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Mega-Mergers May Push Blues to Cut SG&A, Focus More on Member Experience

2016 could see the birth of two Goliath competitors if Aetna Inc. successfully acquires Humana Inc. and Anthem, Inc. closes its deal to absorb Cigna Corp. The combined entities will have enormous scale, which will allow them to minimize overhead expenses and drive down coverage costs.

To compete against such behemoths, not-for-profit Blues plans should consider outsourcing back-office operations to reduce selling, general and administrative (SG&A) expenses, says Dustin Eggers, principal and chief operating officer at Chicago-based Stonegate Advisors, LLC. He suggests Blues plans could partner with sister companies, or look to outside vendors, to reduce claims processing and information technology (IT) costs and enhance the consumer experience.

“A lot of smaller Blues plans are really struggling with how to interact with and engage with their member population,” he says. But carriers typically don’t want to make investments if they don’t know the return on investment. While no one buys insurance coverage because of the customer experience, Eggers says Blues plans that can offer a superior customer experience will be able to differentiate themselves in the marketplace. A good customer experience, he explains, can create member “stickiness” and differentiate a carrier from the rest of the market. Companies such as New York’s startup Oscar Health are building their IT systems from the ground up to be focused on the member experience. “There is no way a regional Blue can catch up to them,” Eggers says.

“How are you possibly going to be competitive against UHG [i.e., UnitedHealth Group] or a combined Aetna/Humana if you don’t have the scale that they have? Mergers and acquisitions are going to drive SG&A costs way, way down. If you don’t find a way to capitalize on economies of scale, you are in trouble. It will result in higher premiums and will make you less competitive in your marketplace,” he asserts.

The idea of Blues consolidating back-office operations seems like something many Blues would want to consider, says Mark Rouck, a financial analyst at Fitch Ratings. “There is so much pressure on the profitability in a post-ACA world, where the government is telling carriers how much money they can make from an underwriting perspective. The only way to improve margins is on the expense side. The IT costs involved to be competitive in health insurance are huge,” he says. “But some consolidation of back-office functions, or moving to a common technology platform, could help make Blues plans more competitive.”

Greater Focus on Member Experience

Independence Blue Cross’s new Human Centered Innovation program aims to reorient traditional business-to-business (B-to-B) health insurance and put the consumer in the driver’s seat, says Brian Lobley, president of health markets. Members, in both individual and group markets, are making more financial decisions about their care. “Looking from a member-out perspective, we want to make sure we are providing tools, capabilities and products that allow them not only to manage their decision-making process about which product ts them best, but more importantly make sure they can manage their health,” he explains. “Do they know where to go, when to go and how much it’s going to cost?”

He also said it will be critical in 2016 to demonstrate value to members, particularly those who don’t typically access the health care system. Insurers, he says, are products and services companies and should strive to create a member experience similar to those offered by, Inc. or travel websites such as Orbitz.

The patient has always been in a transactional process between the insurance company and a doctor. But Lobley says Independence’s role should be more of a patient advocate that can help members make the best choices based on their situation. “Unlike car insurance, health care is very personal and emotional; you always need our product at your most vulnerable moment,” he says.

Lobley says Independence also will work to enhance its IBX Wire app, which allows it to send messages to specific groups, such as mammography reminders for women over 40, or reminders when information indicates a chronically ill patient needs to refill a prescription. “For most people, the phone is never more than a couple feet away,” he notes.

Blue Cross Blue Shield of Arizona is introducing an enhanced suite of Web-based member tools designed to increase the understanding of health care costs and the choices available. The tools will consist of calculators, provider quality ratings, patient reviews and treatment timeline estimators. And in an ongoing effort to improve the health of members while managing the ever-growing cost of health care, the Blues plan says it will continue to grow its Patient Centered Care program and its In Your Corner campaign, which is aimed at educating Arizonans on the factors driving health care costs, says spokesperson Anne Christenson.

BlueCross BlueShield of Tennessee recently launched an updated version of its HealthCare Cost Estimator, which provides members with more specific, personalized expense estimates in a simple, clear format, according to spokesperson Marie Mosley. Beginning on Jan. 1, people who have coverage through the Tennessee Blues plan will be able to access PhysicianNow, a Blue-branded telehealth service powered by MDLIVE that allows member to schedule consultations, update medical history and speak with a board-certified doctor about non-emergency conditions 24 hours a day, seven days a week via the phone or computer.

New products that integrate prevention, long-term and acute care systems will emerge in 2016, offered by new provider and payer partnerships. Medicare, Medicaid and Medicare-Medicaid dual-eligible insurers must be prepared to engage in new forms of care provision, such as that offered by family caregivers and peer providers, within provider networks, says William TenHoor, senior policy consultant for AHP Healthcare Solutions. “Careful choices about being leading-edge and not bleeding-edge participants will be necessary,” he says.

Along with consolidation among carriers, Dom DePiano, vice president of network management at Empire BlueCross BlueShield, says 2015 was a big year for consolidation among providers in New York. But some consolidation can be a benefit. Empire finalized three ACO-like arrangements with three large provider systems. “We are hopeful midyear we will see some of the results of the deals we put in place in 2015.”

But don’t expect significant growth for ACOs in 2016, says industry consultant Joseph Paduda, a principal at Health Strategy Associates, LLC. “The ACO model for private employers is moving along in fits and starts, with much of the focus on CMS initiatives,” he says. “This isn’t surprising, as the deadlines for governmental programs are ‘hard’ while employers’ demands for alternative reimbursement and quality-based compensation are modest to date. I don’t expect to see a big jump in ‘true’ ACOs among non-CMS programs in 2016.”

Contact Mosley at, Christenson at, Paduda at, Sally Kweskin for DePiano at, Ten- Hoor at and Rouck at

Copyright © 2016 by Atlantic Information Services, Inc. Reprinted with permission from Atlantic Information Services, Inc., 1100 17th Street, NW, Suite 300, Washington, D.C. 20036, 202-775-9008,

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