A bill aimed at reducing some of BlueCross BlueShield of North Carolina’s market power raced through a committee this week and passed almost unanimously in the House of Representatives.
By Rose Hoban
With more than 70 percent of the private health insurance customers in North Carolina, Blue Cross and Blue Shield is the 800-pound gorilla in the state’s health insurance market.
But a bipartisan bill that easily passed votes in the House Judiciary committee and on the floor of the House of Representatives this week could cause that gorilla to shed some of its weight.
House Bill 247 would prohibit any insurer from adding clauses to contracts requiring that doctors and hospitals charge all competitors equal or higher prices, so-called “most favored nation” clauses.
“In operation, [most favored nation clauses] require that hospitals and doctors guarantee that all other competing insurers have higher rates than the most favored rates given the state’s most dominant insurer,” Winston-Salem insurance agent Fred Joyner told the House Judiciary committee Wednesday.
“All other competing insurers have higher rates than those given to the most dominant insurer in the state,” Joyner said.
“One of these clauses sounds perfectly reasonable on its face,” said Barak Richman, a Duke University professor who teaches law and business administration. “If you think from the buyer’s perspective, I’ll pay these prices as long as you assure me no one gets better prices, that makes sense. In trade and commercial relationships, it’s reasonable, commonly used.
“The problem is when a monopolist makes that promise, then it scares away all competition,” and with three-quarters of the North Carolina insurance market, some argue that BCBSNC very nearly holds the power of a monopoly.
Duke University health economist Don Taylor explained that such clauses can skew the marketplace because they force more efficient companies to meet the big guy’s price.
“If there’s a little health insurance company that can make money paying $475 for an appendectomy instead of the $500 paid by the big guy, and it’s good quality, then premiums should end up being driven down,” Taylor said. “That’s what we’re looking for.”
Ken Lewis, president of the N.C. Association of Health Plans, argued that with BCBSNC’s overwhelming market share, it forces all the providers to play by their rules. Currently, BCBSNC has about 3.7 million members in North Carolina.
“We know that when an 800-pound gorilla sits on you, you do what the gorilla wants,” Lewis told the committee.
BCBSNC has admitted it has most favored nation (MFN) clauses in it’s contracts, but BCBS’ regulatory affairs head Chris Evans told the committee the company has not been enforcing those clauses of late. That’s in part because a bill similar to this one was making its way through the legislature two years ago, and BCBSNC pledged to stop enforcing them.
“i spoke to a group of CFOs from hospitals a few weeks ago, and they disagree with the statement that they are no longer used,” Rep. Justin Burr (R-Albemarle) said during the debate on the House floor. “One individual mentioned that in a recent negotiation with BCBS, the most-favored-nation clause was still in there, even though they pledged two years ago to no longer use them.
Most favored … insurer
Blues Cross and Blue Shield plans in other states have come under similar criticism about the use of the MFN clauses in writing contracts. The U.S. Department of Justice was pursuing a case against BCBS of Michigan over the MFN clauses, and only withdrew the suit after that state passed a law forcing insurers to stop using the clauses. In similar litigation in California, the DOJ alleged BCBS of California clauses led to hospitals charging BCBS’ competitors up to 40 percent more for services.
At least 15 states have outlawed the practice and others are considering similar action.
“If I’m a Cigna, and I want to break into the market in Charlotte or Greensboro, and Blue Cross automatically gets a better rate with hospitals, that impedes my ability to get a foothold in that market,” said Taylor. “If that’s the case, insurers end up saying, ‘Screw it; I’m not going to do business in North Carolina.’”
Speakers at Tuesday’s hearing said that’s exactly what’s been happening: The anti-competitive nature of the clauses is keeping out competition.
“Twelve years ago in this state, we had 30 carriers. Today we have barely seven,” Lewis said. He told the committee that in states that have outlawed the clauses, more insurers have entered those markets.
“Ohio got rid of MFNs 10 years ago. Now they have at least five more carriers than they had then,” he said.
But BCBSNC’s’ Evans said the bill would prohibit her company from getting customers good rates for insurance.
“When has it ever made sense to tell a business that if they know their consumers are paying more for insurance, that I’m not allowed to go out and renegotiate a contract to try to make it competitive?” Evans asked.
Evans also said the Department of Justice had been investigating BCBS of North Carolina, but had withdrawn the investigation once BCBSNC was able to show they weren’t enforcing the clauses.
Health reform in the mix
Evans also argued that any law passed now could have unintended consequences as the federal health reform law gets implemented over the next few years.
“In this time of unprecedented change, with health care reform, we’re looking at about 220,000 pages worth of new regulations,” Evans said. “No one can predict what any law that is passed at this time will do to the market.”
But it’s precisely because of the rapid changes health reform is bringing to the insurance marketplace that the bill has more juice.
Even though North Carolina has rejected expanding Medicaid at present, the possibility exists that the state will eventually expand the program under the Affordable Care Act.
Some lawmakers have expressed interest in following the example of Arkansas, which recently got the green light from the federal government to allow Medicaid beneficiaries to enroll in private issuance plans. Those plans would then take a cut of state and federal Medicaid money – a deal that could be extremely lucrative.
And other insurance companies in North Carolina want to be ready to compete with the 800-pound gorilla in the room.
One of the speakers at Tuesday’s committee meeting was Garland Scott, CEO of United Healthcare of North and South Carolina, a nationwide insurer based in Greensboro. Although United only covers about 900,000 beneficiaries in North Carolina – a fraction of the market here – United’s parent company has more than 80 million customers nationally.
With an existing customer base in the state and infrastructure that’s already serving national customers, a company such as United would be able to negotiate from a stronger position if the state funnels newly insured Medicaid beneficiaries through private companies.
The bill passed with an overwhelming majority in the House and heads to the Senate, where it could be heard as early as next week.
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With the advantage Blue cross has had in NC with so many people paying them monthly payments you would think rates would have gone down and insurance would have been affordable but alas its not true..Seeing as how you have to pay high premiums and big co-pays and deductibles you don’t really get no bang for the buck All you do is pay premiums and if deductibles are not met before the end of the year you just continue to pay all over again for another year..Its cheaper to pay the same money to a hospital every month to be used only if you ever have to go to the hospital and if and when you do all the money you have payed goes for your treatment.. I hope all for profit insurance companies go broke it wont hurt anyone but their greedy pocketbooks nothing would change for anyone else who didn’t have insurance and maybe that by itself would drive down hospital prices because they would not have anyone to gouge except consumers who cant be gouged if you don’t have any money anyway. Best health care in world is meaningless if you cant afford it..