This past week, the Supreme Court announced that it declined to hear a case challenging the anti-trust settlement between employer groups and Blue Cross and Blue Shield (BCBS) licensee plans nationwide as well as its association (BCBSA). While no wrongdoing was admitted, BCBS plans were accused of anti-competitive behavior in the employer market by limiting employer group contracts to so-called “home plans” as well as the product options offered. It will pay a substantial settlement and must change some of the association’s practices.
You could argue the decision is a small step forward, but the decision shows what is so demonstrably wrong with competitiveness in healthcare in America. It upholds the power of entities acting as an effective monopoly in America and the fallout could even foster further consolidation of health insurers.
What are the Blues?
The so-called Blues plans originated back in the early 20th century when alliances of non-hospital providers (Blue Cross) and hospitals (Blue Shield) emerged and began offering services through financial arrangements with employers. You could call this the early insurance system. Over time, these entities became more formal insurance companies and most Blue Cross and Blue Shield plans in each area merged to provide comprehensive insurance products. The Blues offered indemnity products based on the fee-for-service transaction system – an expensive form of care that continues to be prevalent in our system today.
Blues tend to dominate employer markets and are known as the gold standard of insurance. For employers that cross state lines, it has set up a national network across its Blues plans (known as the “Blue Card”). In the group market serving large employers, the vast majority of Blues plans have a market share greater than 50%. Some of these Blues hit a 90% market share.
The Blues created a national association to advocate for their Blues brand and for the Blues’ unique position in the health insurance industry nationally. The plans argued its association and all the rules were meant to protect the quality of its brand, but it hobbled competition between the Blues plans over the years. Through the Blue Card, it also allowed Blues plans to keep their control over employer group markets natiownwide.
Why does this matter?
The Blues plans and the BCBSA have always thought in non-competitive terms – protecting the Blues plans in each state and the status quo nationally in terms of Blues’ relations with the rest of the health insurance system. The group has had both formal and informal arrangements to not compete across their general boundaries (state or regional lines). Court decisions and free market activity have begun to change this slightly. So, you do today have some Blues competing against each other in certain geographic areas.
Blues, too, have begun to consolidate. A great example is Elevance Health, a national for-profit that slowly but surely amassed ownership of 14 Blues. Another example is Health Care Service Corporation, a mutual non-profit that owns five states’ Blues plans. This is part of a disturbing trend overall where fewer and fewer independent plans exist.
The case and appellate decision
Several employers and a class of about 100 million consumers said the Blues and the association violated the Sherman Antitrust Act of 1890 by unlawfully colluding to not compete with one another, leading to higher costs. They argued that the Blues plans limited employers to contracting with BCBS entities in their headquarters’ area and required a threshold amount of certain revenue to go to Blues plans in any employer arrangements.
The Blues now must follow certain rules due to the decision as well as pay about $2.7 billion to impacted employers and $667 million to lawyers. The settlement prescribed four or five main changes, two of which I view as major. It mandated that BCBS plans drop a BCBSA rule that required two-thirds of national net revenues from health plans and related services come from Blue-branded products. In addition, employers can now work to obtain a bid from a second Blues plan outside its home (headquarters) region.
The old rules restricted employers from getting the best deal possible for their employees. But will things really change much? Except for some of the largest Blues companies out there with multiple locations, how likely is it that Blues plans not in a given company’s home state will be able to make the investment to compete with a home-state Blues plan? In terms of the Blues-branded revenue rule, it also is highly unlikely that most Blues (except again the very largest) diversify so much as to meaningfully expand to lower-cost non-Blues’ services. I also note that while Blues have adopted managed care tenets, they tend to adhere less to prior authorization and utilization management principles, which tends to drive higher costs throughout the system. That will continue to be the trend.
By declining the case, the high court effectively agreed with an appellate court ruling that the settlement does not preclude future actions challenging competitiveness and antitrust issues. But a group of employers, including Home Depot, continued to argue that the decision does indeed preclude certain actions over time and that the decision did not go far enough to stop the anti-competitive behavior. The employers are right.
The decision perpetuates geographic monopolies and the Blues’ collective hold on the employer market. It continues to allow the Blues to manipulate the system and competitiveness in the commercial world. There is little question that employers and consumers through cost-sharing will continue to pay more as competition continues to be limited. And it does seem to make it more difficult for future anti-competition suits to be brought. The Blues and the association will cite the settlement and the waiver of future action provision to stop future actions.
Let us argue that somehow the settlement promotes additional competition as the courts contend. As I note, that likely will mean large Blues competing with smaller ones and disadvantaging them. The result over time would be to cannibalize the smaller Blues’ businesses, leading to more consolidation. Over time, the bigger Blues would seek to take over these other plans, either through outright acquisition or other controlling partnerships/affiliations.
So, we either perpetuate the monopolistic Blues behavior or encourage consolidation in the insurance industry. Each means higher prices for the system. An employer could see lower costs due to large Blues’ bidding in previously off-limit markets. But that would be just for a time, as the big Blues would eat up the smaller Blues and raise prices down the road.
Feds continue to protect anti-competitive behavior
The Biden administration has said it is committed to stopping the massive consolidation in the healthcare industry. It says it wants to stop the massive horizontal and vertical integration of health plans, hospitals, and providers. It celebrates its supposed new scrutiny of anti-competitive behavior in healthcare at every pass. But the settlement seems to underscore a half-hearted effort and commitment.
It may look like reform, but the settlement actually preserves and continues exactly what Sherman was meant to tear down – activities that limit competition or carve up pieces or regions of the economy. The settlement protects the dominance of Blues within their states and regions for small- and medium-sized businesses wholly within the Blues plans’ borders. Financial realities largely will mean the anti-competitive status quo remains in the market where employers span Blues’ regions. The Blue Card allows the plans to operate as a massive national plan, protected by the court ruling. Collectively the Blues dictate price, premiums, and costs in the healthcare system. High costs will continue to be the rule, whether the employer goes full risk or self-insured. Where some changes could occur, large Blues take over smaller Blues and increase prices in the system over time even more.
A much more radical approach to promote competition should have been sought by the Department of Justice and the Federal Trade Commission, one covering Blues and non-Blues alike. We need regulators who will tear down the massive walls to competition in healthcare and take anticompetitive behavior head-on. This settlement didn’t do it. Despite some small reforms, about $2.7 billion was a small price for the Blues to pay for their ongoing protection. So much for Sherman and competition. Where is Trust Buster Teddy Roosevelt when you need him.
Sources and additional reading:
https://www.modernhealthcare.com/legal/supreme-court-bcbs-settlement-home-depot
https://www.fiercehealthcare.com/payers/supreme-court-declines-hear-challenge-27b-bcbs-settlement
https://jamanetwork.com/journals/jama-health-forum/fullarticle/2799531
#blues #bcbsa #hcsc #elevancehealth #healthcare #healthcarereform #antitrust
— Marc S. Ryan
