One of Oregon’s largest health insurance companies wants less regulation and government meddling and has been working to diversify the services it sells. Financial documents obtained by The Lund Report through public records requests demonstrate just how much progress nonprofit Cambia Health Solutions has made toward that goal.
Cambia, the parent company of Regence BlueCross BlueShield of Oregon, Regence plans in Idaho, Washington and Utah, and of more than a dozen small startups, is still mostly a traditional health insurance company.
Of its $8.3 billion in gross revenue last year, $5.52 billion came from health insurance premiums paid by the employers and individuals that buy its traditional plans, compared to $2.67 billion paid by self-insured employers that simply pay Cambia to administer their health plans. The company’s startups and other sources of revenue contributed just $105.4 billion – 1.3 percent of the total.
But the trends show that things are changing. From 2011 to 2014, Cambia saw revenue from insurance premiums drop 5.8 percent, while revenue from self-funded plans climbed 37.2 percent. To most people enrolled in Cambia’s health plans, the shift from traditional insurance to self-funded plans may seem invisible. With a traditional health plan, employers or individuals pay a premium calculated based on an actuary’s assessment of risk. With a self-insured plan, employers pay a much smaller administrative fee to the insurance company, and then they also pay the claims costs of their employees.
But medical loss ratio rules put into place by the Affordable Care Act don’t apply to self-insured plans, and these plans don’t have to provide all the benefits required under traditional health plans, according to an analysis by Ben-E-Lect, a California-based benefits provider. Self-funded plans can also be more flexible in how they offer benefits required under the ACA.
And fees charged to traditional health plans seem to be imposing a hefty burden. Cambia reported a $4.3 million comprehensive financial loss in 2014, down from a positive comprehensive income of $166.02 million in 2013.
“While other companies focus on adapting their health plan business to the narrow confines of government rules, we see a broader horizon,” Cambia CEO Mark Ganz wrote in a recent all-staff email he sent to employees. “We can create new platforms for products and services that make healthcare better for people and appeal directly to consumers.”
Noting that a number of large insurance companies across the U.S. are on the verge of consolidations, Ganz told employees he’d like Cambia to grow – but not to chase the crowd.
“For the past 12 years, we’ve been pursuing a different path toward the consumer,” he wrote. “We are building, acquiring and developing complementary capabilities to serve individuals and their families from birth through the completion of life. Where appropriate, we’re integrating those capabilities with our health plan offerings, rather than pursuing combinations with other health plans. This has been consistent with our cause of transforming healthcare in this country, and it provides us with options for our future as the market continues to evolve.”
Tech spending, investments continue
Much of Cambia’s focus on “complementary capabilities” has come through its Direct Health Services division, which owns all or part of about two dozen companies, according to its website. The revenue generated by DHS and related Cambia companies is climbing – from $3.35 million in 2013, to $12.8 million in 2014. But, as is typical of high-tech startups those efforts often take years to turn a profit, these Cambia efforts are not profitable. DHS and related startups reported a net loss of $12.04 million in 2013, and a net loss of $12.39 million in 2014.
As previously documented in The Lund Report, Cambia and its subsidiaries have a long history of spending heavily on high-tech projects.
Through Direct Health Solutions, Cambia has come to own startups including Hubbub, which tries to use social networking and games to inspire wellness; Enigma health, which works with patients with unexplained symptoms; and HealthSparq, which offers a provider search tool custom-tailored to different insurance plans. It has also invested in businesses including GNS Healthcare, a data analytics firm; PokitDok, a tool for shopping for health care; Wildflower Health, which has a smartphone app targeting pregnant customers; and many others.
In Cambia’s 2014 annual report, filed with regulators in Washington state, the company disclosed continued high-tech expenses.
The nonprofit said it is still engaged in a “multi-year, enterprise-wide system implementation and process program,” which involved buying software and customizing it for use by its four health insurance plans – though its financial report did not make it clear just how much those costs were in 2014.
It also disclosed that it has an agreement that continues into 2016 with a subsidiary of TZ Holdings, which provides data processing and related services – at a cost $20.7 million in 2013 and of $27.2 million in 2014.
According to an analysis by PE Hub, a private-equity publication, Cambia likely profited nicely last year when TZ Holdings was sold. Cambia had been a minority investor in TZ, parent company of TriZetto.
Costs of health reform
Health insurers are assessed an annual fee that kicked in last year under the Affordable Care Act. In 2014, this fee cost Cambia $83.95 million, and next year it expects to pay $108.9 million.
“Cambia experienced an increase to its effective tax rate in 2014 and anticipates an increase to its effective tax rate in future years as a result of the fee, which is nondeductible for tax purposes and which will also reduce pre-tax income,” the company wrote in its financial report.
Those kinds of increased costs may be involved in the drive for many other insurers to expand, CEO Ganz suggested in his recent email to employees.
Ganz wrote: “It seems the primary motivation is for health plans to increase scale and harvest the economies that come with it. In an environment dominated by government rules, economies of scale allow health plans to operate more efficiently and remain relevant as the government winnows the field to reduce the number of companies it has to oversee and regulate.”
And he emphasized that Cambia would like to take a different path.
“That is not to say scale and size is unimportant to our future vitality,” he said in his email to staff. “We have consistently engaged in dialogue with various other health plans – Blue and non-Blue – over the past decade to explore possibilities where cooperation and collaboration might make sense. While I currently don’t feel a combination with another health plan is a necessity to the achievement of our strategy, we will continue to evaluate opportunities that have the potential to provide scale or otherwise accelerate us toward our vision of transformation.”
Reporter Courtney Sherwood can be reached at [email protected]. Follow her on Twitter at @csherwood.
An aspect touched on in The Lund Report before. To what degree does all this "nontraditional" growth reflect leveraging the huge assets of a nonprofit regional Blues company to found and grow taxable entities where neither profits nor executive compensation is fettered by those pesky government regulations? The press releases read a bit like conservative talk radio, to my ear. We now have an Oregon company serving about half the number of members as it did twelve years ago, or so. If this is leadership in serving the health of the community, let's see the emperor's actual clothing.
Don Thieman