Blue Cross Blue Shield Follow-Up

From:aoleary@hillaryclinton.com To: john.podesta@gmail.com, jp66@hillaryclinton.com CC: jsullivan@hillaryclinton.com, mfisher@hillaryclinton.com, slatham@hillaryclinton.com Date: 2016-03-16 16:55 Subject: Blue Cross Blue Shield Follow-Up

John - I've been working closely with BCBS - think we have calmed them down. Attaching what we sent into HRC and pasting below background on BCBS in case Daschle is still calling you. Please let me know if you are getting more concerns. Thanks, Ann *Background on Blue Cross-Blue Shield plans’ for-profit status* In response to several questions in the past few weeks in public forums, YOU have expressed concern about the fact that a number of Blue Cross-Blue Shield (BCBS) plans had converted from non-profit to for-profit status. While this is true and there are legitimate concerns about BCBS plans converting to for-profit status or acting like for-profit companies, we wanted to clarify that not all BCBS plans are for-profit and that in many ways BCBS has been a good actor in making expansion of coverage possible in the individual marketplaces. In fact, BCBS plans have broad participation in the Exchanges – without them, some states like North Carolina would have counties with one or no plan offerings. Indeed, other for profit and not-for-profit insurance plans selectively offer coverage only in parts of the state they believe they can be certain to make money; virtually all Blues plans offer coverage state-wide -- something we need many more plans to do. *Background: *It is a fact that in the early 1990s, BCBS began allowing non-profit BCBS plans to convert to for-profit status – and raising concerns about the potential of harm to consumers. Today, according to BCBS, for-profit, publicly-traded companies serve about 29% of the 105 million BCBS members system wide. While the share of BCBS customers gaining coverage from for-profit companies is nearly one-third, only two BCBS companies out of 36 are publicly-traded, for-profit companies – Anthem, Inc. (which operates BCBS Plans in 14 states) and Triple-S Management Corporation (which operates in Puerto Rico). And, the last conversion into a for-profit plan occurred around 15 years ago, which suggests this is not the model that Blues plans appear to be pursuing anymore, and explains why many Blues not-for-profit plans have expressed umbrage about your comments to John, Ann and Chris. Having said, the issue in the news now is that a number of Blue Cross Blue Shield affiliates, incorporated as non-profit organizations, have recently come under fire for engaging in a series of practices that are more traditionally associated with for-profit companies. California's Blue Shield has been the main target, as a recent audit revealed that it stockpiled "extraordinarily high surpluses" - more than $4 billion – and premium increases that are "higher than a lot of for-profit insurers." As a result, California Blue Shield has been stripped of its tax-exempt status by a state regulatory board. Texas and Alabama BCBS affiliates are coming under similar scrutiny for similar reasons: high reserves, high premiums, and anti-competitive practices to push other insurers out of the market and then hiking rates. Modern Healthcare also noted <http://www.modernhealthcare.com/article/20141219/blog/312199978> BCBS' clout in Washington – they are handled under different corporate tax rules than other insurance companies, but they won a fix that allowed them to count quality-improvement efforts towards their medical loss ratio, the same as other insurance companies. The bottom line is that there are legitimate concerns about BCBS plans converting to for-profit plans, *or acting like for-profit plans* – but there are even more significant villains in the health insurance markets, such as the mega-mergers proposed between four of the five largest health insurance plans (including Anthem, which operates for-profit BCBS plans), about which YOU have consistently and publicly raised appropriate concerns. This development is more disconcerting when one considers that the not-for-profit coops created under ACA to provide additional competition have proven to be disappointing at best and a disaster at worst. Many underbid their competition, but then found they had insufficient revenue to cover their claims experience and either had to leave the market place or substantially increase premiums to remain in it. It is true, of course, that the very design of ACA presumes the participation of private health insurance plans. We need them to offer coverage within the exchanges to ensure competition, affordability and sustainability of the insurance market the law created. And our best short-term way to do that is to do a far better collective job of attracting and retaining the millions of eligible but not yet enrolled populations into the exchanges, (which is what your recent policy is designed to do). With this in mind, the balancing act that we must walk is to understand that, at least for the foreseeable future, we cannot succeed in continuing to expand coverage in the individual marketplaces without BCBS and other (not-for-profit and for profit) insurers participating in greater numbers. For good or bad, BCBS plans are among the widest participants and are amongst our most important allies (among insurance companies) in implementing the ACA. We believe that YOU should continue to make a strong case for greater competition and more affordable options on the exchanges, and have suggested language below, without leaning in on BCBS plans as a proof point. If asked about your BCBS comments, YOU can lean into the concerns about the individual BCBS plans that are non-profit, but acting like for-profits and YOU can also focus on other forms of harmful competition in insurance (e.g., consolidation among 4 of the 5 largest health insurance companies). And, finally, YOU can highlight your proposals that would make premiums more affordable, increase enrollment and provide states with the choice to provide a separate public option to their citizens purchasing insurance on the exchange. -- Ann O'Leary Senior Policy Advisor Hillary for America Cell: 510-717-5518