Escaping Rapunzel's tower

How single-state Blue Cross Blue Shield health plans can build scale

The single-state Blue Cross Blue Shield plans’ legacy of success, the expectations of state regulators, and the constraints of their enabling birthrights may be limiting Blues’ ability to take advantage of business opportunities that are sitting just outside their reach—opportunities that may be critical for their survival. Deloitte’s financial analysis of single-state Blues, combined with interviews with former state insurance commissioners, reveals that there are options to build scale and develop required capabilities without giving up the non-profit mission. Choosing the right avenue is a matter of identifying the option that ties in best with the health plan’s overall business strategy and plan for growth.

About the study

Independent, non-profit health plans are finding themselves trapped in a tower of expectations and regulations and the new business context resulting from the Affordable Care Act. While the legacy of the single-state Blue Cross Blue Shield plans is strong, the plans may lack the scale and regulatory freedom they may need to invest in capabilities that likely will be required to compete in the changing health insurance market.

What options do the single-state Blues have to build a sustainable business model and compete in today’s health insurance market?

Deloitte conducted an analysis of 2012 health insurance company data from publicly available financial statements and NAIC reports. We found the “Big Five” insurance companies spend on average nearly six times more on capital expenditures than single-state Blue plans. We also interviewed ten former state insurance commissioners about alternative strategies for expanding access to capital and the attractiveness of options. Analysis indicates single-state Blues plans should consider taking action now to build or buy the capabilities they may need to hold or improve their market position. Selecting the right pathway to access capital is a matter of finding the option that aligns with the plans’ overall strategy, mission, and goals for future growth. Read the report now.


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A competitive disadvantage?

​Deloitte’s analysis reveals that the single-state Blues may be at a competitive disadvantage in terms of investing capabilities and growth opportunities. We compared recent capital expenditures, amounts of capital available for investment, and acquisition activity among the five largest national health plans, and a sample of Blues plans. Stark differences in scale suggest that the nationals are in a far more advantageous position to invest in capabilities and take advantage of growth opportunities. Consider:

  • Single-state Blues don’t have the scale to spend as much on fixed-cost investments.
  • Single-state Blues have less available capital to invest.
  • Single-state Blues’ engagement in M&A is limited by their financial position and regulation.

Deloitte also interviewed ten former commissioners representing a diverse set of health plan markets across the country. Insights into single-state Blues plans include:

  • Future financial strength may be diminishing, especially after seeing the sizeable scale differences in investing potential shown in Deloitte’s financial analysis.
  • Walking the line between holding strong to—and being pulled away from—their mission will become increasingly difficult with regard to maintaining awareness of their unique brand and strengthening their capabilities.
  • Restrictions on single-state Blues’ use and transfer of capital, affiliations, and joint ventures might need to be evaluated as they try to take advantage of growth opportunities and respond to new business challenges.


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A competitive disadvantage?

Options for unlocking investment potential

Deloitte’s analysis looked at options the single-state Blues have to build scale, acquire new capabilities to remain competitive, and diversify earnings. The former state insurance commissioners were asked about the attractiveness of these strategies from a regulatory standpoint, rating each using a scale of 1 = most attractive to 5 = least attractive. Their views varied widely due to differences in the regulatory contexts and business conditions in their states.

All options are possibilities, but each involves different risk/reward tradeoffs.

The investments that are needed to secure these capabilities require scale and regulatory flexibility. And therein lies the potential problem for the single-state Blues. Escaping Rapunzel’s tower: How single-state Blue Cross Blue Shield plans can build scale and meet new capability demands

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