The Affordable Care Act was without question the biggest change to hit the state’s health-insurance industry in 2013, but New Mexico also saw the big three health insurers that had dominated the market for decades reduced to two.
The insurance arm of Lovelace Health System, a Medicaid vendor since the Gary Johnson administration began privatizing Medicaid in 1997, lost its bid last year for state Medicaid business, dubbed Centennial Care by the Human Services Department.
That prompted Lovelace to sell its Medicaid business to Molina Healthcare of New Mexico and to sell the rest of its insurance operation to Blue Cross and Blue Shield of New Mexico. Lovelace had been in the insurance business since 1973, when it started one of the nation’s first health maintenance organizations.
Blue Cross, which had a relatively small presence in the metropolitan Albuquerque market, will become one of the area’s two dominant insurers, along with Presbyterian Health Plan, assuming regulators approve the transaction. The Blue Cross and Blue Shield Medicare Advantage business will leap when the Lovelace acquisition is completed.
The sale of Lovelace’s insurance plan also means Presbyterian is the only remaining fully integrated health system in the state, said Presbyterian Health Plan President Lisa Lujan, a position her company is trying to use to its competitive advantage.
“We believe that’s the model that will sustain health care in the future,” she said. “That’s how we’ll make health care high quality and affordable.”
An integrated system – one that controls the insurance, hospitals and medical providers the patient needs – offers better care coordination than separate systems of financing and delivery of care can provide, Lujan said.
Coordinated care of serious health issues can reduce hospitalizations, she said, and an integrated system lets members use the insurance arm to connect with the medical arm.
Members also can access medical records, send email to providers and schedule appointments, she said. The payers and providers of care can share data that help them find the most effective way to improve outcomes.
Lujan believes the community lost something when Lovelace decided to leave the insurance business.
“Whether it is our integrated model or their integrated model, it is still integrated,” she said. “You work in different ways to provide great outcomes to a population. Not having another fully integrated system changes health care somewhat for this community.”
Enter Blue Cross
Blue Cross and Blue Shield of New Mexico, of course, sees things differently. The company is offering the focus and resources a large-scale operation can provide.
“You have to look at what you feel comfortable with” as a customer, said CEO Kurt Shipley. “Our perspective is that our whole focus is the health plan, with all the tools and resources we can bring to members.”
The New Mexico company is part of a 14-million-member Blue Cross and Blue Shield system operated by Health Care Service Corp., a mutual insurance company based in Chicago. Mutuals are owned by their policyholders.
The sheer size of the system Blue Cross belongs to gives it more tools, resources and investment dollars it can bring to New Mexico, Shipley said. Blue customers will experience “higher levels of service, higher levels of support, because we have the tools and resources to make this happen.”
“We had a lot of our business outside of the Albuquerque market,” he said, so the Lovelace transaction “allows us to have a volume of members in the Albuquerque market where we can invest more in the programs we offer.”
Norm Becker, a former Blue Cross CEO who now leads workers’ compensation insurer New Mexico Mutual, said the Lovelace sale “wasn’t beyond imagination at all.”
“They share a network (of health care providers). Lovelace lost some big contracts. Their parent company is a hospital company,” he said, referring to Ardent Health Services of Nashville.
But Becker said there is a downside.
“As consumers we have one less choice,” he said, “which could have pricing impacts.”
Chris Krahling, a former state insurance superintendent and former Blue Cross executive, worries whether the new marketplace is better for consumers.
“I don’t think it is,” he said. “This is not a healthy marketplace for the average guy. It just seems like it’s too limited.”
Shipley disagrees. Before the sale, the Albuquerque market, which is the state’s largest, always was dominated by two insurers, Lovelace and Presbyterian.
“We will still have two dominant health plans in the market,” he said.
Both Presbyterian and Blue Cross are looking for ways to improve care and lower costs by moving away from fee-for-service pricing. That approach compensates medical providers for the service they provide.
The plans want to compensate providers for improving the health of the population served by the insurers, an approach Shipley calls “fee for value.”
Shared risk approach
One way to do it is to let providers take more risk. If they can keep patients healthy, they make more money; if they don’t manage care well enough to improve population health, they make less money or even lose money.
Presbyterian’s own medical group has operated on that shared risk approach for years, Lujan said. The idea is that when the medical group accepts the risk of caring for a population, it manages care better. The insurance plan’s job is to help providers manage the care.
Lujan expects such arrangements to grow over time.
Sharing risk can work with big provider groups that have the resources to manage care, Shipley said. The small groups that serve much of New Mexico don’t have the resources or deep enough pockets to take on such risks. These practices need incentives to improve and manage care, he said.
Sharing risk was the basis of the old health maintenance organizations. A health plan paid providers a flat rate to deliver whatever care the patient needed. The old-style HMO started disappearing around the turn of the century.
“I’m not surprised we’re going back to a shared-risk model,” Becker said. “It’s a more efficient system. I also think delivery systems want to take on more risk because they think they can manage the patient better than the health plan can.”
New competitors have begun recruiting customers, including New Mexico Health Connections, a cooperative based in Albuquerque and funded by federal government loans. It began selling health insurance on the federal exchange, which also began operation last year.
Becker sees the arrival of Health Connections as a positive for the market, but he warns, “It is going to be critical that they differentiate themselves somehow from the market mainstays.”
Consumers have an “intense loyalty” to their health plans, he said, so Health Connections, Cigna, Molina and any other competitor will have to provide customers a compelling reason to switch.
With Albuquerque down to two market-dominating health insurance companies, regulators face some unusual challenges, Krahling said.
“You don’t have to regulate the heck out of auto insurance in New Mexico because there are lots of companies selling auto insurance in New Mexico,” he said.
Krahling said that tends to keep rates under control. Two large players could have too much pricing power, which will require special diligence by state regulators, he said.
When it announced its deal with Blue Cross, Lovelace said its big problem was it didn’t have the scale to develop the tools, especially the information technology, that it takes to manage patients’ health in the new world of insurance.
Room for a third?
Krahling wonders if the large national companies like Cigna, UnitedHealth or Molina Healthcare, which have both the scale and a presence in New Mexico, will push into the market.
“If I’m a big national guy, and I’m looking at where I want to spend money, and I look at a state like New Mexico that is dominated by two guys, I ask myself, ‘Is that where I want to go or do I want to go to a market with a million people?'” Krahling said.
“The market does have a tendency to react to things,” said Becker, who expects one of the larger national companies to fill any void that Lovelace’s withdrawal from the market might leave. “Since you’re already here, you already have a provider network, all the heavy lifting is done, why not expand your market share?”
Shipley said competitors aren’t standing still.
“I see some of them making very strong efforts to be more engaged in the four-county Albuquerque area,” he said.
Insurance carriers in general have been expanding their product offerings, trying to provide services over the entire lifespan of any potential customer, Lujan said.
Molina Healthcare, which has sold only Medicaid plans in New Mexico in the past, is offering a commercial plan for the first time. Responding to Centennial Care and ACA requirements, insurers are improving their behavioral health offerings, too.
“Carriers in this market will have a broad range of product offerings that cover people across their lifetime,” Lujan said.