The Giants Are Awake and They’re Hungry!

Rob Walling - Miller, Herbers, Lehmann

Steve Reynolds - Accident Fund Company

Debby Harden - Companion P & C

• Rob - Blues Overview & Approaches to WC

• Steve - Product Development & Cross Selling

• Debby - Managed Care in Blues WC

Agenda

• The importance of the Blue Cross and Blue Shield licensees to healthcare around the world is demonstrated by:– Historical Role– Size– Brand Recognition (99%, 2nd only to Coca-Cola)– Geographic Expansion (Canada, Mexico, Uruguay,

Argentina, Western Europe, Australia, Israel)

They Might be Giants

• Blue Cross - 1st Prepaid Hospital Coverage

• Blue Shield - 1st Prepaid Physicians Coverage

• Many Plans had/have Community Responsibilities

• 51 Independent Licensees

• BC/BS Association – Controls rights to licenses– Monitors quality and strength of licensees– Oversees national programs (Blue Card Program,

Medicare, Federal Employees, IBM, United)

Historical Roles of the Blues

• 72.7 Million Insured Lives (Over 25%)

• 46.7 Million Insured Lives in MCOs

• Over $80 B in Revenues in 1997

• 150,000 Employees Nationwide

• Contracts with 90% of all Physicians

• Contracts with 80% of all Hospitals

How Big is Big?

• Consolidation is fueling larger Blues licensees• Consolidation is being driven by

– Access to Capital• Critical Mass• Survival of the Fittest

– Geographic Expansion

...and Getting Bigger

• Wellpoint (CA, GA)• Anthem (IN, OH, KY, CT, NH, ME, CO...)• Highmark (PA BS, BC of Western PA, Mountain State BCBS)• The Regence Group (OR, ID, UT, parts of WA)• Excellus (5 Blues in NY State)• BCBSI (IL) and BCBS of Texas• Wellmark (IA & SD)• BCBS of Tennessee and Memphis• BCBS of Maryland and the National Capital Area

Consolidation Examples Since 1993

• Hillary Clinton

• Network Volume = Negotiating Leverage

• Network Pricing Advantage

• 24 Hour Coverage

• Trend of WC Toward Employee Benefit

• Multiple Bites of the Apple/Cross Selling

Why get into WC

• Premium to Surplus

• What’s a Tail?

• Return to Work Motivation

• Trust Factor

• Data/Jargon Mismatch

• Licensing Constraints

• Health Care Results Constrain Expansion

Why not get into WC

• Avoidance – (Not many, Over 3/4 of Licensees have a network)

• Develop & Lease a WC Network– (BCBSCT)

• Develop TPA Capabilities to go with Network– CompSource (BCBSNJ)– OHMS (BCBSCO)

Approaches Taken by Blues to WC

• Form a P&C Subsidiary– Florida forms Comp Options– Companion P&C

• Partner with a WC Writer– United Wisconsin (with Aon)– Third Coast (RisCorp and BCBS IL)

• Acquire a WC Writer– BCBSM and Accident Fund Company– Anthem and Shelby Insurance (Anthem P&C)

Approaches Taken by Blues to WC

Accident Fund Company

• Founded in 1912 and the first provider of workers compensation in Michigan

• Headquartered in Lansing, Michigan• Offers traditional workers compensation insurance

and third party administration of self-insured businesses and group programs.

• Purchased by Blue Cross Blue Shield of Michigan and was one of the largest privatization’s of a public agency in U.S. history.

Accident Fund Company Privatization

• The Privatization Motivation 1976 A.G. rules that Accident Fund of Michigan is

a state agency. Legal battle begins that would last twelve years Governor John Engler calls for privatization open

the way for the sale.

Accident Fund Company Privatization

• The Sale Process Policyholders brought a lawsuit claiming that the

surplus belonged to them. Courts decided that the assets belonged to the

state. Investment banker solicits buyers including

BCBSM.

Accident Fund Company Privatization

• Blue Cross Blue Shield of Michigan and Accident Fund Company National health care initiative could be successful.

If successful assumed it would include non-occ and occupational health care needs.

Accident Fund of Michigan has largest market share and made good investment sense.

Accident Fund Company Privatization

• The Privatization Process BCBS is the successful bidder and the sale is

closed January 1994.

P.A. 350 is amended and limits the activities of the Accident Fund of Michigan

Accident Fund of Michigan changes its name to Accident Fund Company.

What We Are Doing Today

• Twenty-four Hour Care

• Pharmacy Program

• Preferred Provider Organization of the Midwest, (PPOM)

• Short term disability administration for BCBS on a TPA basis

• Cross Marketing Health and Workers Compensation Coverage

Twenty Four Hour Care

• Failure of The National Health Care Initiative

• Lack of Understanding of 24 Hour Care Challenges

• Increasing Agency Force Interest in 24 Hour Care Product

• Where we are now

Pharmacy Program• Merck-Medco Managed Care

Supplies drugs to BCBS pharmacy. Development of program was a direct result of the BCBS

relationship. Provide pharmacy usage information.

• The Program BCBS pharmacy only. No out of pocket costs to the worker. Covers only those drugs needed to treat the occupational

injury or illness.

Pharmacy Program

• Benefits No out of pocket costs for the employee. Administration fee for BCBS. Significant savings for Accident Fund Company.

BCBS and AFC Cross Marketing Initiative

• Cross Marketing Concept Development Too soon for Twenty-four hour care. Cross marketing seen as an opportunity. Concept developed over a twelve month period.

• Product Development Initiative is made part of the annual business plan. Cross functional team is made responsible for

implementation. Developed three different types of strategies. Implemented October 1999.

BCBS and AFC Cross Marketing Initiative

• Challenges Education and Lexicon. Culture differences. Distribution systems. Data.

BCBS and AFC Cross Marketing Initiative

• Lesson Learned Needs to be of equal priority. Vertical differences in buy in. Both organizations understand each others

business much better. Still learning.

Next Steps

• Coordinated Product

• Focus on Employee Management and Benefits

• BCBS Network Opportunities as we Expand to Other States

• Cross Marketing Expansion

• Opportunities are Endless

Thank You

Steve Reynolds

Accident Fund Company

232 South Capitol Ave

Lansing MI 48901

(517) 367-1604

stevenr@accidentfund.com

The coordination of appropriate medical services to assure the highest quality of care with the goal of achieving maximum recovery

and functionality obtained in the most cost effective manner.

How it began……..

Where it led….

+ = Less indemnity

BURN CENTER

MR. BARELY MAKINIT 1/3/53

222-55-9999

ROOM B

$1,800.00 PER DAY

X10 DAYS = $18,000.00

WASHER$ 350.00

DRYER $ 350.00

SHEETS $ 100.00

HOME HEALTH

X 10 DAYS $1,400.00

SUPPLIES $ 100.00

$2,300.00

SAVES DOLLARS & SO MUCH MORE

P & T $210,000.00

PROSTHETICS $100,000.00

MEDICAL/REHAB $150,000.00

$460,000.00

VS

AIRTRANSPORT $ 1,800.00

CASE MNGT $ 5,000.00

MEDICAL$45,000.00

5 WKS TT $ 2,100.00$ 53,900.00