In today's edition of The News & Observer, the front page story featured Blue Cross Blue Shield of North Carolina’s new plan to reduce its administrative expenses by 20%, which would cut $200 million dollars from its annual expenses. In today’s economy, we have become so accustomed to hearing these kinds of corporate “cutting spending” announcements because we hear them practically every day. But if you read between the lines of this particular article, you will see that this is about something much bigger than just cutting costs. This article is actually very revealing of the unintended consequences of health care reform legislation and the scary reality of what’s to come further down the road.
First, if you haven’t done so already, please read the article here -- "Blue Cross to cut costs 20%"
Blue Cross Blue Shield of North Carolina is the largest insurance company in the state. In 2009, the insurance giant took in $5.2 billion dollars in revenue (that’s billion with a “b”) and had net income of $107.3 million dollars. Not only this, but Blue Cross Blue Shield has more than $1 billion dollars in cash reserves. By its own estimates, Blue Cross Blue Shield should expect to attract the lion’s share of almost 2 million people in North Carolina who will have health insurance after some of the major provisions of the new health care reform legislation take effect in 2014.
So why would a large insurance company like Blue Cross Blue Shield (a company that has large cash reserves, is profitable, and is projected to grow significantly) want to reduce its expenses and become a smaller company? Because it must begin preparing for the worst case scenario--a collapse of the entire insurance industry once health care reform legislation officially takes effect in 2014.
It’s clear that Blue Cross Blue Shield is not thrilled about health care reform. In fact, like all of the other insurance companies, they are scared to death. And rightfully so! As a result, Blue Cross Blue Shield execs have begun making adjustments to their business model to prepare for what they believe will be a tremendously difficult year financially in 2014. In the article, Blue Cross Blue Shield points to health care reform and a poor economy for its need to reduce costs. The company also reveals that medical expenses will need to be reduced as well and that this will include some “tough negotiations.” In case you were wondering, yes, the term “tough negotiations” is referring to negotiating reductions in reimbursements with physicians and hospitals.
The most telling parts of the article were the comments regarding diversification and the potential destructive effects health care reform could have. Blue Cross Blue Shield CEO J. Bradley Wilson states that his company is reviewing opportunities to expand into life insurance, worker’s compensation coverage, and payroll services. He goes on to say that his goal is to have up to 25% of Blue Cross’ operating income coming from non-health related businesses by 2014. Yes, you heard right; Blue Cross Blue Shield wants to start getting into businesses like payroll processing and other non-health related businesses (aka: moving away from the business of health insurance).
Wilson goes on to say that the 2 million additional people in North Carolina who will have insurance as a result of health care reform is a positive outcome for the state, but that this will put more strain on an already shaky system. The article closes with Wilson revealing that “unless the industry is revamped and medical inflation tamed, it brings you to a doomsday scenario down the road."
Sounds pretty optimistic, doesn’t it!? Pardon the sarcasm, but what exactly does all this mean?
Blue Cross Blue Shield has strong reasons to believe that, in a couple of years, and as a direct result of health care reform, being a health insurance company will no longer be a profitable venture. This is also a solid indication that the insurance companies do not think that the health care reform legislation is going to fix the current problems with the health care system. In light of these revelations, Blue Cross Blue Shield has chosen to prepare for the worst by shrinking and diversify into non-health related business. And that's the bottom line.
Now this brings up a very interesting question. When Blue Cross Blue Shield leaves the health insurance business for good, who will be left to cover the millions of Americans who are going to be simultaneously added to an already shaky health insurance system?
First, if you haven’t done so already, please read the article here -- "Blue Cross to cut costs 20%"
Blue Cross Blue Shield of North Carolina is the largest insurance company in the state. In 2009, the insurance giant took in $5.2 billion dollars in revenue (that’s billion with a “b”) and had net income of $107.3 million dollars. Not only this, but Blue Cross Blue Shield has more than $1 billion dollars in cash reserves. By its own estimates, Blue Cross Blue Shield should expect to attract the lion’s share of almost 2 million people in North Carolina who will have health insurance after some of the major provisions of the new health care reform legislation take effect in 2014.
So why would a large insurance company like Blue Cross Blue Shield (a company that has large cash reserves, is profitable, and is projected to grow significantly) want to reduce its expenses and become a smaller company? Because it must begin preparing for the worst case scenario--a collapse of the entire insurance industry once health care reform legislation officially takes effect in 2014.
It’s clear that Blue Cross Blue Shield is not thrilled about health care reform. In fact, like all of the other insurance companies, they are scared to death. And rightfully so! As a result, Blue Cross Blue Shield execs have begun making adjustments to their business model to prepare for what they believe will be a tremendously difficult year financially in 2014. In the article, Blue Cross Blue Shield points to health care reform and a poor economy for its need to reduce costs. The company also reveals that medical expenses will need to be reduced as well and that this will include some “tough negotiations.” In case you were wondering, yes, the term “tough negotiations” is referring to negotiating reductions in reimbursements with physicians and hospitals.
The most telling parts of the article were the comments regarding diversification and the potential destructive effects health care reform could have. Blue Cross Blue Shield CEO J. Bradley Wilson states that his company is reviewing opportunities to expand into life insurance, worker’s compensation coverage, and payroll services. He goes on to say that his goal is to have up to 25% of Blue Cross’ operating income coming from non-health related businesses by 2014. Yes, you heard right; Blue Cross Blue Shield wants to start getting into businesses like payroll processing and other non-health related businesses (aka: moving away from the business of health insurance).
Wilson goes on to say that the 2 million additional people in North Carolina who will have insurance as a result of health care reform is a positive outcome for the state, but that this will put more strain on an already shaky system. The article closes with Wilson revealing that “unless the industry is revamped and medical inflation tamed, it brings you to a doomsday scenario down the road."
Sounds pretty optimistic, doesn’t it!? Pardon the sarcasm, but what exactly does all this mean?
Blue Cross Blue Shield has strong reasons to believe that, in a couple of years, and as a direct result of health care reform, being a health insurance company will no longer be a profitable venture. This is also a solid indication that the insurance companies do not think that the health care reform legislation is going to fix the current problems with the health care system. In light of these revelations, Blue Cross Blue Shield has chosen to prepare for the worst by shrinking and diversify into non-health related business. And that's the bottom line.
Now this brings up a very interesting question. When Blue Cross Blue Shield leaves the health insurance business for good, who will be left to cover the millions of Americans who are going to be simultaneously added to an already shaky health insurance system?
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