On the first day that people could buy coverage under the federal health care law last week, the chief executive of Independence Blue Cross in Philadelphia had just learned that his company’s plans were the area’s least expensive available through the new state exchanges. “We were thrilled,” said Daniel J. Hilferty, the nonprofit insurer’s chief executive.
A 36-year-old can buy a so-called silver policy — a midrange plan — for $246 a month, not including the federal subsidies that could lower the cost even further. Out-of-pocket costs would vary, depending on the choice of hospital and doctor.
While other brand-name insurers like UnitedHealth Group, Aetna and Cigna are selling coverage only sporadically on the exchanges, consumers will find local nonprofit Blue Cross and Blue Shield plans in nearly every state and market in much the same way they did before the federal health law was enacted.
WellPoint, which became one of the nation’s largest insurers by combining more than a dozen Blue Cross plans into a profit-making company, is also actively participating in the exchanges in all 14 states where it operates. “We expect to be a strong competitor in most regions because our brand and local market experience are meaningful differentiating factors,” the company’s chief executive, Joseph R. Swedish, recently told investors.
The dominance of Blues plans and their aggressive stance illustrates just how little — and how much — the health insurance market is changing under the Affordable Care Act. The nation’s Blue Cross and Blue Shield plans have typically been the largest insurers providing coverage primarily to individuals and small businesses, and they remain a staple on the new exchanges.
Originally created by hospitals and doctors to help patients pay for medical care, the nonprofit Blue Cross and Blue Shield plans do not have to generate a return to investors, so they say they can afford to offer policies that may not yield much profit.
What is not yet clear is whether the Blues plans are offering low prices to gain customers, only to raise prices in later years. And while people may be drawn to their strong brand name, the Blues are offering some plans that are very different from the ones people have through employers, with many fewer choices of doctors and hospitals.
The Blue Cross plans, including the profit-making ones run by WellPoint, also have the most to lose if they do not participate in the exchanges. Because so much of their existing business comes from selling policies to individuals and small groups, unlike the national insurers that cater to large employers, they cannot risk having their existing customers switch to a competitor.
The Blues plans “have to play,” said Dr. Sanjay B. Saxena, an executive with Booz & Company, the consulting firm.
The health care law has fundamentally altered the competitive landscape by encouraging a new wave of competitors and creating a marketplace that puts a much sharper focus on price, because individuals can so easily compare premiums on a single Web site. About a quarter of the insurers competing are new to the market. These newcomers — including insurers that had served the low-income Medicaid market, and plans offered directly by large hospital systems — often seek to offer the least expensive policies.
But the Blues plans, by exploiting their size and longstanding presence in a market, are also emerging as low-cost alternatives. They are frequently among the least expensive policies being offered, according to early analysis by Avalere Health, a Washington research firm, of the premiums being made public by the states and federal government.
In 8 of the 13 largest state markets in which the federal government is operating the exchanges, the Blue Cross plan is among the second-lowest-priced silver options, one of the four tiers established under the law. The silver plans are moderately priced policies that can require sizable out-of-pocket payments.
“The Blues are very well positioned,” said Dan Mendelson, the chief executive of Avalere. “They have great name recognition. They have a very strong understanding of the local market because they have been operating there forever.”
Industry analysts say the Blue Cross plans are frequently able to negotiate lower prices for medical care because they have so many customers to offer to hospitals and doctors. And despite the uncertainty over how many people will sign up and how many will have expensive medical conditions, they may also be more comfortable in their estimates about how much it will cost to offer coverage under the law than some of their new competitors.
“Any actuary will feel more comfortable if they have a basis of experience,” said Janice Knight, chief actuary with the Health Care Service Corporation, which operates Blues plans in a number of states like Illinois and Texas.
The national profit-making insurers have chosen not to offer policies in most of the state exchanges. UnitedHealth, for example, is not offering individual coverage on any of the federally run marketplaces. In New York City, its plan is the most expensive silver plan being offered through the exchange, more than $200 more each month than the lowest-cost plan in the same category.
UnitedHealth says it has not ruled out participating more in the exchanges in the future.
Aetna, which is also offering plans under its new Coventry unit, declined to participate in several states, including New York and Connecticut, but has a major presence in nine states and the District of Columbia. The company says it is taking a measured approach over several years.
The exception is WellPoint, which needs to protect and potentially expand its major presence in policies sold to individuals and small businesses. The company views the exchanges as a business opportunity, saying it expects billions of dollars in additional revenue.
For WellPoint, the challenge is to have prices that are low enough but not too low. Its chief financial officer, Wayne S. DeVeydt, says its goal was never to be the low-cost offering but to be competitive enough to attract enough people in any given market to make the business viable.
To achieve those lower prices, WellPoint is employing a variety of strategies, including offering plans that exclude some hospitals and doctors. In New Hampshire, for example, where WellPoint is the only carrier in the marketplace, its Anthem Blue Cross plan was able to reduce premiums an average of 25 percent by limiting the hospitals and doctors it offered. By WellPoint’s count, its plans will still allow customers to go to most of the state’s hospitals and some 85 percent of its specialists. In other markets as well, WellPoint has purposefully excluded hospital systems as a way of trying to lower its costs.
A few Blue Cross plans are sitting it out. Wellmark, the Blues plan that covers Iowa and South Dakota, is waiting until next year, and Mississippi had to scramble to find insurers when its major Blue Cross plan, along with UnitedHealth, would not participate.
“They claim there are too many unknowns,” said Mike Chaney, Mississippi’s insurance commissioner. The state’s Blues plan says it “will re-evaluate participation in the federal marketplace for 2015.”
But most insurers say they feel comfortable in their estimates about the cost of covering the people who sign up. “We think we’ve been smart about this,” said J. Bradley Wilson, the chief executive of Blue Cross and Blue Shield of North Carolina, which is offering policies in all 100 counties in the state. “We don’t believe we’re putting the company at risk.”
State regulators are also playing a significant role in keeping premiums low. In Maryland, for example, CareFirst, a Blue Cross provider, initially discussed a possible 50 percent average increase in its rates on the marketplaces but it ultimately reduced its request, only to have regulators push it down further. Company officials declined to comment.
Alissa Fox, an executive with the trade association that represents Blues plans, says no one should be surprised by the insurers’ presence in so many markets. “It tracks our longstanding commitment to insure everyone,” she said. “We’ve been doing this for years.”