Lawsuits filed in federal court in Arkansas against Blue Cross and Blue Shield rely heavily on the history of the organization, which, they argue, evolved into a monopoly that has allowed 38 companies operating under the brand to dominate markets and drive up premiums.
Arkansas Blue Cross and Blue Shield and its sister companies around the nation play a powerful role in the health insurance world.
The Blue Cross and Blue Shield Association, which is also named in the suits, on its website boasts that “the 38 Blue Cross and Blue Shield companies cover 100 million Americans. Nationwide, more than 96 percent of hospitals and 91 percent of professional providers contract with Blue Cross and Blue Shield companies - more than any other insurer.”
Whether that dominance is derived from unfair advantages arising from monopolistic practices, in violation of the federal Sherman Antitrust Act, is now before the courts.
Tilden Katz, a spokesman for the association, said recently that he would stand by what he said in an earlier statement issued about the cases: “We believe this litigation is without merit and we will vigorously defend our system and the benefits it provides to customers. The Blue Cross Blue Shield system provides specific advantages: affordable access to a broad network of doctors and hospitals, serviced by a local company with a deep commitment to the community.”
The Blue Cross and Blue Shield companies potentially could become the target of a class-action lawsuit. Forty cases from 18 states had been consolidated as of Thursday in the U.S. District Court for the Northern District of Alabama. One observer said that a decision on whether to grant class status could come in May or June under U.S. District Judge R. David Proctor.
The plaintiffs in Arkansas, Robert Finne of Drasco and Linda Mills of Judsonia, are seeking class status for those who have paid premiums to Blue Cross and Blue Shield on individual or small-group coverage from 2009 to the present, according to a lawsuit filed by Finne in the U.S. District Court for Eastern Arkansas. One of their attorneys, John Holton of Memphis, declined to provide their phone numbers and efforts to find their listings were unsuccessful.
The suits filed in Arkansas on March 18 and 21 do not attempt to quantify the rise in premiums or the basis of comparison to other rates.Nevertheless the suits seek triple the amount that Blue Cross allegedly overcharged in that period, plus $76,000 per customer.
Premium increases for Arkansas Blue Cross policies taken out by individuals in that period averaged 8.9 percent per year, according to figures obtained from the Arkansas Insurance Department.
Small-group (two to 25 employees) monthly premiums have gone up an average of 5.8 percent for the years 2009 through 2012, according to the Arkansas insurer.
The Kaiser Family Foundation - a Menlo Park, Calif.-based organization that describes itself as “a nonprofit, private operating foundation focusing on the major health care issues” - said that because of a complex of factors an “apples-to-apples” comparison of Blue Cross figures against a national average is not possible.
The 38 Blue Cross companies are dominant in terms of how they rank as measured by total premiums. Including Arkansas, the companies rank first in 18 states in terms of premiums paid, according the National Association of Insurance Commissioners. They are in the top four in seven other states.
Blue Cross and Blue Shield Arkansas controls 39.6 percent of the market, followed by United HealthCare at 11 percent.
About half of the 54-page complaints filed in Arkansas, which are identical except for the names of the plaintiffs, is devoted to the history of Blue Cross.
According to the filings, Blue Cross began to evolve when a hospital in St. Paul, Minn., introduced a prepaid plan in 1934, which prompted other hospitals to develop similar plans.
In 1938, the American Hospital Association adopted principles and told those hospitals if they adhered to them, the national organization would give its stamp of approval. In 1941, the hospital association stipulated that use of the approved Blue Cross symbol was contingent on the plans not competing against one another. But the plans continued to compete, sometimes fiercely, in that era.
Blue Shield plans that cover the cost of physician care are developed similarly, under the aegis of the American Medical Association, which represents physicians. Despite the no-compete stipulation, Blue Shield plans likewise were highly competitive with one another.
But by the late 1940s, commercial insurance companies began entering the market, the suits said. That competition eventually led to Blue Cross and Blue Shield merging to form the Blue Cross and Blue Shield Association, which exists to this day.
The suits said that led to the limiting of “blue” plans to one per state, and ended internecine competition.
“The [Blue Cross and Blue Shield Association] calls itself a ‘national federation of independent community based and locally operated Blue Cross and Blue Shield companies.’ [But the association] is entirely controlled by its member plans.”
Market dominance in itself is not proof of monopoly, said Michael Pakko, chief economist at the Institute for Economic Advancement at the University of Arkansas at Little Rock. But a market must be “contestable,” allowing competition, he said.
“Being a large firm within an industry doesn’t imply wrongdoing in and of itself,” Pakko said.
But Holton, the Arkansas plaintiffs’ attorney, said in an interview: “The intent [to establish a monopoly] is what is going to put it over the line. There is a very systematic scheme that they set up.”
Business, Pages 69 on 04/14/2013