By Christopher Guadagnino, Ph.D.

Published October 2002

• React to this article in the Discussion Forum.

Francis S. Soistman, Jr., is president and CEO of HealthAmerica and HealthAssurance.

PND: What products is HealthAmerica offering to its various Pa. markets?

FSS: In all of our Pa. markets we have HMO products, point of service, self-funded products and services, alternative funding, a consumer-driven benefit plan called HealthAssurance Flex and our small business solutions. We have a Medicare+Choice HMO in western Pa. and in Centre County, and we have more products on the horizon. HealthAmerica is the licensed HMO company in Pa., while HealthAssurance is the licensed PPO and point-of-service company. 

PND: Which is your largest market in Pa.?

FSS: We’re larger in central Pa. than we are in western Pa., but not by much. In total, we’re a little over 625,000 members, approximately 325,000 is in central Pa. and 300,000 in western Pa. With the acquisition of a NewAlliance in May up in Erie we were able to bring on 45,000 new members, which certainly helped our growth in that region.

PND: Can you briefly describe HealthAmerica’s growth and changes since it began as a Pittsburgh HMO formed by the business and labor community?

FSS: It was established in 1974, the first federally qualified HMO in the Pittsburgh region and the fourth in the nation. We have grown throughout the 28 years through area expansion where we’ve gone from a few counties to many counties. We’ve crossed over state lines into Ohio and we have a sister plan in West Virginia, Delaware and Maryland, so we really have the ability to meet a broader geography through our subsidiary affiliates.

PND: What has your strategy been in central Pa. and what successes and challenges have you encountered?

FSS: Central Pa. is a fascinating marketplace and continues to evolve. We have experienced some good growth over the last 24 months. Our approach to medical management is the same as we use in western Pa.: providing superior customer service, working our relationships with physicians and hospitals in a mutually productive manner, continuing to improve our technology and becoming more efficient and user friendly in terms of how our members, providers, employers and brokers interface with us. Clearly, having products that meet the marketplaces’ needs is crucial—not just having the product today, but anticipating what the market’s going to need tomorrow. Doing that well and doing it better than your competitors often leads to rewards through new sales and growth. Our reputation for providing quality, service and our clinical quality outcomes through our HEDIS has been a trademark of HealthAmerica over the last five years. Not only do we lead Pittsburgh, we lead the entire state and we’re one of the top performing health plans in the nation for our HEDIS. 

The market dynamics in central Pa. continue to change. We’ve had several competitors exit the market—Health Central, Pennsylvania Physician’s Care. More recently, educators announced that they were leaving the health insurance business over the next 12 months. We’ve had others reduce their presence—Aetna is one example in some areas of central Pa. Geisinger Health Plan seems to be doing the same thing. They’re perhaps focusing more of their efforts on where they feel they’re the strongest and that may require that they pull out of some markets. The most significant event that has occurred recently is the split between Capitol Blue Cross and Pennsylvania Blue Shield. That has resulted in employers having to reselect what health plans they’re going to work with. We’ve been fortunate in that the community has viewed us in the same context as the Blues, meaning that they have accepted us as a major player in this region and that has resulted in some growth opportunities. Our membership has grown somewhere in the neighborhood of 15,000 to 20,000 members. We’ve been able to bring on some groups on the first of next year, which I’m delighted about. We feel that we should be able to grow somewhere in the neighborhood of three to five percent net growth per annum. 

PND: What difference does competition between the former collaborators Pennsylvania Blue Shield and Capitol Blue Cross make in the market?

FSS: It does change the provider dynamics somewhat, in that both those organizations now have to have hospital and physician relationships. In the past, one owned the hospitals and the other owned the physician relationships. It’s uncertain as to what that’s going to mean longer term. I think the most significant difference is that the Cross and the Shield are no longer marketed together. That’s going to take some getting used to on the part of the community and the consumers. This is foreign to them; they’ve always had it together. Employers have to reselect and are telling their employees that there are alternatives out there, including HealthAmerica and HealthAssurance. That means that we can be considered, where in the past perhaps we weren’t considered because there was so much comfort with, and loyalty to Blue Cross and Blue Shield. It is an opportunity for us and we know we have to earn it. Longer term, the companies that meet and exceed customers’ expectations are going to be rewarded with business—who can manage cost most effectively, who can provide the service, who can provide access to a cost-effective and quality network. Competition has made us all better companies, even though it’s not necessarily a level playing field. When you look at financial wherewithal of Capitol Blue Cross or Highmark, clearly they have the advantages there. But we don’t pack up our tents and go home. We’ve been fighting the good fight for a long time. And this phenomenon of a split is further motivation for us to work hard to win more business. 

The split between the Blues probably will be beneficial to providers because I think that the providers have regained some leverage and are expecting different levels of reimbursement than what they may have accepted when they were working with two companies collaborating. But that’s only one dimension of it. When you think about what drives reimbursement requirements, you probably have to start with how much revenue, for example in hospitals, is attributable to government programs such as Medicare. To the extent that reimbursement from the government does not keep pace with health care inflation, it puts more pressure on the private sector. It can’t be sustained. Something happens in situations like that, where either providers retailate or where there’s an opportunity for competitors to come in and change the dynamics. But that’s a slow process. 

PND: What are your expansion plans for northeastern Pa.?

FSS: They’re actually a work in progress. We were selected by the Department of Public Welfare to participate in the HealthChoices Medicaid program for the northeast. Right now our efforts are focused on building a network and we have the administrative capability already in-house. We’ll also be focusing on commercial growth and we’re very excited about the opportunity to expand into nine new counties in the northeast. 

PND: Why is northeastern Pa. your only market for a Medicaid HMO?

FSS: Our intentions are certainly beyond that, but that’s our starting place because the opportunity has presented itself now with the formal bid process. We would look at other regions of the state as they go out to bid to determine if that makes good business sense for us to pursue. 

PND: What proportion of your business will be Medicaid versus commercial in the northeast?

FSS: Mostly likely for the first 12 months it may be 50-50, but relative to our 625,000 members statewide the Medicaid will be less than one percent. We really don’t know what to expect in enrollment in Medicaid. We don’t know if all of the vendors selected will stay. I think one dropped out already, so that would potentially change the mix of the business. Our goal would be to grow the commercial business in a manner that is consistent with our commercial business in other regions.

PND: When does the HealthChoices program start in the region?

FSS: Technically it starts January 1, but mandatory on July 1 of next year. At this time there appear to be 90,000 eligible enrollees. If there are four vendors, we’d at least like to get 25 percent to start with. 

PND: According to state Medical Society data, Blue Cross of Northeastern Pa. last year had nearly two-thirds of the market share there, Geisinger had roughly 20 percent and Aetna had close to nine percent. How do you hope to expand in a market with competitors like that?

FSS: We feel that the successes that we’ve enjoyed in other regions of Pa. can be duplicated in the northeast. We have the capacity, the systems capability, the products and services that the communities want, a distribution system—everything that is needed—and we believe that providers would be receptive to supporting HealthAmerica’s efforts to market our products and services in that region. The competitive dynamics are not static by any means. I think providers generally would like a few more choices so that they don’t have all their eggs in one or two baskets, so to speak.

PND: Which commercial products do you expect to offer in the northeast?

FSS: We’ll be offering, eventually, all of the products and services that we offer throughout the rest of the region: HMO, PPO, point-of-service, alternative funding, self-funding.

PND: Insurance companies are hurting because of depressed investment income. What impact does that have on your plans and your market positions? 

FSS: It really hasn’t had an impact on us because we haven’t relied on it historically to the same degree that some of our other competitors rely on it. Their reserves are substantially greater than ours, their investment income is substantially greater and they’re able to mitigate premium increases to some degree with those funds. 

PND: What have you relied upon, if not investment income?

FSS: It comes back to medical management. Between 85 and 88 cents of the dollar in premium collected is going to cover medical benefits. If you’re not managing that effectively, you can’t be successful. You also have to control your operating expenses. We continue to find new ways to use technology to streamline processes and to keep our controllable spending down to the bare minimum.

PND: Given that Pa.’s health insurance markets are dominated by single companies, in some regions controlling two-thirds of the private insurance market, what needs to happen to make markets more competitive? For example, do you think that regulators need to step in?

FSS: I think there’s evidence just over the last few weeks with the hearings on insurers’ reserve levels that the insurance commissioner is looking into it and I have to defer to her judgment in determining whether or not there is an excess and if so, what do we do about the excess. Our feeling is that this didn’t happen overnight and it’s not likely that a remedy will occur overnight either. It’s going to take time for companies like HealthAmerica to continue to make inroads so that it can grow its market share, thereby leveling the playing field a little more. It’s possible that other competitors from outside the region will consider coming in. 

PND: Is it your view that the free market dynamics are equipped to manage change favorably?

FSS: In the longer run, probably yes. It may require some impetus on the part of government or regulatory agencies to make that happen. I think there are components of our health care industry on the delivery side and the insurance side that are not operating as they should be. When we talk about the value of competition among health insurers, it’s certainly about the cost of health care. You have to step back and go to the sources of the cost on the delivery side and evaluate whether or not there’s a more cost-effective way of doing it. Right now there is no Certificate of Need process. If a hospital has the financial wherewithal to bring on new technology that is very costly, they’ll do it whether they have the volume or not. So, we have to get back to the crux of the matter: that health insurance costs continue to increase and it has less to do with competition among health insurers and more to do about the cost of health care. It’s all the usual dynamics of an aging population, new technology, the fact that prescription drugs are consuming more of the health care dollar today than they were five years ago. Consumers are not as engaged in the decision process of where they obtain care. There’s a disconnect between the cost of services. Many physicians would not know the costs of different drugs, so when they prescribe a drug, that may be based on the last discussion they had with the drug rep that came into their office as opposed to a responsibility to be prudent about only prescribing cost-effective drugs. I think that’s really the more important issue that we have to deal with in the state.