Delaware Commissioner OKs Blues-Highmark Affiliation

Delaware Insurance Commissioner Karen Weldin Stewart has approved the proposed affiliation of Blue Cross Blue Shield of Delaware with Highmark Inc. There is a catch, though -- 49 of them.

Stewart imposed 49 conditions on the transaction, which her office said add "many protections not included" in the affiliation application.

Blue Cross Blue Shield of Delaware will remain a separate, Delaware-based, nonprofit health service corporation, with its corporate office and most of its Delaware functions and character to be maintained, under the agreement.

Other conditions include:

-- Blue Cross Blue Shield's board of directors will include independent Delaware residents who have lived in Delaware for at least five years and are not employees of the company, Highmark, or any of its affiliates. The independent directors will have substantial influence over the operations of the company.

-- The company's assets and reserves will be fully protected and can be used only for the benefit of Blue Cross Blue Shield of Delaware or its subscribers.

-- The community contributions that Blue Cross Blue Shield has made in the past will continue.

-- All operations will remain under the direct regulatory control of the Delaware Insurance Department.

"I have watched with great concern as Blue Cross Blue Shield of Delaware and other small health insurers have struggled to compete with large national insurers who have billions of dollars of capital and resources," Stewart said in a statement. "These small companies have limited ability to make the changes required by today's health care reform."

Blue Cross Blue Shield said through the affiliation, it will have access to a wide range of Highmark's capabilities, including enhanced customer service, such as online provider cost information and wellness programs. It also said physicians and hospitals will see real-time claims estimation and adjudication capabilities.

"This affiliation will provide the resources for BCBSD to deliver enhanced products and technology to the health insurance marketplace throughout the state," said Timothy Constantine, Blue Cross Blue Shield's president and chief executive officer, in a statement.

Blue Cross Blue Shield of Delaware last summer signed an affiliation agreement with the Pittsburgh-based Highmark, saying it was the culmination of a four-year corporate strategic planning process (Best's News Service, Aug. 23, 2010). The health insurer would become an affiliate of the much larger Highmark, another not-for-profit Blue plan. But it would continue to operate as a separate legal entity headquartered in Delaware and remain under the regulatory oversight of Delaware's insurance department.

Highmark, which has about 4.7 million policyholders with its Blue Cross Blue Shield plans covering 29 counties of western Pennsylvania and its Blue Shield plans covering 21 counties of central Pennsylvania and the Lehigh Valley regions of the state, has affiliations with several other Blue Cross and Blue Shield companies. The smaller Delaware Blues offers health insurance plans to about 400,000 customers (Best's News Service, Aug. 23, 2010). Highmark Inc. currently has a Best's Financial Strength Rating of A (Excellent).

(By Rick Cornejo, managing editor, BestWeek: rick.cornejo@ambest.com)