BCBS Michigan, Vermont receive green light for affiliation

Vermont regulators have approved Blue Cross Blue Shield of Vermont becoming a subsidiary of Blue Cross Blue Shield of Michigan.

The two organizations have referred to the deal as an "affiliation" because all governance, operational and policy decisions will still be made locally by each company. BCBS Vermont will also retain its name, executive leadership and board, headquarters, and will still be regulated by Vermont officials. Premiums from each plan will stay in their respective states and will be used to continue paying claims, administer plan operations, and maintain member reserves. 

"Blue Cross Blue Shield of Michigan is a fit both as a parent affiliate organization and as a fit for Blue Cross Blue Shield of Vermont because they provide significant investments and savings, particularly in the area of being an industry leader in technology at a scalable level in which we gain the resources of this larger organization, while continuing to have healthcare delivered and managed locally by a nonprofit plan in Vermont," BCBS Vermont president and CEO Don George told Becker's Oct. 11.

"Now we're really looking forward to the organization and employees undergoing this transition to achieve the benefits to the affiliation for the employees, the organization and our customers," he added.

The deal had faced scrutiny from state regulators over the summer. As part of the approved affiliation, the BCBS Vermont board of directors will be "reconstituted" to consist of 12 total directors, including seven individuals previously appointed by BCBS Vermont and five new individuals proposed by BCBS Michigan. 

"It's always been in our strategy to find ways to more deeply partner with other Blues plans, and I think this Vermont opportunity gave us that," Lynda Rossi, BCBS Michigan's executive vice president of strategy, innovation and public affairs, told Becker's. "It gives us the ability to extend our capabilities to other plans that need the scale, and allows us to have a bigger set of lives to use those scaled capabilities." 

First proposed in May, the affiliation is expected to lead to $10 million in savings for BCBS Vermont over a period of three years, in part because of the new ability to share contracts and vendors with the Michigan plan. On the ground, Vermont members could see more than 20 new digital health tools available in the near future as a result of the affiliation, including a mobile app and virtual ID cards.

Mr. George said BCBS Vermont had also considered outsourcing services before settling on the decision to partner with another Blue Cross plan. The Vermont plan then went through a comprehensive procurement process to find the right partner.

"It was important to us to identify a collaboration with an organization in which we could benefit from significant investments and savings without having to outlay the capital ourselves because we had for years been scrimping, cutting and saving to try and pay for a future that we could not fund," he said.

The affiliation is part of a large restructuring trend among BCBS companies. Over the last year, Horizon BCBS New Jersey and BCBS North Carolina reorganized to be able to add for-profit subsidiaries like provider groups or PBMs, though the companies will remain nonprofit entities.

Elevance Health, which owns 14 for-profit BCBS affiliates, is looking to purchase nonprofit BCBS Louisiana for $2.5 billion, though the deal is currently on hold amid heavy scrutiny from state officials and some policyholders.

"Blues plans are all competing against some really big players," Ms. Rossi said. "It really requires us to think about how to partner within the Blues so that we have more scalable ways to access capabilities and stay competitive in our local markets."

"The cost of technology and operations is becoming extremely expensive, but it's also moving to become the nexus of innovation and customer value creation, so you cannot afford to fall behind," Mr. George said. "I don't think that that is probably dissimilar to what others across the health insurance landscape and many other industries are confronting right now."

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