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Thursday, March 27, 2003

By Pamela Gaynor, Post-Gazette Staff Writer

Highmark Inc., which rolled out the less-expensive Community Blue health plan in mid-1998 that restricted consumers' choice of hospitals, is expected to discontinue the plan by the end of next year.

Health benefits analysts said the loss of the plan could mean huge increases in the costs of health insurance coverage for the companies that chose the plan. While it couldn't be determined how many employers actually offer Community Blue, the number of individual subscribers enrolled is about 216,000.

The launch of Community Blue nearly five years ago was widely viewed as one of the opening salvos in the battle between Highmark, the region's largest health insurer, and UPMC Health System, Western Pennsylvania's largest hospital network. UPMC counter-attacked, launching its own insurance subsidiary, the UPMC Health Plan.

But with the signing of a pricing contract between the Highmark and UPMC last year, the two reached a semblance of a truce. Critics have speculated that the spark of health insurance competition that flared between them might ultimately be snuffed out as a result.

Highmark's new chief executive, Dr. Ken Melani, earlier this month told members of the Pittsburgh Business Group on Health that Community Blue will be discontinued as part of a planned overhaul of Highmark's lineup of health plans that will reduce the number of offerings in an effort to cut administrative costs.

He told the group, whose members are largely employee benefits managers for the region's big corporations, that contracting with small networks of hospitals really wasn't providing savings any more. Melani expressed a similar view in a recent interview with the Post-Gazette, saying, "There's irrational pricing that goes on when you put together selective networks that is very short term in nature. More volume to a hospital doesn't mean they can produce at a lower cost."

But that's in stark contrast to what Highmark said when it organized Community Blue five years ago as a cheaper alternative to the broad-network plans it offers, all of which provide access to virtually all of the region's hospitals. At the time, the insurer said cost-conscious employers could save money by subscribing to a health plan made up of a small cost-effective group of hospitals.

Melani's recent comments also are at odds with the thinking of many health benefits analysts. So-called narrow-network health plans, which contract with select groups of hospitals that offer lower pricing to secure shares of an insurer's business, have proven effective in other regions of the country, they contend.

What's more, in Pittsburgh, Highmark has repeatedly told customers and the media that Community Blue's flagship hospital network, West Penn Allegheny Health System, offers significant pricing advantages over its crosstown rival, UPMC. It said several years ago that the differential figured into its decision to help West Penn finance a merger with Allegheny General Hospital, whose parent foundation went bankrupt, to preserve competition for UPMC.

More recently, amid last year's contract battle between Highmark and UPMC, Highmark said it already was paying UPMC hospitals a significant premium over other hospitals in the region. "Then it gave [UPMC] a raise" with the new contract, said David Lagnese, a health benefits consultant in Towers Perrin's Downtown office.

Highmark spokesman Michael Weinstein said yesterday that other hospitals in Community Blue got raises, too. He noted that contracts that Community Blue hospitals signed prior to the UPMC agreement included provisions that gave the hospitals more money if the number of Community Blue patients rose to certain levels. Those provisions were put in place so that the hospitals could hedge against their own rising costs and not get stuck serving too many patients at discounted rates.

Whatever the pricing situation, all of which is spelled out in contracts that are not publicly available, "our clients are going to miss" Community Blue, said Tom Tomczyk, a benefits consultant with William Mercer & Co. "We just recently designed programs where our clients were offering Community Blue and UPMC Health Plan side by side."

The strategy of offering the two health plan options enabled employers to give their workers access to any of the region's hospitals, though they had to choose between health plans for the ones they wanted. It also helped stimulate competition in the health insurance business, which Highmark dominates with more than 65 percent of the market.

Tomczyk said he believes Community Blue was a viable product and that price disparities still exist between hospitals that would make it possible to provide savings through the narrow network.

The savings customers lose will be significant, said Cliff Shannon, executive director of SMC Small Business Councils, a trade association that helps its member companies purchase health insurance at group rates.

Family coverage at companies with coverage through Community Blue and with employees averaging 40 years of age will rise roughly 40 percent, to $801 a month, for coverage under the next cheapest plan SMC members can choose, Shannon said.