The Blues Still Have the Blues

Last Updated Aug 26, 2008 1:34 PM EDT

Blue Cross Blue Shield -- The Blues Get WorseTimes just aren't getting any better for nonprofit Blue Cross and Blue Shield health plans. Not only has operating income hit the skids, but pressures to merge or convert to for-profit status keep rising. Consider:
Why is all this happening now? The organizations themselves claim they need to get bigger or tap public markets just to keep up. Horizon, for instance, argues that needed investment in information technology and quality initiatives will exceed its annual budget by almost a factor of two. Similarly, Independence and Highmark insist that they have to get bigger to compete for corporate accounts against other insurance giants that can offer to handle employee coverage across vast geographies.

There are other advantages, too, as the WSJ notes:

More than a decade ago, health insurers operated largely on a state-by-state basis, or in regions within states, Mr. Field noted. Now, the remaining smaller players must compete against major operations such as WellPoint, UnitedHealthGroup Inc., Humana Inc., Aetna Inc. and the nonprofit Kaiser health plans, he said.

Mr. Field considers WellPoint and Humana the most likely purchasers of Blue Cross Blue Shield plans. A Humana spokesman didn't comment Friday.

In addition to presenting acquisition opportunities, conversions can benefit publicly traded managed-care companies in another way. Nonprofits are required to keep cash surpluses under certain levels, and that can translate into lower pricing that places competitive pressures on for-profit plans.

It's also true, of course, that larger insurers have more leverage for negotiating discounts with hospitals and doctors. In today's whack-a-mole healthcare system, that's really the name of the game.

  • David Hamilton On Twitter» On Facebook» On Google+»

    David Hamilton is the assistant managing editor of CNET News. He has been writing and editing business and tech coverage for about two decades -- the majority of that at the Wall Street Journal in both Tokyo and San Francisco. He is a two-time winner of the Overseas Press Club award and has written for numerous magazines and blogs, including Slate, Science, VentureBeat, CBS Interactive's BNET, California Lawyer and the New Republic.