Cambia Adjusts to Post-ACA Insurance World

The parent company of Regence BlueCross BlueShield invests in startups, boosts its for-profit subsidiary, but insurance still contributes 99% of revenue.

The parent of Oregon’s largest health insurance company expects to pay $81 million in fees starting later this year, under a provision of the Affordable Care Act. And that’s just a small part of the changes Portland-based Cambia Health Solutions is facing as it adapts to a changing business climate.

Cambia has also continued to invest in high-tech startups, and to make substantial changes to the insurance plans it offers, according to annual registration documents filed with regulators in Washington.

Cambia Health Solutions is the parent company of BlueCross BlueShield of Oregon, as well as other nonprofit Regence-branded health insurance plans based in Washington, Idaho and Utah, and Washington-based Asuris Northwest Health. Its subsidiaries also include for-profit BridgeSpan Health Co. – an insurer founded in Utah that is expanding its reach in Oregon; for-profit LifeMap Assurance Co. And through its Direct Health Solutions division, Cambia has been investing in for-profit, tech-focused startups. (Full disclosure: My husband works for one of Cambia’s subsidiaries; he is not a source for this story or my other reporting on the company.)

Across the entire company, Cambia reported a $75.7 million profit in 2013, down from $173.6 million in 2012. Cambia’s profit, or net income, has a history of swinging up and down from year to year, a reflection of changing premium collections, claims’ costs and other annual variations in revenue and expenses. The company reported an $89.3 million profit in 2011, and $241.3 million in 2010.

Cambia’s leaders have spoken broadly about a strategy to move beyond the health insurance offerings that defined its origins. Since 2011, the company’s Direct Health Solutions has been charged with taking a venture-capital-like approach – it invested some $30 million in startups and existing healthcare companies in its first two years.

The nonprofit’s annual registration statement, which discloses changes in how Cambia’s operations are organized and provides a look at the company’s financial situation, offers a deeper look at this startup-focused approach. The document also shows how market trends and the Affordable Care Act are reshaping Cambia’s long-established insurance operations.

The $81 million fee that Cambia expects to pay later this year is part of an assessment that all major U.S. health insurance companies will face later this year, as officials at the Portland-based nonprofit pointed out. The National Association of Insurance Commissioners expects that the fees – aimed at funding portions of the Affordable Care Act – will cause premiums to rise by 2 percent or more per year across all insurers in the next few years.

Among the other disclosures Cambia made to regulators about its performance in 2013:

Cambia’s startup companies have lost money for three years running.

Software and information technology – areas where Cambia has spent hundreds of millions of dollars in recent years – continue to draw hefty expenses from the nonprofit.

Traditional health insurance plans still bring in the majority of Cambia’s revenue – about $5.95 billion in 2013 – and employer-funded plans bring in another $2.2 billion.

While Cambia is a nonprofit, as are its largest insurance subsidiaries, it has been making moves to boost business at a for-profit insurers it owns, BridgeSpan.

In addition, Cambia reported that it succeeded in finding a buyer for its 100 Market Street and 1621 S.W. First Ave. buildings, which it has previously said it was trying to sell. According to property records, the buildings sold for $48.8 million.

Startups lose money

Cambia’s Direct Health Solutions website lists 14 companies in its “portfolio.”

Some were founded directly by Cambia, including HealthSparq, which allows members of 60 insurance plans (many not associated directly with Cambia) to research physicians and coverage costs.

Others were founded independently, and received venture funding from Cambia to help pay for growth – such as Care Team Connect, which coordinates data for medical providers. (In the jargon CTC’s website uses, it allows providers to “operationalize consistent care pathways; propel your bundled payment initiatives to succeed.”) The Advisory Board, a Washington, D.C.-based health consulting firm, bought out Cambia’s investment in CTC when it acquired the company in late 2013.

Still other companies currently listed as Direct Health Solutions properties have been with Cambia since before it launched its current focus on investing in startups. For example, Cambia invested in TZ Holdings, owner of the TriZetto software package used by many large insurers, back in 2008. Today, Cambia lists TZ Holdings in its Direct Health Solutions portfolio.

For all the attention and activity Cambia is giving to Direct Health Solutions, the division is still a tiny share of the organization – and it has been losing money for its three years in existence. DHS brought in about $1.2 million in revenue in 2011 (about 0.02 percent of the $7.9 billion in revenue Cambia reported that year). In 2012, DHS revenues fell to $133,000 out of $7.8 billion Cambia-wide. Last year, DHS showed improvements, contributing $3.4 million in revenue (about 0.04 percent of the $8.2 billion in system-wide revenue for the year).

After taxes, operating expenses, and other costs are subtracted out, DHS operated at a $12 million net loss in 2013.

It’s worth noting that startup companies often fail or take years to yield profits, and Cambia’s leaders have been upfront about approaching DHS like a startup investor. Losses early on are not surprising or necessarily a cause for concern.

High-tech spending

Yet Cambia’s Direct Health Solutions’ performance does seem to fit into Cambia’s broader history of investing millions of dollars in high-tech projects that don’t always pay off.

As previously reported by The Lund Report, Cambia has spent in the neighborhood of $500 million on software systems in the past 15 years. And, many of those investments have not panned out. In 2003, Cambia (then known as The Regence Group) wrote off $95.5 million on software that could not be used. Blaming strategic and management errors for that project’s failings, Cambia launched a “reboot” in 2004, only to discover that many of the same problems were cropping up. Finally, in 2011, Cambia achieved its goal of integrating its four primary insurance companies into a single IT system.

There are no signs of that level of high-tech chaos in Cambia’s 2013 annual registration statement, but the document does show that technology remains a substantial cost for the company.

Last year, the company paid $20.7 million to TZ Holdings (the company it has invested in) for data processing and related services – down from the $24.97 million it paid in 2012.

Meanwhile, the value of Cambia’s TZ Holdings investment fell by $43.1 million, to $68.5 million.

And Cambia subtracted $4.2 million from the value of its assets to reflect its expectation that software assets will bring in less cash than previously expected.

Health insurance: Still core to the business

As Cambia strives to diversify by investing in non-insurance health companies, insurance has remained the source of 99 percent of its revenue for the past three years.

But there have been subtle shifts in the insurance marketplace. In broad terms, Cambia sells two primary categories of insurance product: Traditional health insurance, in which individuals or groups pay a monthly insurance premium in exchange for coverage; and self-funded health insurance, in which employers pay Cambia to administer claims, while employers actually insure themselves.

Every three months, Cambia’s health insurance subsidiaries (Regence BlueCross BlueShield of Oregon and others) have to report how many people have signed up for traditional health insurance plans. But the number of people enrolled in self-funded health plans is not reported.

Cambia’s annual registration shows just how much the company is collecting for traditional vs. self-funded plans, providing rare insight into the self-funded slice of the insurance marketplace. In 2013, the company collected $5.95 billion in traditional insurance premiums, compared to $2.2 billion in revenue from self-funded plans. For the past three years, self-funded revenue has been growing as a share of Cambia’s total insurance-related revenue.

Asked if this shift reflects market fluctuations, or if it is a sign of in increased focus on self-funded plans, a Cambia spokeswoman said: “We continually evaluate market conditions. Our product portfolio offers a broad array of coverage choices for our customers. Some employers choose to self-insure; others choose traditional insurance.”

(The Lund Report asked Cambia about this shift and about Affordable Care Act taxes, and also provided a broad outline of the subject that would be discussed in this story, with an invitation to comment on any topic. Cambia responded to The Lund Report’s two questions, offered context about terms included in its annual registration statement, and did not provide additional comments.)

New efforts by for-profit insurance subsidiary

Cambia's best known subsidiaries are all nonprofit insurance companies: Regence BlueShield in Washington; Regence BlueCross BlueShield of Oregon; Regence BlueCross BlueShield of Utah. Cambia also manages nonprofit Regence BlueShield of Idaho through a contractual agreement.

But it has been making moves at a for-profit subsidiary as well: BridgeSpan.

Incorporated in Utah, BridgeSpan had only 325 members enrolled at the end of 2013 – all of them in Medicare supplement plans. But today’s BridgeSpan has a new focus, and Cambia officials have called it an entirely new company.

Last year, Cambia re-aligned BridgeSpan’s ownership structure, so that it is now owned jointly by Cambia’s major nonprofit insurers. Their aim: To build a new brand name when selling individual health insurance plans on state health exchanges.

As of March 31, BridgeSpan had enrolled 3,654 people in individual health plans, according to documents filed with the National Association of Insurance Commissioners.

Courtney can be reached at [email protected].

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