Medicaid going mainstream: thoughts on the IBC / BCBSM / AmeriHealth deal

Historically Blues have shied away from Medicaid. Two thirds of plans do not serve any Medicaid and those that do often have disproportionately small shares. No real surprise: Medicaid specialist plans can fluidly move in and out of markets depending on the rates and redeploy their capabilities wherever are the best returns. Blues on the other hand, are prime “hold-up” targets because they are largely stuck in their assigned states. They can only respond to an offer of low rates with a threat of dismantling their Medicaid operations entirely (and losing all the sunk costs). Not a lot of leverage there.

But reform – and the exchanges in particular – change the stakes. Low income people will flip above and below the 133% FPL line (which separates eligibility for Medicaid and eligibility for subsidized commercial coverage) a lot. If members have to start with a whole new health plan relationship each time they crossed the line, the resulting administrative and clinical disruption (think: changing networks, changing formularies) will be very costly.

Payers who can serve both sides of the 133% FPL line (and manage the changing eligibility and pulling in appropriate funding “behind the scenes” – while doing what they can to retain continuity of care — will be advantaged to market on the Exchange. Indeed, regulators may make having a Medicaid offering a requirement to sell on the Exchange.

Some Medicaid players are using this as a spring board to get into the commercial business. Centene’s acquisition of commercial players CelticCare and Novasys and pilot with the Massachusetts Commonwealth Care (similar to the subsidized exchange market under reform) are steps in this direction.

For the Blues, the challenge is backfilling the Medicaid capability. And this is where the IBC / BCBSM / AmeriHealth deal comes in. IBC and BCBSM appear to be planning to grow AmeriHealth into a Medicaid utility to the Blues system (similar for example to the Highmark and the South Carolina plan providing national accounts back office utilities or Prime Therapeutics). A couple points make AmeriHealth interesting:

  • AmeriHealth has respectable scale: 800K lives vs. 1.2M for Aetna, 1.5M for Centene, and 1.8M for WLP
  • AmeriHealth knows how to operate without a friendly Blue in the same market: besides PA, they are in IN, SC, KY, NJ and will be in LA). This means a local Blue plugging into the AmeriHealth platform won’t have to help too much to have a well-functioning partner
  • AmeriHealth also sells its PBM and behavioral health capabilities (scaled to serve 3.2M lives across 11 states) if a local Blue wants the option to set up a Medicaid operation but needs to insert at-scale capabilities into the operations

A few thoughts on what is next:

  • AmeriHealth will seek more contracts in states where the local Blues have indicated interest in a partnership (and probably win them before the deals get announced to avoid giving up leverage in the rate negotiations)
  • Both Wellpoint (which did an “Intel inside” type deal with BCBSSC for Medicaid back in 2007) and HCSC (which owns TMG Health, a business process outsourcer with Medicaid experience) will move more aggressively to sign up partners. While both can match probably AmeriHealth in the capabilities-only sale, it does look like AmeriHealth has an advantage in providing a turn-key partnered capability
  • There will be more regional tie-ups along the model of Tufts-Cambridge Health Alliance and more local Medicaid plans venturing into commercial
  • The big public Medicaid plans (AmeriGroup, Molina, WellCare) will likely look to either replicate Centene’s path or be bought out by a big commercial insurer looking to get a Medicaid footprint (HUM) or expand it (Aetna, perhaps WellPoint)
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