More Competition in Crowded Health-Care Market : Blue Cross Launches New HMO
Blue Cross of California, which lost management control of its popular Health Net health maintenance organization in a bitter court battle last year, has launched a new HMO here that promises to intensify competition in California’s crowded HMO market.
Backed by a $2.25-million television and print advertising campaign, the state’s largest health insurance firm will begin marketing its CaliforniaCare HMO in Southern California on June 1.
The new health plan, which like other HMOs is made up of physicians who provide medical care for a fixed, prepaid fee and little or no insurance paper work, will start with 120 locations and 1,700 affiliated physicians.
“In the past, many small businesses have had difficulty obtaining a health maintenance plan” because of the high cost, said Leonard D. Schaeffer, president of Blue Cross.
He said CaliforniaCare offers flexible plans, “each with its own pricing structure to accommodate the needs of virtually all employers with five or more employees.”
Experts say that CaliforniaCare, though it promises some employers more attractive rates, will still face stiff competition from the 32 other HMOs based in the state.
Rates Aren’t Key
“HMOs tend not to compete solely on rates,” said Randall Huyser, a health-care analyst for Montgomery Securities in San Francisco. “There’s not a proven link (that) if you have the lowest rates you are going to grow the fastest. Kaiser, for instance, generally has the lowest rates in the state” but grew less than 20% last year. By contrast, Huyser said, “Maxicare (Health Plans Inc.) grew 30% even though its rates are among the highest.”
Among CaliforniaCare’s biggest competitors is its Blue Cross predecessor--the Health Maintenance Network of Southern California, or Health Net, which is the nation’s sixth-largest HMO. Health Net serves 440,000 members and had revenue of about $300 million in 1985. It became independent of Blue Cross last year after a Superior Court judge upheld its 1983 decision to amend its bylaws to eliminate Blue Cross control over its business affairs.
Health Net said it had adopted the amendments “to eliminate an unnecessary layer of administration” and to prevent what it called “past abuses” by Blue Cross, such as lack of management support and Blue Cross’ alleged refusal to pay interest on subscriber fees that it collected for Health Net.
Despite the rift, Health Net said it will not be motivated by its past differences in competing against Blue Cross.
“Competition is a good thing,” said Health Net President Roger Greaves when asked how his HMO would respond to CaliforniaCare. “But we wouldn’t respond specifically to them. We already have a ton of business.”
CaliforniaCare differs from many of its competitors such as Health Net and Maxicare in that it is not a federally qualified HMO. Such qualification is generally highly sought since most large employers are required to offer medical insurance through at least two federally qualified HMOs. Blue Cross officials believe that they can be more flexible is setting rates without the constraints of federal qualification.
