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.

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.

FSS: In southwest Pa., our most mature and our oldest market, our strategy has been to stick to the fundamentals of our business: 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 continues to be enhanced and we’re recognized by the community as a very viable alternative to the Blues. 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. So I would say that the fact that HealthAmerica is spoken almost in the same breath as a Highmark Blue Cross Blue Shield today is indicative of how much we have matured as a company and how much we have responded to the marketplace’s needs.

In terms of obstacles, one of the most significant events that has happened to HealthAmerica was the AHERF bankruptcy that occurred in July 1998. We had a partnership arrangement with AHERF for risk management and clearly that bankruptcy impacted us, not only financially, but also in terms of perceptions in the marketplace. It was misunderstood what the relationship was between HealthAmerica and AHERF, so it was a call to action on the part of the entire organization to meet with customers to explain the situation and change our model in western Pa. because of the way we had delegated certain risk management responsibilities. We had to take that back into the organization and do it very quickly. We refer to that today as a defining moment in our company. There were some who were predicting the beginning of our demise, but we said we could turn it around and sure enough, we did. The other obstacles are the usual suspects. The recognition and the brand loyalty towards the Blue Cross Blue Shield icon is phenomenal, particularly in southwestern Pa.—it’s very much still a blue collar town. It’s been transforming itself over the last two decades to more service, but there’s still a strong loyalty towards the Blues and that’s something we work through every day.

FSS: You compete by being more effective in managing medical costs than they are, in terms of our progressive approach to case management and concurrent review, our pharmacy programs, our disease management programs. That helps us be more effective in controlling medical costs than they might be able to. It consumes more of our resources than virtually any other area of our operations, other than claims processing. We don’t outsource any of this, so we have direct control over how the program evolves. Some of our competitors outsource their disease management programs and they don’t necessarily coordinate well when you have co-morbidities, whereas in-house we’re able to do that because these people sit side-by-side and talk about the patients everyday. That’s certainly not intended to be a ding at my competitors; I just think it’s truly one of the areas that we’ve excelled at as a company. One of the other areas would be our ability to bring a product to market faster than our competitors do. The most recent one was last year, with the HealthAssurance Flex product, which features a debit card, and it’s the first consumer-driven health benefits plan that was introduced in the marketplace. We think it may be slightly ahead of its time, but I think as the medical trends continue to be double-digit, employers are looking for ways to put more accountability back to their employees for taking responsibility for the decisions they make, whether it’s lifestyles or how they access services.

FSS: That’s probably where the service comes into play. Not every employer buys on price, although many do. If we’re more effective at managing the medical costs, a larger employer is going to get that benefit, coupled with service, HEDIS, our account management and our employer group reporting that provides them insight as to what is driving their costs and pointing out where there are some opportunities to effect change with their employee population. These are value-adds that I think have allowed us to compete and have allowed us to grow in western Pa.

FSS: We don’t comment on matters concerning strategic relationships. It’s just not appropriate.

FSS: The strategy was actually executed on in May: to find a health plan that we could acquire. We actually embarked on this about three years ago—we tried to acquire what was then Alliance Health Plan, but unfortunately we were second place then. We were successful in May in acquiring NewAlliance—that gives us an expansion of six counties in the northwest and makes us contiguous from the north to the south in the western part of the state, which is important not to have any gaps in your service area. It gave us a little bit of critical mass to work with. Since this is all relatively new, there’s a period of time when the marketplace is getting to know you. We had no expectation that, just because we acquired NewAlliance, all of a sudden our phones would be ringing off the hook. We knew that we’d have to prove ourselves and create a reputation so that others would be interested in pursuing a relationship with us. It’s a work in progress.

FSS: Some of those go away because of the network capability that we have in the greater Pittsburgh area that they didn’t have. They were relying on UPMC for some of those services. We have a relationship with UPMC for several of their hospitals. We don’t work with Presbyterian right now, except in extraordinary circumstances, but there are cost-effective alternatives which we have available to us that Alliance and NewAlliance didn’t have at the time. They had 45,000 members and didn’t have the economies of scale that we’ve enjoyed with having 625,000 members in Pa., and then having our parent company oversee another 1.4 million members. One of the challenges that NewAlliance had was that they were strictly an HMO and they didn’t have PPO or point-of-service capability. They had one license, while the market was changing and they weren’t able to respond to that market. So, the fact that we have a full range of products and services should at least level the playing field in terms of what you can buy from Highmark and from HealthAmerica/HealthAssurance. I think there are many employers who have somewhat of an affinity toward companies that work hard and I think we’re going to get more opportunities than perhaps NewAlliance was afforded. But again, we’re going to have to earn it. The big factor in the northwest would be the Manufacturer’s Association of Northwest Pennsylvania, which has well over 6,000 employers. It is a significant influence in the business community and there really isn’t anything like that in the southwest. That association has confidence in our ability to meet their needs and to work with them in a collaborative fashion, which will, I think, improve our ability to distribute product to their members. Our goal would be to become their preferred health plan.

FSS: We began back in May to integrate NewAlliance’s operations and 45,000 members into HealthAmerica, which will be complete by November. We have been able to sign up around 2,000 new members since May. Our goal is to make some significant gains over the next 18-24 months. I think we have a realistic expectation that it’s going to be gradual at first and then accelerate as our name and reputation become more widely known. I’d like to see us somewhere in the 60,000 range by the end of 18 months.

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.

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.

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.

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.