Health plans: They had it good and didn't know it


You know, just about everyone in the U.S. has an oar in the water when it comes to health reform. If you're not an employer or a provider, you're a consumer or a health insurer. But while the proposed health reforms are likely to change the lives of just about every American, nobody's ox seems more vulnerable to goring than the health plans.

We're reminded of that today in a report from Fitch Ratings, which downgraded six major health plans to "Negative" outlook status, citing concerns that health plans aren't prepared to engage in a price war or flexible enough to cope with new competition that could result from health reform.

Damned right they aren't. Just look at their current position and decide for yourselves whether they're going to do well transitioning from kings of the (highly-concentrated) marketplace to a Wild-West atmosphere that could be shook up by health exchanges, a public-option government plan, change in how providers get paid and much, much more.

Right now, one or two health plans control many of the nation's metropolitan areas, sometimes as much as 60 or 70 percent of the business depending on how you measure it. In some cases, a small handful of plans all but control a given state. Great for the health plans, but just about any way you slice it, lousy for providers, who certainly lose a lot of bargaining power under these conditions.

Unless the FTC and the Department of Justice get a lot tougher, there's nothing to suggest this consolidation process will do anything but continue over coming months and years as things stand. (The word is out, for example, that giant WellPoint wants to add even more Blue plans to its roster.) And why wouldn't they consolidate? Economies of scale make sense for them.

Under health reform, however, it's anybody's guess how new markets will shape up, and it's hard to tell whether existing health plans will have the market power they once had. Yes, if I were Fitch, I, too, would wonder whether that would erode their financial performance just a tad.

Could the commercial health plans evolve successfully in a new marketplace? Sure--where there's a will, there's a way. But my guess is that if health reform wreaks huge changes to their business models, they'll fight like wolverine to get their old rules back--or die trying. Flexibility doesn't seem to be one of the health plan industry's strong suits. - Anne

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