Could Blue Cross NC’s combination with Cambia be the start of more consolidation?

March 16-- Mar. 16--DURHAM -- The distance between Portland, Ore. and Durham -- and now the two headquarters of health insurer Cambia and Blue Cross and Blue Shield of North Carolina -- is nearly 3,000 miles.

That is a geographic and logistical split the two Blue Cross-affiliated insurers will now have to navigate, after the two not-for-profit companies announced they would be combining earlier this week.

The two insurers are betting that despite the distance -- and by sharing resources, a corporate backroom and advanced data -- they can reduce costs, improve quality and develop new services more efficiently.

As part of the agreement, the companies will merge corporate management under the Cambia Health Solutions name, while Patrick Conway will remain CEO of Blue Cross NC and also become the CEO of Cambia, the companies said.

The affiliation between the two insurers, which will not have a financial transaction related to it, is unusual and surprised many who watch the insurance industry in North Carolina, where Blue Cross NC is a dominant force. It also could portend more affiliations like it going forward, analysts said.

Blue Cross NC reported $9.9 billion in revenue last year and covered 3.7 million people, around a third of the state's residents. Together with Cambia, the two companies would cover around six million people and have about $16 billion in combined revenue.

The merger won't cause premiums to go up, a spokesman said, but it could have an impact on headcounts at the two companies, which both employ thousands. "Our goal is to always have premiums as low as possible, and we believe this gives us the best opportunity to achieve that goal," Blue Cross NC spokesman Austin Vevurka said in an email. "The affiliation will not cause rates to go up."

Mark Hall, a Wake Forest University law professor and director of the university's Health Law and Policy Program, said he's never seen a combination like this, especially when you consider the distance between the two companies. But, there doesn't seem to be much of an expense at trying it either.

"While it is not clear what is going to come of it, it doesn't appear to have cost much to try it," said Mark Hall, a Wake Forest University law professor and director of the university's Health Law and Policy Program.

Blue Cross NC and Cambia are both large players in their respective regions. Cambia's health plans include a network of Blue Cross insurers in Oregon, Washington, Idaho and Utah. The companies said their individual state health plans will remain locally led and separate.

"It is like the ACC and PAC-12 combining," Jonathan Oberlander, a professor of social medicine at UNC-Chapel Hill, said of the agreement, referencing two of the dominant college athletic conferences on the Atlantic Coast and Pacific Coast.

Some seem to think the combination could lead to more affiliations going forward -- with the new Cambia Health Solutions signing more combination agreements with insurers in other states.

"I don't quite get what the complementaries are here," said Barak D. Richman, a Duke law professor with expertise in health economics. But Richman admits there might be another way to view the deal. "And this is more cynical," he said. "It has a different name; it is not Blue Cross of Oregon, and that might be more valuable if you want to compete nationally."

The health insurance market has for years become more consolidated, with a few larger insurers dominating the national market. But the Blue Cross Blue Shield network -- which includes 36 companies, often representing one state -- hasn't consolidated much in recent time. Combinations and mergers can open up new markets for insurers and can help them nab better deals on prices with drug makers.

Mergers like the Blue Cross NC-Cambia one "have been once-in-a-blue-moon types of transactions," Deep Banerjee, an analyst with S&P Global Ratings, told The Wall Street Journal earlier this week. "If there is a transaction, it does open the doors for others to follow....It absolutely can create momentum."

Hall wonders if it could be a different form -- or protection from -- what another collection of insurers, Anthem, has done. Anthem is the nation's second-largest health insurer and operates for-profit Blue Cross plans in 14 states.

"Does this set the stage for another merger. You form a structure that bridges two parts of the country -- conceivably that structure could become larger," Hall Said. "Right now we have a major Blue Cross entity known as Anthem that consists of for-profit plans that span a good swath of the country. There are also smaller groups of non-profit plans ... it occurs to me as a theoretical possibility that nonprofits could also get together in a larger structure."

Richman said if that were to happen it might be a good thing. He doesn't believe there is enough competition at the national level among health insurers.

"This is an acquisition that on its face does not appear to increase any market power, and that is in part because they are so far away from each other," he said. "... But this might signal that these two Blues might be thinking about national business and creating national competition, and that would be a good thing."

But Pam Silberman, a professor of healthy policy and management at UNC's Gillings School of Global Public Health, said she has concerns about what happens when Blue Cross NC isn't solely North Carolina centric.

"My concern is that Blue Cross Blue Shield has been an insurer of last resort (in North Carolina)," she said. "Years ago when no one would insure those who were uninsurable, Blue Cross did. Blue Cross stayed in the ACA marketplace when others lost money and wouldn't do it."

Several years ago, Blue Cross NC became the only insurer to offer Affordable Care Act plans in all 100 counties in North Carolina, and the company lost a lot of money on the plans early on. The company kept the plans open -- and still offers them -- and eventually, the market turned around and Blue Cross NC made a profit on ACA plans in recent years.

But Silberman wonders how decisions like that could change. Going forward, the Cambia board will be split between nine current Cambia board members and 10 people on the Blue Cross NC board. Blue Cross NC will retain a separate board of trustees, the companies said.

"Had this (deal) been done three years ago would this new board have pulled out and not have covered the uninsured?" Silberman said. "Blue Cross Blue Shield was committed to the state of North Carolina. I am not saying the new one won't be, but I am just saying I don't know what would happen if there was a conflicted priority about what is good for the state of North Carolina or the entire" combined company.

The combination will need regulatory approval in five states and will likely be watched with a lot of interest around the country.

Mike Causey, who was elected North Carolina's Insurance Commissioner in 2016, will be tasked with reviewing the combination in this state.

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