Will Blue Cross settlement boost health plan competition in Minnesota?

Blue Cross and Blue Shield health insurers including the "Blue" health plan in Minnesota are paying $2.67 billion to settle allegations that carriers sharing the brands harmed consumers by not fully competing with one another.

Filed in 2013, the class action lawsuit alleges that dozens of Blue Cross and Blue Shield insurers across the U.S. and Puerto Rico violated antitrust laws through their operations. The insurers deny any wrongdoing, saying their conduct helped lower health care costs while expanding access to care for customers.

Last fall, the parties reached a preliminary settlement of the protracted litigation to avoid ongoing risks and costs. If finalized by a judge this fall, the settlement agreement would bring cash for customers who file claims as well as changes in how Blue Cross and Blue Shield carriers operate.

Based in Eagan, Blue Cross and Blue Shield of Minnesota estimates it will pay $72 million, or about 2.7% of the total.

Insurance agents and analysts differ on whether they think individual consumers and businesses in Minnesota will recover meaningful sums from the settlement. The bigger question is whether structural changes for the Blues will generate more competition in the state's health insurance market, said Allan Baumgarten, an independent health care analyst in St. Louis Park.

"I think you may see some mergers of independent Blue Cross plans," Baumgarten said. "It could be full mergers, or it could be more of these joint ventures — because scale is huge in these things."

Collectively, Blue Cross and Blue Shield health insurers across the U.S. provide coverage to more than 100 million people. For decades, the insurers have existed as independent companies that share a brand they can use only in their primary service areas.

The carriers' trade group says cooperative agreements among the insurers have allowed for a "Blue System," where the health plans can compete like a nationally integrated health insurer while still preserving each carrier's local focus. The settlement would leave the exclusive service areas in place for the Blue plans, but it would alter other agreements among the carriers in hopes of promoting competition.

One settlement provision would eliminate caps on revenue that the companies can generate by selling coverage through non-Blue affiliates. In theory, the change could prompt an out-of-state Blue insurer to try doing more business in Minnesota, for example, through a subsidiary that doesn't use the Blue Cross and Blue Shield trademarks.

Another settlement provision would let certain large employers seek a competing bid from a second Blue Cross and Blue Shield insurer, where current rules can limit the employer's choice to just the local Blue carrier. Finally, the settlement would limit current restrictions on acquisition of Blue health plans.

"The settlement provides historic injunctive relief to enhance competition in the market for health insurance," U.S. District Judge R. David Proctor wrote in an order issued in November.

Taken together, the changes could promote a consolidation trend that typically benefits larger carriers, said Joshua Haberman, the owner of Alexander & Haberman, an insurance agency in Bloomington. Two of the largest operators of Blue plans are Indiana-based Anthem, which is publicly traded, and a non-profit based in Illinois called Health Care Services Corp.

"It strengthens the incentive for the Blue Cross plans to merge," Haberman said.

The payout for the Blue insurers is fairly manageable, which makes it a non-event from a ratings perspective, said James Sung, a director at S&P Global Ratings.

The provision allowing large national employers to seek a bid from a second Blue insurer when hiring an administrator for self-insured health plans could be significant in some cases, Sung said. Smaller Blue plans that have worked with these accounts might now face competition from larger carriers.

"There is some risk," he said, "that the smaller Blues might lose some business, hypothetically."

But getting Blue plans to enter one another's territories through non-Blue affiliates is easier said than done. For starters, they can't use the Blue trademarks, said Thomas Greaney of UC Hastings Law in San Francisco.

Plus, the real challenge for insurers expanding into new territories is negotiating competitive contracts with doctors and hospitals, Greaney said. New carriers have trouble getting the best rates because they don't enter a market with the leverage of a large subscriber base — a business reality that the settlement won't change.

"Will it promote a wave of competition?" Greaney said. "It certainly may occur at the margins, but the long-standing obstacle to new entry for insurance plans is forming a network."

The settlement provides monetary payments to members of the class who submit valid claims by Nov. 5. After attorney fees and administrative costs, the net settlement fund to be split among claimants is estimated at about $1.9 billion.

Most of the money will go to individuals and groups that bought fully insured health plans between February 2008 and October 2020. A claimant's share of the payout depends on how much premium they paid to the settling defendants during the class period, relative to overall premiums paid by claimants.

The court will decide whether to approve the settlement after a fairness hearing scheduled for Oct. 20. Class members have until July 28 to opt out or raise objections — and at least one raised concerns earlier this month.

"This settlement should be rejected because it is proportionately lopsided; benefitting attorneys and BCBS far more proportionately than it benefits the claimants (the real victims)," C. Demuth of Goodrich, Texas, said in a court filing.