Can Blue Cross and Blue Shield of Louisiana make it alone? Hearing starts this week.

In the 13 months since Blue Cross and Blue Shield of Louisiana announced it would be bought by Elevance Health, the $2.5 billion proposed sale has gone from a business deal into a political controversy.

In hearings and public letters, Louisiana lawmakers, the state treasurer, hospital associations and others have questioned the impact on Louisiana residents and the track record of Elevance.

A revised plan for the $3 billion foundation, which will be created from the sale proceeds, involved Gov. Jeff Landry, raising alarm bells among critics of the new governor.

Now, as two days of hearings are set to begin before state Insurance Commissioner Tim Temple, Blue Cross CEO Steve Udvarhelyi and other executives will likely try to make a case for approval based on a relatively simple argument that sidesteps the politics: The insurance market is changing, and without a partner, Blue Cross won't be able to keep up.

While Blue Cross is profitable now, costs are rising faster than the premiums it charges its policyholders. At the same time, more employers are choosing to cover their workers' health costs. And national health insurance firms have been able to invest in other service lines, like Medicaid, that Udvarhelyi has argued are too costly for Blue Cross to do profitably.

"Should we not be able to move forward with this deal, we need to realize that Blue Cross and Blue Shield of Louisiana will not look the same in five to 10 years as it does today," Udvarhelyi told lawmakers in a public hearing earlier this month.

Losing core business

For Udvarhelyi, making that point has been complicated by the current size and strength of Blue Cross, which serves 1.9 million Louisiana residents.

For the five years ending in 2022, the latest data available, Blue Cross reserves, or surplus funds, increased 38% to $1.65 billion, according to company financial reports. Blue Cross made money in four of those five years. And as of midway through 2023, the company was among the most profitable Blues in the country, according to a report from Fitch Ratings.

But there are warning signs. For one, health insurance premiums, the money paid by customers to Blue Cross for coverage — and which make up the bulk of all Blue Cross revenues — have seen slower growth compared to expenses, filings show.

That's good news for the customers that pay those premiums, but it doesn't appear sustainable. From 2018-22, premiums grew by 12%, or less than 2.5% a year, on average. During the same period, the company's biggest expenses rose by much more. Payouts on medical benefits increased 22%, prescription drug claims increased 21% and administrative expenses, including salaries, increased 44%.

Blue Cross is also losing members at a steady clip in its most profitable line of business, the traditional, employer-sponsored plans that were once commonplace. For the five years ending in 2022, membership in the Blue Cross PPO plan, which is the company's most profitable, fell 9%, while its overall membership was essentially flat.

Blue Cross Senior Healthcare Economist Mike Berthaut said fully sponsored plans account for 90% of Blue Cross revenues and have contracted by 20% over the past decade.

"Our risk portfolio is shrinking," Berthaut said, referring to those plans. "The risk business is 90% of what keeps Blue Cross afloat."

More data

Blue Cross is not alone in losing members from employer-sponsored group plans. According to federal data, the entire market has gotten smaller over the past five years, in Louisiana and elsewhere.

Large employers are increasingly turning to self-funded plans, and national insurers like United Healthcare, Elevance, Aetna and Cigna can administer those plans more efficiently at a lower cost to customers than can Blue Cross, Udvarhelyi has argued.

Perhaps more importantly, large insurers have also figured out how to make money running Medicaid plans, the government-sponsored health insurance for low-income families and individuals. Blue Cross doesn't break out its profitability for this line of business, but health care analysts say that to make money in this area, companies need to make major investments that state-specific companies like Blue Cross can't afford.

"The Elevances of the world make money in managed Medicaid no matter how sick that population is," said Nashville-based health care consultant Brandon Edwards, who advises group practices around the country. "It is harder for independent Blues to do that because they do not have the scale or technology."

Uphill battle?

When the Insurance Commission evaluates the deal this month, its members will likely weigh the arguments made by Blue Cross about its future prospects against those of its critics, including state lawmakers that pointed to more than a dozen areas of concern in a letter to Temple last week.

Doctors and hospital groups are concerned about how a for-profit company that answers to shareholders will handle their reimbursement rates. More than 20 state legislators, led by Republican Sens. Patrick McMath and Jeremy Stine, have pointed to Elevance's track record in other states and more than $26 million in fines by regulators it has racked up in recent years for denying coverage or paying late claims.

Policyholders have questioned why the Blue Cross board is returning just 9% of sale proceeds to them and using the other 91%, or some $3 billion once reserves are included, to create a foundation, the Accelerate Louisiana Initiative, focused on improving health outcomes and reducing poverty in Louisiana.

And more recently, comments from Landry on how he wants to see that foundation money spent, and disclosures that he had a say in what institutions will be eligible for that money, have raised concerns about political influence.

Insurance brokers representing small and medium-sized employers in Louisiana were among the first to sound alarm bells about the sale last summer, arguing that a large national insurer would inevitably raise premiums and reduce reimbursements.

Blue Cross has said that Elevance will be able to keep a better lid on premium increases because of its size, scale and digital capabilities. For its part, Elevance has said it would not want to raise premiums beyond what the market can bear because that would drive customers away.

Wendell Potter, a former Cigna executive in Philadelphia who now advocates for health insurance reform, said he's skeptical of those assertions.

"You would be hard-pressed to find any studies that found rates went down when a nonprofit independent was acquired by a big corporation," said Potter. "I have seen studies that show there is no decrease in rates and usually they increase at a faster clip when a big corporation buys it."