Health+Benefits the December 2020 issue

Singing the Blues

Blue Cross Blue Shield carriers have agreed to settle a series of antitrust class-action lawsuits. Their pain may be the private health insurance markets’ gain.
By Scott Sinder Posted on November 30, 2020

I’m sure you’re expecting me to focus now on the Democrats who are feeling blue about not achieving the electoral heights they had anticipated or on the pollsters, who once again misread the electorate.

All I will note for now is that one upshot of the likely election outcomes appears to be that we will not be looking at the passage of any significant legislation over the next two years. With respect to healthcare, this gives us an extended opportunity to continue to try to improve the efficiency and the efficacy of the private health insurance markets.

One group that is wallowing in the blues? The Blue Cross Blue Shield carriers that have agreed to settle a series of antitrust class-action lawsuits filed more than eight years ago for a cool $2.67 billion. But their pain may be the private health insurance markets’ gain, as the BCBS carriers also agreed to a series of changes to their network agreements that may (should?) infuse more competition into the marketplace.

The cases—which sweep in almost all of the individual BCBS carriers and challenge BCBS association rules that impose restrictions on competing with other members of the association in their home service areas—were consolidated into one master case in the United States District Court for the Northern District of Alabama as In re Blue Cross Blue Shield Antitrust Litigation. The certified class in these consolidated cases includes all group health plans (including a separate subclass of self-insured plans) and all individual plan participants. There is a separate consolidated action brought by providers that remains pending. The settlement will affect you and your clients on a number of levels. Here’s a quick summary of what you need to know now.

The Near Term – Cash Payments

By the time you read this, the court likely will have approved the settlement (the hearing is scheduled for Nov. 16). After the settlement is approved, your clients that have or had BCBS plans in place or that contracted with a BCBS carrier to provide any healthcare-related services (including self-insured plan related services) should receive a notice advising them of the settlement, outlining their right to opt out of the settlement, and providing information on how to file a claim to participate in the settlement proceeds if they do not opt out.

There are agreed-upon formulas to which the settlement overseer will adhere in allocating the settlement proceeds on a pro ratabasis (after the attorneys take their 25% share, of course). Because individual plan participants also have a claim right, there may be a strategic decision regarding whether each plan submits a claim on behalf of both itself and its plan participants. But a plan will be able to participate in the settlement only if it files a claim, so you may want to alert your clients that have or had any BCBS contracts that this is coming.

The Medium Term – More Flexibility for and More Competition to Serve Self-Insured Plans

The injunctive relief included in the settlement contains several provisions that directly benefit self-insured plans. First, BCBS association rules historically dictated that only the BCBS member that serviced the area in which the employer was domiciled (generally, where the employer maintains its corporate headquarters) could submit a bid to provide plan services. Under the terms of the settlement, self-insured plans that have 5,000 or more eligible employee plan participants (which under the terms of the settlement are referred to as “Qualified National Accounts” and purportedly constitute approximately 31% of all BCBS self-insured plans) now may solicit bids from up to two BCBS carriers that are providing the bids under the BCBS network banner (and an unrestricted number of bids from BCBS carriers that do not intend to leverage the BCBS network to service the account).

Companies that maintain “Independent Health Benefit Decision Locations” also now may solicit bids from a BCBS carrier in each servicer area in which such an IHBDL is based. In addition, rules that formerly barred BCBS self-insured plans from directly contracting with third-party non-provider vendors also would be eliminated under the terms of the settlement agreement.

The Long Term – More Market Competition?

The BCBS association agreement included two rules that were at the heart of the antitrust challenge:

  • The so-called “National Best Efforts” provision that required two thirds of each member plan’s national healthcare-related revenue to come from Blue-branded products and
  • A corresponding local revenue cap on non-Blue-branded healthcare revenue generated within each BCBS company’s local service area(s).

One reason the Aetna/Cigna merger reportedly was scrapped was because the Cigna component of the merged entity would have put Aetna in violation of the “National Best Efforts” requirement. That requirement also greatly impeded the ability of BCBS companies to compete independently from the BCBS platform outside of their home service areas.

Rules that formerly barred BCBS self-insured plans from directly contracting with third-party non-provider vendors also would be eliminated under the terms of the settlement agreement.

The settlement agreement eliminates the “National Best Efforts” requirement completely and caps the “Local Best Efforts” requirement at 80%, meaning that, from now on, up to 20% of a BCBS company’s healthcare-related revenue within its service area can be generated by non-Blue-branded business.

The go-forward question is this: will elimination of these non-competition restrictions generate more market competition from BCBS carriers operating outside of their home service areas? The hurdle, of course, which conversely has been the strength of the BCBS association networks, is the need for sufficient provider networks in each market in which a carrier is competing.

Other developments—like the imposition of reference-based pricing models that may make the need for proprietary preferred provider networks less essential—could work in conjunction with the liberalized competition restraints to generate the increased competition that may fortify the private markets, including the individual markets, in states that have few carrier participants.

Only time will tell. For now, the bittersweet wail of the blues (and that $2.7 billion settlement) will have to sustain us.

Scott Sinder Chief Legal Officer, The Council; Partner, Steptoe & Johnson Read More

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