Blue Cross and Blue Shield Louisiana plans to join Elevance Health, formerly known as Anthem, in an acquisition set to close later this year, the two companies announced Monday.
Blue Cross and Blue Shield Louisiana is the state’s largest insurer, with more than 1.9 million policyholders. They will join Elevance’s 119 million-person network, which includes customers outside of the Blue Cross brand. The two companies declined to say how much the deal cost.
The 3,000 Louisiana employees will also join Elevance, but operations for the Louisiana plan will remain at Blue Cross headquarters in Baton Rouge, said Blue Cross CEO Dr. Steven Udvarhelyi.
“We are going to stay here as a locally-based Blue plan,” said Udvarhelyi. “We are going to stay in our offices.”
Udvarhelyi said policyholders should expect that their plans would continue without changes for the time being. Once the acquisition is complete, Udvarhelyi and Elevance Executive Vice President Morgan Kendrick said members could expect an expansion in what they called “whole health capabilities” — such as an integration of behavioral health and physical health, extra attention to high-risk seniors, pharmacy solutions and palliative care.
“Once we join Elevance, we will get in two years the advance in capabilities that, if we did on our own, would take us 10 years to do,” said Udvarhelyi.
Louisiana will be the 15th state-run Blue Cross plan to join Elevance, which changed its name from Anthem Inc. last year as it aimed to rebrand itself as a company with broader health interests.
Cost, regulations drove acquisition search
Blue Cross began searching for such a partnership two years ago, according to Udvarhelyi, as a result of the rising costs of acquiring digital capabilities and difficulty in rapidly investing in services, such as those for chronic illnesses, palliative care and behavioral health.
“The cost of doing that and time to scale is just becoming large,” said Udvarhelyi. “Layer on top of that, we’re all subject to increasing amount of regulation on the federal and sometimes the state level.”
The insurance industry is also made up of increasingly larger players, which has made it more difficult for smaller outfits to keep up.
“We can’t play on that playing field the way we are today, but in joining with Elevance, we will have access to much greater resources where we actually can compete with national competitors in a much more meaningful way,” said Udvarhelyi.
Deal is subject to state, federal approval
The agreement is subject to approval from the Louisiana Department of Insurance and the Department of Justice Federal Trade Commission. In the past, insurance company acquisitions have been derailed over concerns they would decrease competition in the market.
Health care economist Walter Lane, a professor at the University of New Orleans, said the deal is unlikely to be flagged by regulators because it doesn’t involve two Louisiana companies merging for a bigger piece of the health insurance pie, and therefore doesn’t increase the company’s concentration in this area.
“Blue Cross is already the big gorilla in the market holding the majority of policies,” said Lane. “Because all the other (Elevance companies) are in other states, it doesn’t seem like it would make a difference in the competitive environment.”
Such mergers are typically motivated by a few different factors, said Lane. One is that a large company has a bigger base to spread risk out across policyholders. The more people who are members, the less it hurts the insurance company financially when some policyholders have sky-high medical costs.
Operating expenses such as claims processing should go down, said Lane, and joining a bigger company may also help Blue Cross protect against catastrophic losses, such as a localized outbreak of disease.
The effect on health care costs, quality
Joining a larger company will give BCBSLA more money to invest in potential improvements for policyholders, said Vivian Ho, a health economist at Rice University and a professor at Baylor College of Medicine. But there is little data on how mergers affect customers.
“There just haven’t been studies showing that there’s any improvement in quality after insurers consolidate,” said Ho.The insurer can achieve savings, but because it is a concentrated market, there is nothing to force them to pass savings along.”
Udvarhelyi cited health care inflation as another driver for the merger, and acknowledged that he can’t predict how costs will change. But he said the services and platforms BCBSLA would have access to through Elevance would help control costs.
“What I can say for our customers and policyholders, they will see better improvements in health and lower increases in the cost of health care than if we stay doing this alone,” said Udvarhelyi.