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BlueCross BlueShield stands to lose in overhaul

With a $5.9 billion-a-year insurance services business to run, BlueCross BlueShield of South Carolina chief executive officer Ed Sellers naturally is uneasy about health care reform.

The bottom line of the whole debate? How to pay for people's health care whether through private insurers, such as BlueCross, or a public option, essentially a government-run system.

Sellers fears companies such as his own have become the boogeyman in the debate.

"This picking on insurance companies - it's going to get ugly in the next 30 days," Sellers said. "You have to have an enemy. And you have to make the enemy look bad.

"We're the enemy."

Health insurance is just a portion of what BlueCross, a diversified company, does. But changes to the country's health care system could affect $3.5 billion of its annual revenue, Sellers said.

For South Carolina and the Columbia economy, the economic stakes are huge. BlueCross employs more than 9,000 people in the Palmetto State, including more than 6,800 in the Midlands.

Reform advocates see huge stakes, too, including in South Carolina.

Millions of people in the United States do not have health insurance, and premiums keep rising for those who have coverage.

In South Carolina, one of every five residents does not have health insurance, estimates the S.C. Public Health Institute, a nonprofit, nonpartisan organization that studies health issues in the state. The institute reported those numbers based on the latest U.S. Census data.

For those who have insurance, the cost of annual premiums has nearly doubled in the past nine years. The average annual premium for family health coverage in South Carolina rose to $12,828 from $6,600 between 2000 and 2009, according to a recent report from Families USA, a pro-reform group.

Insurance companies are taking heat for these rising costs, especially when the public reads about the huge profits of some companies.

BlueCross is a for-profit mutual company, governed by members who buy its insurance. The company has 32 subsidiaries, including companies that process government claims and one that sells life insurance.

Because the company is privately held, it does not have to publicly report its profits. But Elizabeth Hammond, a company spokeswoman, said it had $1.3 billion in reserves in 2008.

Another way to get a picture of BlueCross' profits is to study its quarterly filing with the S.C. Department of Insurance. The department requires insurance companies to file reports to prove they have enough money on hand to pay claims on their insurance policies.

The report only covers a few of BlueCross' business lines, including its traditional BlueCross health plan and its BlueChoice HMO, Hammond said.

In 2008, BlueCross reported it had revenues of $1.6 billion from insurance premiums and $1.9 billion from premium equivalents, which are from its administrative services. From these two combined, the company made a $120 million profit.

THE PUBLIC OPTION

Those big numbers make BlueCross - and other insurers - a target for critics, many of whom want a public insurance option.

Under a public option, the government would offer a health insurance plan that people could buy like any other health insurance product.

That, Sellers said, would put the federal government in direct competition with BlueCross and other private insurers.

A private option would give the federal government the ability to negotiate to pay reduced rates to hospitals, doctors and other health care providers, Sellers said. The government already does that with Medicare and pays much lower rates than private insurers, he added.

Those lower costs would mean public-option insurance would cost less than plans offered by private insurers, including BlueCross, Sellers said. And people would pick the least expensive plan, especially if it were comparable to what they could buy in the open market.

"It's a virus that eats the private health insurance industry," Sellers said. "The people who designed it know that. It's a way to get to the single-payer system," in which the government pays health care costs.

Sellers and his executive team say the insurance market doesn't need competition from the government. There already is plenty, they say. In South Carolina, 40 companies sell health insurance, Sellers said.

But BlueCross BlueShield of South Carolina is the dominant company. About 1.6 million South Carolinians either are insured directly by BlueCross or belong to a group plan that is administered by the company. The company also serves about 500,000 people outside the state. That gives BlueCross a lot of bargaining power when it negotiates rates with health care providers, including hospitals.

"We tend to get the best rates, but that's not always the case," said David Pankau, president and chief operating officer of BlueCross BlueShield of South Carolina.

DEFENDING PRACTICES

Even if the public option becomes a reality, Sellers says BlueCross will find a way to survive.

The company has a reputation as a national leader in health care claims processing. BlueCross has subsidiaries that specialize in processing claims for Medicare and Tricare - two federally run health insurance programs.

In 2008, BlueCross processed 785 million claims for its own insurance business, the government and other insurance companies.

"We know how to do complicated things," Sellers said. "If it goes to a single-payer or government-operated co-op, we will try to compete for that business."

The current debate, however, is unfair, Sellers says.

The insurance industry, including his company, should not take sole blame for rising health care costs, for example, he says.

Insurance companies pass along rising costs of drugs and other expenses, he said. When a hospital buys a multimillion-dollar piece of equipment, for instance, those prices get passed on, he said.

Lynn Bailey, a health care economist in Columbia, agreed insurance companies are not the only ones at fault for rising health care costs.

"It's a circular firing squad where we rotate people into the center," she said of the blame game. "It's just the insurance industry's turn to be in the middle of it."

Still, Bailey said BlueCross could do more to help drive down costs. For example, the company could get involved in the state licensing of hospital expansions. If the company truly thinks too much medical equipment and infrastructure are problems, it could fight to block unnecessary licenses, Bailey said.

Instead, she said, BlueCross chooses to sit on the sidelines.

Sellers bats away accusations that insurance companies deny coverage for pre-existing conditions or drop people's coverage once they are diagnosed with a serious problem.

Sellers said insurance companies already are regulated concerning pre-existing conditions. In South Carolina, insurers cannot deny coverage to small groups because some members are sick, Sellers said. But insurers are allowed to charge up to 25 percent more on premiums to cover the costs of insuring those sicker people, he said.

Companies can deny coverage to individuals.

Insurance companies need some levels of protection, too, Pankau said, adding, "The purpose of pre-existing condition policies was to prevent people from buying coverage after they got sick."

As for dropping client's coverage if they become sick, Sellers said BlueCross only rescinds policies if clients do not pay bills or lie on their applications about pre-existing conditions.

"Insurance cannot drop coverage when you get sick," he said.

Still, Bailey says, laws governing insurance are stacked in favor of insurance companies. They can keep high-risk people out of their insurance pool by charging unaffordable premiums, she said.

"They don't ever drop people because they never let them in," she said. "It doesn't mean you have to be able to afford the plan."

SET TO SURVIVE

Sellers says insurers will have to accept some changes.

For example, insurers have said they will stop denying coverage to individuals with pre-existing conditions if the government requires everyone to be covered. And they are willing to alter their ratings system for premiums.

For example, women in their 20s and 30s are charged higher premiums than men because of the cost and risk of pregnancy.

While those changes would require BlueCross to take on a higher risk pool, they also would result in increased profits for the company, Bailey says.

Bailey predicts at least two-thirds of uninsured South Carolinians would end up as BlueCross customers if the government required that every person be covered by health insurance.

"I'd be laughing all the way to the bank," she said.

While Sellers and other BlueCross executives are right to be concerned about the health reform debate, Bailey says the company really doesn't need to worry that much.

Congress doesn't appear to have the resolve to pass anything that would change drastically the health insurance business, she said.

And, even if that happened, BlueCross is diversified enough to survive, she said.

"When you look at what they actually do that meets the definition of health insurance, that's a small piece of their business portfolio," Bailey said.

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