Updated: 6:05 p.m.
Vermont’s largest private health insurer, Blue Cross Blue Shield of Vermont, has become a subsidiary of its much larger Michigan counterpart.
The contract binding the Berlin-based nonprofit with Blue Cross Blue Shield of Michigan was signed Tuesday and immediately went into effect, according to Sara Teachout, a spokesperson for the Vermont organization.
Blue Cross Blue Shield of Vermont provides health insurance to around 225,000 Vermonters, while Blue Cross Blue Shield of Michigan, also a nonprofit, insures roughly 5.2 million people in Michigan and other states.
Vermont’s insurance regulator, the Department of Financial Regulation, signed off on the subsidiary arrangement Monday. The two organizations’ formal requests for approval of the change were filed in May. A monthslong regulatory review took place primarily over the summer.
The department issued decisions in two separate legal processes Monday that together gave both insurers the permission needed to move forward. The orders were posted on the department’s website late Tuesday.
The two “Blues” organizations refer to the relationship as an “affiliation,” rather than an acquisition or merger, saying publicly and in regulatory filings that management and operations will remain in Vermont and be responsive to local needs.
Leaders of the Vermont company have also said the relationship will give its policyholders, and the health care providers paid on their behalf, access to better information technology. They say they also expect the move will result in other efficiencies and savings.
Now those representations have been incorporated into the affiliation’s regulatory approvals.
The department’s review was limited to conditions listed in two parts of Vermont law, one related to the acquisitions of insurance holding companies and the other related to changes in control of nonprofit insurers of hospital-based or general medical care.
Although a majority of the 15 public comments received by the department either questioned or opposed the affiliation, the department has no leeway to deny the requests if all the legal requirements are met, according to Deputy Commissioner of Financial Regulation Emily Brown, who oversees the department’s insurance division.
For example, one of the requirements is that the affiliation not be “hazardous or prejudicial to the insurance-buying public,” which the department determined it would not be “given the financial strength and experience of (the Michigan organization) and the savings and benefits,” one decision order states.
However, ensuring that the two organizations interact in the way they described in their applications is part of the department’s ongoing regulatory oversight, she said.
The department’s two orders require that Blue Cross Blue Shield of Vermont remain a separate nonprofit corporation that is “located, operated and managed in Vermont.” Because of that, the business will continue to be regulated by the Department of Financial Regulation and the Green Mountain Care Board.
More specifically, the orders require that all “functions benefitting from local knowledge and presence,” including customer service and relationships with regulators and healthcare providers, “continue to operate in Vermont with a local presence.” A separate memorandum of understanding between the department and the Vermont organization referred to in the order also states that the latter will not terminate or lay off employees without the former’s consent.
Other requirements include that all assets and reserves of the Vermont organization continue to be controlled by it for the benefit of Vermont policyholders and that those it insures make up a majority of its board of directors.
Also, Blue Cross Blue Shield of Vermont must regularly report on the integration of the two organizations to the department and disclose any substantial changes in its business plan over the next three years. Both organizations project it will take that long to fully align their work.
Brown said she hopes that those requirements alleviate some of Vermonters’ concerns about a takeover by the much larger insurer.
“I understand change, obviously, is really hard in any situation, but Blue Cross is still going to be here,” she said. “I want to assure people that we will still be regulating them and holding them accountable to the people of Vermont.”
Better technology, lower cost?
The view of Blue Cross Blue Shield of Vermont board members and executives is that joining forces with its Michigan counterpart will help it better carry out its mission of serving Vermonters, specifically related to information technology.
The rising importance of that technology in healthcare has profoundly changed what is required to function well as a health insurer, Blue Cross Blue Shield of Vermont CEO Don George, who has led the organization for 15 years, explained at a public hearing at the Waterbury state office building in late August.
Developing and maintaining software applications and the databases behind them that both policyholders and healthcare providers want and need is complicated and extremely costly, George said. “With Vermont’s small population, we simply do not have the scalability, the number of members, in order to make those investments,” he said.
Blue Cross Blue Shield of Michigan has spent and will spend hundreds of millions of dollars annually on improving its information technology, George said. The affiliation, which the Michigan organization sees as a model it can replicate with other small Blues plans, will allow Vermonters access to those tools now, as well as to future upgrades and new products.
In turn, that access will allow the Vermont organization to work towards changing the way that health care is paid for and delivered, George said. “We will be able to optimize our investments in population health and healthcare reform here in the state of Vermont in a way that we have not over the past decade,” he said at the hearing.
The collaboration is also expected to result in significant savings over the next three years.
At minimum, the contract and the department’s orders ensure that the Vermont organization will save at least $10 million over that time period. If not, the Michigan organization will pay the difference. Part of those savings will come from an immediately lower cost for Blue Cross Blue Shield of Vermont to use the claims management system that it already uses and that the Michigan organization owns. But that should be just the beginning, according to both.
“We are very focused and driven on affordability,” Lynda Rossi, a vice president at Blue Cross Blue Shield of Michigan, told regulators at the hearing. “We believe that some of those capabilities and techniques that we can bring to the table will also help the Vermont plans around affordability as well.” (The Michigan organization is also facing a labor strike by more than 1,000 of its Detroit- and Lansing-based employees related to wages and benefits that has lasted for over a month.)
The potential for greater efficiencies that reduce the costs of health insurance for Vermont businesses is the primary reason that the Vermont Chamber of Commerce supports the affiliation, chamber president Betsy Bishop said at the public hearing. She called increasing health insurance costs “a huge burden for employers,” added on top of the challenges posed by the Covid-19 pandemic, supply chain disruptions and the recent floods.
“If we can see future economies of scale that favor less than double-digit rate increases, it’s surely worth the effort,” Bishop said.
Whether the affiliation serves Vermonters will in large part come down to its impact on their bottom line, according to Mike Fisher, the chief of the Office of the Health Care Advocate, part of Vermont Legal Aid.
Now that the two organizations have merged, both he and regulators will be looking for those benefits to materialize over the next three years, Fisher said on Wednesday.
“More important than whether Blue Cross now has the ability to give us a (phone) app, or something like that, is that we have some moderation of that growth in cost,” he said.
