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Many people think Blue Cross and Blue Shield is the name of a health insurance company.  When asked, we often hear people say, “My health insurance is through Blue Cross”.  They get confused when followed-up with the question “Okay, but which Blue Cross affiliated company?”  Blue Cross and Blue Shield is not a health insurance company.  It is a trademark, or brand name, that independent health insurance companies may license from the Blue Cross Blue Shield Association (BCBSA).  The BCBSA is composed of 36 independent licensees of the Blue Cross or Blue Shield trademark.  These independent licensees are the Blues affiliates, and collectively, they provide health insurance to over 100 million people in the United States (i.e., about one-third of the U.S. population).

Why would companies pay to license a Blues trademark?  The same reason why companies pay to have celebrities endorse their products…for their reputation.  The Blues trademarks have historically held a very strong brand awareness within the health care industry.  The brand has so much awareness that, many people think Blue Cross and Blue Shield is the company providing them with insurance.  As such, the Blue branding brings a lot of value to health insurance products sold by the independent licensees.  As a Blues affiliate, the licensee receives the exclusive right to advertise as a Blue plan within the regions covered by the license.  The affiliate may license either the Blue Cross trademark, the Blue Shield trademark, or both trademarks.  If both trademarks are licensed, then the affiliate can advertise as “Blue Cross Blue Shield”.  If only one trademark is licensed, then the affiliate can only advertise as the one licensed (i.e., either “Blue Cross” or “Blue Shield”).

With each Blues license comes a defined territory within which the licensee has the exclusive legal right to advertise as a Blues plan.  There are some instances where two distinct affiliates can both advertise themselves as Blue plans within the same region (i.e., one is the Blue Cross plan in the region and the other is the Blue Shield plan in the region).  In these cases, the two affiliates compete with each other, which is somewhat rare for BCBSA members. Only a handful of states have Blue licensees that compete against each other; for example, California, Idaho, and Pennsylvania.  Usually, a single affiliate is the sole Blue Cross and Blue Shield licensee across one or multiple states and there is no competition from other Blue plans within those regions.  That does not necessarily prohibit other Blue affiliated companies from competing in that region, it just means those companies cannot advertise themselves as a “Blue plan” in those regions.  However, since the “Blue” recognition is so important to the marketing success of these companies, it means that most Blues affiliates will decide not to compete in regions where they must advertise unbranded (i.e., without the use of the Blue brand).

Some Blue plans have developed very strong reputations on their own even without the Blue Cross or Blue Shield branding.  For example, Anthem Inc. has substantial recognition in the health insurance industry with its corporate brand name “Anthem”.  Anthem is the largest Blues affiliate with 40+ million members across 14 states or about 40% of total Blues membership.  Historically, Anthem has aggressively taken opportunities to expand its Blue-branded business when Blue licenses have become available.  Anthem has even tried to expand its non-Blue branded health insurance business considerably in the recent past with the attempted merger with Cigna, but they ran into a legal issue with the BCBSA (in addition to antitrust concerns from regulators).  The BCBSA requires that its affiliates maintain a minimum of two-thirds of their national health plan revenues from their Blue-branded business.  This requirement hinders the ability of Blues affiliates to expand their market share even if they wanted to proceed unbranded.

About a decade ago, the two largest health insurers in Pennsylvania, both Blues affiliates, had an agreement to merge into a single company.  State regulators, however, worried the merger of the two large Blues affiliates would limit market competition and thus hurt consumers.  Regulators made an offer that if the two companies wished to continue with the merger, they would have to surrender either the “Blue Cross” or “Blue Shield” trademark which would then allow another company to license the surrendered trademark and compete as a Blue plan in the Commonwealth.  The merger did not take place as neither company was willing to surrender either of their Blue trademarks.  If the two companies had proceeded and given up one of their Blue trademarks, it would have given another Blue affiliate, such as Anthem, the opportunity to enter the market as a Blue plan and compete in the same market space.

Concerns about competition between Blue plans do not end there, though. The BCBSA and the Blues affiliates are currently facing an antitrust lawsuit brought by some of their contracted providers.  And another antitrust lawsuit against the BCBSA and its member companies just came to a provisional close this September.  In the dispute, over one million Blue affiliate policyholders alleged that BCBSA policies limited competition in violation of antitrust laws. The BCBSA has tentatively agreed to a $2.7 billion payout to settle the claims, though the settlement won’t be finalized until it has been approved by the presiding judge on the case as well as the boards of all three dozen BCBSA member insurers.

“In the dispute, over one million Blue affiliate policyholders alleged that BCBSA policies limited competition in violation of antitrust laws.”

In the suit, the plaintiffs argued that specific BCBSA practices violated federal antitrust laws, including the very first antitrust law passed in the US (the Sherman Act of 1890). Two of the BCBSA practices that allegedly limited competition include the following:

  • Member companies were required to earn a minimum of two-thirds of their national net revenue from Blue-branded products and businesses (as discussed above)
  • Employers with a nationwide or geographically diverse workforce were required to apply for Blue coverage through whichever BCBSA company was located in the same region as their corporate headquarters[1]

As part of the antitrust settlement, the BCBSA has agreed to drop the requirement for Blues affiliates to have a minimum of two-thirds of their health plan national revenue come from Blue-branded business.  The other major change would relax the BCBSA rule that national employers must obtain Blue Cross Blue Shield health insurance coverage through the Blue licensee where the company’s headquarters is located.  Under the new rule, employers would be able to request a bid from a second Blue affiliate.

Both of these changes would give Blues affiliates, such as Anthem, the ability to expand their market share and compete with other Blues affiliates as long as they do so without marketing themselves as a Blue plan (i.e., unbranded).  Given that Anthem has historically pursued opportunities to expand both their Blues and non-Blues health plan business, we believe that Anthem will view this as an opportunity to aggressively expand and compete in the markets against the other Blues affiliates.

These proposed BCBSA rule changes could have wider-reaching consequences for Anthem (and other large Blue affiliates).  Prior to the rule changes, Anthem’s merger with Cigna failed, but perhaps it would have succeeded if the rules had changed earlier.  A merger of similar magnitude can, and probably eventually will, happen because of the rule changes in the near future. This will result in less market competition by definition.  Such a merger may end up hurting consumers rather than helping them as intended by the rule changes.

Ultimately, the purported goal of the settlement-induced rule changes is to help consumers by increasing competition. The additional competition among Blues affiliates may help the consumer in the short-term by keeping premium rate increases in check as the affiliates aggressively compete for members.  However, we are not as certain about the potential mid-term and long-term consequences of the BCBSA rule changes.  The added competition may financially hurt some of the smaller Blues affiliates that are already struggling to compete with non-Blue national health plans such as United Healthcare, Aetna, Cigna, and Humana.  There is a very good possibility that the increased competition will lead to a series of merger and acquisition (M&A) activity amongst the Blues affiliates, which may end up resulting in less competition.  It may also result in more M&A activity between Blues and non-Blue plans as well.  In other words, these well-intentioned efforts to increase competition may ultimately result in market consolidation and fewer options for consumers.

As we discussed above, many companies currently hold Blue licenses. And these new BCBSA rules may encourage more competition between these companies in the short-term.  Policyholders are hoping they will emerge as the beneficiaries of this lawsuit.  But while policyholders may win this battle, they will ultimately lose the war if Anthem uses this opportunity to out-compete the other Blue plans and force them into consolidation.  We see one clear winner here—Anthem!


[1] Such plans could opt to cede the business to another BCBSA member company if they so chose

About the Author

William Bednar, FSA, FCA, MAAA is a Principal and Consulting Actuary at Axene Health Partners, LLC and is based in AHP’s Murrieta, CA office.

About the Author

Stephanie Entzminger, FSA, MAAA, is a Consulting Actuary with Axene Health Partners, LLC and is based in AHP’s Temecula, CA office.