Blues create foothold in Medicaid market

September 1, 2011

Two independent Blues plans have announced a strategic joint investment, expecting to capitalize on future opportunities in Medicaid business.

PHILADELPHIA-Two independent Blues plans have announced a strategic joint investment, expecting to capitalize on future opportunities in Medicaid business. Last month, Blue Cross Blue Shield of Michigan (BCBSM) announced it would acquire minority ownership of the AmeriHealth Mercy Family of Companies, creating a relationship with current owner Independence Blue Cross (IBC).

BCBSM essentially bought out Mercy Health Plan's interest in the Medicaid organization. IBC and Mercy, based in Philadelphia, had shared equal ownership of AmeriHealth since 1996. Now, IBC will have 60% ownership, with BCBSM having 40% ownership.

There's no doubt Medicaid managed care plans like AmeriHealth Mercy are becoming acquisition targets, but this strategic investment is significant because it also marks a greater interest among the Blues in Medicaid overall. In recent years, the plans gradually dropped out of the market, and today only one-third of Blues plans are in the Medicaid space.

MEDICAID MOVING FORWARD

Hall says BCBSM has a lot of clout and a healthy stockpile of reserves, which allows it to make such investments. In 2010, the plan held 698% risk-based capital, according to company reports, which is well under the state-imposed limit of 1,000% risk-based capital. However, the actual dollar amount of reserves-more than $2.5 billion-had consumer groups questioning the mission of the not-for-profit Blues plan.

"It's a strategic reuse of investment dollars," said BCBSM President and CEO Daniel Loepp at a press conference announcing the deal. "We expect a very good return on our investment on top of providing tremendous healthcare moving forward."

Mercy Health Plan, which is under the Mercy Health System umbrella, will be paid $170 million, and its foundation will also receive contributions over the next seven years to support charity care. Combined initial and future investments will total $215 million.

"As healthcare reform rolls out and the delivery of healthcare changes, Independence Blue Cross is reinventing our company and forging strategic alliances with other Blues that will create new market opportunities and grow our business and customer base," Daniel Hilferty, president and CEO of IBC and MHE editorial advisor says. "We are excited to build a Medicaid managed care model with Blue Cross Blue Shield of Michigan that other Blue plans nationwide can join and to be at the forefront of this trend as the Medicaid market is expected to experience significant growth."