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Blue Shield gets a piece of the Medi-Cal revenue pie

Kevin Knauss

Blue Shield gets a slice of the Medi-Cal pie by acquiring Care1st.

Blue Shield of California announced that it was getting a slice of the lucrative government Medi-Cal pie with its acquisition of Care1st of Los Angeles County. Blue Shield has been missing the easy money of Medi-Cal payments that Blue Cross, Health Net and Kaiser have been receiving from different California counties when they offer a Medi-Cal managed care HMO plans.

Medi-Cal money for Blue Shield

Medi-Cal enrollment has balloon under the ACA as California accepted the expanded Medi-Cal definition of eligibility for individuals with income less than 138% of the federal poverty line and no asset test. This has meant that thousands of college students and relatively healthy young people making very little money are enrolled in Medi-Cal. With the average monthly premium reimbursement for each Medi-Cal enrolled member averaging $600, far higher than a $250 premium for a 22 year old, private health plans offering Medi-Cal HMO plans stand to generate lots of revenue and profit from the government.

Medi-Cal kids

Another healthy stream of enrollments comes from families whose income is below 266% of the federal poverty and the children under 19 years of age are automatically placed into Medi-Cal kids. Not only do children utilize fewer health care services, the Medi-Cal plan is paid a capitated or fix amount, approximately $611, regardless of age. In addition, some families will purchase a private plan for their children because they don’t like Medi-Cal which means the health insurance company may never have to actually pay a claim for the child as the private plan picks up the cost first. It doesn’t take a financial guru to understand that the profit potential in providing Medi-Cal plans has a tremendous upside for profits.

Health insurers gobble up government health funded health plans

In 2012 Wellpoint, parent company of Anthem Blue Cross, and Aetna announced the acquisition of managed care plans that provide Medicaid health services in various states. Blue Shield acquired GEMCare Medicare Advantage plan earlier this year. Both the Medicaid and Medicare plans are funded by government funds. As the ACA has helped millions of Americans afford health insurance through tax credits, which the health insurance companies receive to reduce the consumer’s monthly premium, private companies are receiving a larger portion of their revenue from government redistribution of tax money. The bonus for these companies is that Covered California and other states are bringing the enrollment right to them. Very little marketing expense and no commissions paid to agents.

Press Release of Care1st acquisition

Today, December 8, 2014, Blue Shield of California announced that the company entered into a definitive agreement to acquire Care1st, a provider-founded managed care company based in Los Angeles County. The transaction is expected to close in the second half of 2015. Upon close of the transaction, Blue Shield will enter the Medi-Cal market for the first time and extend our coverage of the Medicare population. Completion of the transaction is subject to fulfillment of various conditions, including receipt of regulatory approvals from the states of California, Arizona and Texas, as well as clearances from certain federal agencies. Medi-Cal is the state of California’s version of the federal Medicaid program for low-income members. With 473,000 Medicaid members, 46,000 Medicare members and 5,300 members dually eligible for both Medicaid and Medicare as of November 30, 2014, Care1st has 20 years of experience in effectively administering government-sponsored health plans. Care1st is committed to providing patient-centered, high-quality health care with an emphasis on prevention and the delivery of cost-effective care. Care1st primarily serves members in Southern California and has a smaller membership presence in Arizona and Texas. After the transaction closes, Blue Shield plans to bring Care1st into our not-for-profit organizational structure to better align with our mission. Blue Shield will develop a plan to integrate Care1st’s staff and infrastructure with Blue Shield’s operations over a multi-year transition period that allows both companies to continue meeting members’ needs without interruption. Learn more

Blue Shield of California is an HMO and PDP plan with a Medicare contract. Enrollment in Blue Shield of California depends on contract renewal.

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