Arkansas Blue Cross Prepares for Change

Two years after President Obama signed the Affordable Care Act, officials at Arkansas Blue Cross & Blue Shield still are scrutinizing the legislation to determine what it will mean for its organization and policyholders.

(Click here for a list of the largest private companies in central Arkansas.)

“I think the conclusions are: There are a lot of unknowns,” Mark White, president and CEO of ABCBS, told Arkansas Business last week. “For instance, essential benefits have yet to be defined, so we don’t know what’s going to be included there.”

Not to mention that the U.S. Supreme Court is considering the constitutionality of requiring most people to have or buy health insurance starting on Jan. 1, 2014. The justices are expected to rule this summer.

In the meantime, ABCBS is operating on the assumption that the high court will uphold the legislation. Otherwise, the company might fall behind and not be able to catch up to other insurance carriers, White said.

“We’re just continuing on with our planning like that wasn’t in play,” he said. “If we see a change of direction that’s dictated by the court, then we’ll adjust.”

ABCBS, which offers group and individual health insurance, reported revenue of $1.27 billion for 2011, up nearly 5 percent from 2010. Its revenue placed ABCBS No. 4 on this week’s Arkansas Business’ list of largest private companies ranked by revenue. It was No. 4 on last year’s list too.

Blue Cross’ revenue has been climbing steadily since 2003, when it was $901.7 million. It crossed the $1 billion mark in premium collected in 2008.

“They have a very wide network of physicians, so from the consumer’s perspective, they have a lot to choose from,” said Greg Hatcher, owner of the Little Rock insurance firm The Hatcher Agency. “They do a great job, and they’ve been able to keep their expenses very low.”

Another plus is ABCBS is a nonprofit mutual insurance company.

Having a nonprofit status helps ABCBS because it doesn’t have to pay shareholders, Hatcher said. Its net income in 2011 was $46.45 million, down 26.67 percent from a year ago. Still, the net income is held for the benefit of members to be used to pay claims or expenses when revenues aren’t enough to cover them.

White said he was pleased with 2011’s numbers, and ABCBS had a membership growth of about 5 percent in 2011 to about 377,800 members.

White said the company expected the 2012 premium to be about the same as 2011.

ABCBS also has several subsidiaries, including Health Advantage, which it owns 50 percent of along with Baptist Health of Little Rock, Blue Advantage Administrators of Arkansas and USAble Corp.

Growth
Founded in 1948, ABCBS was a fairly small company up until the 1960s, White said. A turning point came with the creation of Medicare and Medicaid.

“I think prior to that, a lot of individuals chose not to buy insurance and a lot of groups chose not to offer it,” White said.

But with the creation of the government insurance programs, health insurance was becoming standard and ABCBS started to see its membership grow.

In the meantime, health care costs were rising. By the early 1990s, “managed care” — the term applied to closed networks of health care providers that were guaranteed access to more insured patients in exchange for discounted prices — had swept the country in an attempt to slow health care inflation.

Traditional indemnity plans that paid 80 percent of whatever a doctor or hospital chose to charge were becoming hard to find for most employee groups.

In Arkansas, the concept of managed care went further than other arrangements. In 1993, market leader ABCBS partnered with Baptist Health to form the health maintenance organization known as Health Advantage.

Some doctors and hospitals were eager to enter into contracts with insurance providers so they would have a steady flow of patients. Other doctors and hospitals also wanted to join the ABCBS network, but they were shut out, which they said was unfair.

In an attempt to make things equal, Arkansas legislators passed the Patient Protection Act of 1995, which requires the same terms as the incumbent in-network providers.

ABCBS fought the legislation all the way up to the 8th Circuit Court of Appeals in St. Louis. The legislation was upheld in 2005 and “any willing provider” went into effect.

Health Care Reform
If the Supreme Court upholds the “individual mandate,” the key provision of health care reform, which requires most Americans to have health insurance, White predicts more changes are in store for ABCBS.

“My sense, based on what I know today, is certainly our administration is going to be more complex than it has been,” he said.

ABCBS will have to scrutinize its products and rates, he said.

Some parts of health care reform have already taken affect. Insurance companies can no longer deny coverage to children under the age of 19, and group policies must cover dependents up to age 26.

In addition, the minimum loss ratio for insurance companies has gone into effect. For groups with fewer than 100 employees, insurance companies have to spend 80 percent of the premium collected on medical care or send policyholders a refund. For groups with more than 100 people, the minimum loss ratio is 85 percent.

“We have to be a lot smarter in the future than we’ve been in the past [and] be more efficient,” White said.

Hatcher, of the Hatcher Agency, said he expects that Arkansas Blue Cross’ premiums will continue to rise if ACA is upheld because health insurance companies will be required to cover more procedures than they cover now.

And that costs more money, he said.

“That’s the part the customer doesn’t always understand,” Hatcher said. “The more things you cover, the more claims are paid out.”