Blue Health Insurers Drop Revenue Rule That Limited Competition

Previously, the rule was that two-thirds of a Blue licensee’s national net revenue from health plans and related services must stem from Blue-branded business.

The Blue Cross Blue Shield Association includes 35 insurers, each of which typically hold exclusive rights to the Blue Cross and Blue Shield brands within a certain territory, a setup that would remain intact under the antitrust settlement.

However, lifting the revenue cap could allow the Blue insurers to compete more against one another by expanding their non-Blue businesses, experts said. Dropping the limit “certainly should increase competition,” said Tim Greaney, a professor at the University of California Hastings College of the Law, though he said it isn’t clear how quickly it would have an effect.

In a statement, the Blue Cross Blue Shield Association said its move was consistent with the settlement. “Blue Cross and Blue Shield companies will remain focused on the goal we have had for over 90 years—improving access to quality healthcare for all Americans—as the settlement continues through the Court approval process and is implemented according to terms of the Agreement,” the group said.

Anthem Inc. ANTM 1.90% and Health Care Service Corp. are among the largest Blue insurers. Together, all of the Blue companies cover more than 100 million Americans.

David Boies, a lead attorney for the Blue customer antitrust plaintiffs, said elimination of the restriction “will substantially increase competition in health insurance markets.”

The antitrust claims were first brought in 2012 as a proposed class action on behalf of employers and individual policyholders with Blue coverage. The suit alleged that the insurers illegally conspired to divvy up markets and avoid competing against one another, driving up customers’ prices.

The settlement has won preliminary approval from U.S. District Judge R. David Proctor, in Birmingham, Ala., who wrote that the deal’s “structural relief is historic and substantial.” The settlement requires the insurers to pay about $2.7 billion, largely to customers, and take steps that include dropping the national revenue cap.

The revenue cap was one impediment to Anthem’s $48 billion deal to buy Cigna Corp. , which ended up foundering largely over its own antitrust issues. That deal could have added substantially to Anthem’s non-Blue revenue.

Still, the settlement wouldn’t unwind the licensing structure that allows the Blue insurers to hold exclusive rights to their brands in certain geographies.

The Blue insurers are still facing a parallel antitrust suit filed on behalf of healthcare providers, which alleges that the insurers illegally pushed down the payments providers receive for medical services. Both suits, consolidated in the Alabama federal court, targeted the association and all the insurers to which it licenses Blue brands.

One reason for the insurers to take action on the revenue rule might be to improve their position in the healthcare providers’ ongoing suit, by removing one practice that could be viewed as anticompetitive, Mr. Greaney said.

In response to a question about why the Blue association moved now to get rid of the revenue rule, a spokeswoman said its board made the decision “based on the terms of the settlement. It’s one step in a series that we will take to fulfill our commitments under the settlement agreement.”

Write to Anna Wilde Mathews at [email protected]