Bloomberg News

WellPoint Buys Exchange to Vie With State-Run Health Markets

September 20, 2011

(Updates with share prices in the fifth paragraph.)

Sept. 20 (Bloomberg) -- WellPoint Inc., the largest insurer by enrollment, is buying a private health-insurance exchange to compete for employers with the U.S. state-run marketplaces set to open in 2014 under President Barack Obama’s health-care overhaul.

WellPoint and two nonprofit health insurers purchased a 78 percent stake today in Bloom Health, a closely held benefits company in Minneapolis, for an undisclosed sum, WellPoint said. Bloom is a two-year-old online marketplace that offers a menu of health plans to about 20,000 workers at almost 50 companies.

Using a private exchange such as Bloom would limit an employer’s costs and provide consistency compared with separate state-run exchanges, each with their own regulations, said Ken Goulet, chief executive officer of Indianapolis-based WellPoint’s commercial business unit.

“We see this as a way of preserving the employer-based market by providing some predictability in health-care costs,” Goulet said in a telephone interview.

WellPoint fell 46 cents to $66.64 at 9:42 a.m. in New York Stock Exchange composite trading.

The state-run marketplaces where people will select health insurance plans are central to the Obama administration’s goal of expanding coverage to as much as 95 percent of Americans. The Congressional Budget Office expects 24 million people to obtain insurance through exchanges by 2014.

U.S. Employers

A study by New York-based consulting firm McKinsey & Co., said that as many as one-third of U.S. companies are considering giving up employer-sponsored health plans. Instead, they would send their workers to state-run exchanges for coverage, paying a federally mandated fine.

Employers have battled rising health-care costs, which in recent years have grown twice as fast as the consumer price index. Under the Bloom model, companies pay employees a fixed amount to cover a portion of their health-care coverage and workers provide the rest based on the plans they select.

Goulet said the Bloom exchange allows employers to maintain their tax deduction on the money paid annually into an employee’s health reimbursement account to help cover the cost of insurance. It also allows workers to pick a plan that suits their health-care needs and how much they are willing to spend, he said.

401k Concept

The idea of the private health-care exchange and its defined contribution model is similar to the trend in retirement benefits in which employers have been abandoning defined benefit pension plans for the relative financial safety of a 401(k) that allows companies to control how much they spend.

WellPoint’s partners in the Bloom purchase are Chicago- based Health Care Services Corp., the largest U.S. customer- owned insurer, and Blue Cross Blue Shield of Michigan, based in Detroit, which already held a minority interest in the private exchange. They bought the stake from Sandbox Industries Inc., a Chicago-based venture capital fund, and a joint venture of Blue Cross Blue Shield plans that invests in start-up health-care companies.

Health Care Services currently operates in Texas, Illinois, New Mexico and Oklahoma. It now will be able to offer employers choices of health plans in the 19 states where Bloom operates, said Martin Foster, president of plan operations at HCSC. The markets covered by Bloom represent about 60 percent of the U.S. population, Goulet said.

All 50 States

“Our objective is to be in all 50 states in the next year,” Goulet said.

Bloom’s customers generally are companies with about 100 to 1,000 employees, said Abir Sen, chief executive officer of Bloom. Unlike competitors who primarily cover the retiree populations of larger employers, Bloom covers workers still on the job, Sen said.

Extend Health Inc. of San Mateo, California is the largest private exchange covering 300,000 participants. Its customers include Union Pacific Corp. in Omaha, Nebraska, and U.S. automakers Ford Motor Co., General Motors Co. and Chrysler Group LLC.

--Editors: Andrew Pollack, Dave McCombs

To contact the reporter on this story: Pat Wechsler in New York at pwechsler@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net


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