders thought she should’ve
been selected as CEO of Health Care Service when she was pitted against the CEO
of the Texas Blue Cross plan in a two-woman race for the top job back in 2007.
Instead, Boudreaux lost out to be Health Care
Service Corp. CEO to Texas Blue Cross and Blue Shield CEO Patricia Hemingway
Hall, who went on to lead HCSC for seven years before retiring at the end of 2015 when
she was succeeded by Steiner.
But Boudreaux has gone on to other top health
insurance roles at UnitedHealth Group’s UnitedHealthcare health insurance
business and later to Anthem where she became CEO two
years ago. Under Boudreaux, Anthem is rolling out its own pharmacy
benefit management (PBM) company called IngenioRx.
Anthem had no comment when reached Monday
afternoon regarding speculation the insurer would be interested in a deal with
Health Care Service.
Meanwhile, HCSC has historically frowned upon
the idea of converting from a mutual owned by policyholders to a publicly-traded
company, pointing to its solid balance sheet and billions of dollars in
reserves.
“Our commitment to standing with our members
will not change, even as our strategy in a dynamic industry does,” Health Care
Service said Monday afternoon through a spokesman.
Executives at Health Care Service have been
more blunt in the past about whether the insurer would one day become
publicly-traded like Anthem.
"We are a customer-owned health insurance
company, so we can focus entirely on our members without having to worry about
investor expectations," Hemingway Hall said in a 2008 interview with the
Chicago Tribune. "This gives us the freedom to look long
term and pursue solutions that can benefit the entire health-care system. Since
we do not have to meet the quarterly expectations of analysts, not everything
we do must have an immediate payback."
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