Wednesday, December 07, 2011

Taking on Big Blue

In many areas of the country Blue Cross dominates the health insurance market. Some would say they have an unfair advantage because of their not for profit status.

However that argument doesn't fly with most Blue plans because most have long converted to either stock or mutual companies, and some are publicly traded.

Along comes Aetna and decides to take another track.

Aetna claims Blue has a competitive advantage because of a little known "most favored nation" status. According to Crain's Detroit Business News:

In its suit filed today in the U.S. District Court in Detroit, Aetna charges that in 2005, Blue Cross "implemented a scheme" to enter into "exclusionary contracts with hospitals under which it agreed to pay hospitals more money if the hospitals increased the rates they demanded to treat patients covered by its competitors' health plans."
That is interesting wording.

What a hospital, or any other provider, bills for charges is identical. However what they agree to accept as "paid in full" will vary. It may seem like semantics but there is a difference.

It's like Wal-Mart having a coupon sale on TV's. If you have the coupon you pay $200. If you don't you pay $250.

The list price is the same. The difference is, some folks pay less under terms of a contract. The contract is between the store and those with coupons.

In an interview with Crain's, Andy Hetzel, Blue Cross' vice president of corporate communications, said the company has used most-favored-nation clauses in its contracts only to negotiate the best prices so it can to keep premiums to customers as low as possible.
So what would happen if the MFN clause is rendered invalid?

Premiums (and out of pocket expenses) for Blue Cross policyholders would rise, but there is no guarantee premiums and OOP would drop for other carriers.

This is no different than Sunbeam coffee makers sold by Wal-Mart and other stores. If Wal-Mart buys 500,000 coffee makers from Sunbeam and J C Penney buys 30,000 coffee makers, who would get the better price?

Is Aetna now part of the occupy Wall Street cry babies?

Thanks to Henry Stern for this tip!
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