Key State Blue Cross and Blue Shield Plan: A Strategy for Winning in the Market through Customer-Focused Service

Abstract

Key State Blue Cross and Blue Shield Plan (a disguised case of an actual BCBS Plan) is the merged product of three state plans. Initially burdened with a reputation of poor customer service, Key State’s executives decided to invest heavily in service improvement, eventually achieving superior levels. Key State’s high-quality customer service emerged as a true competitive advantage for its customers, who were primarily businesses and health benefits consultants who influenced corporate purchasers of health insurance. The Key State brand came to be synonymous with personal service, security, choice, and dependability. But the health care insurance market was changing under Key State’s feet. Spiraling costs meant that high-quality service became less of a competitive advantage as employers were lured by low-cost, low-service providers. Many employers cut or dropped health care benefits entirely, swelling the ranks of the under- and uninsured, who in turn were extremely price-sensitive when shopping for health insurance on their own. Finally, the health care insurance market was being revolutionized by financial institutions willing to hold health benefit accounts and pay providers directly, thereby eliminating the need for Key State as a mediator. Key State executives were aware of these changes but were challenged by the mindset, culture, and organizational design custom-fit to their business accounts. The case asks the reader to consider whether Key State has the right number of target markets, whether it should have one brand or several for its different target markets, what it should do for the uninsured, and how it should improve its brand experience in light of the industry’s changing landscape. All of these decisions will have significant implications for the organizational design of Key State.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

Resources

Exhibit 1: A Brief History of WellPoint and Anthem

The history of WellPoint and Anthem is a good example of the mergers and consolidations of BCBS plans throughout the country. WellPoint’s predecessor was Blue Cross of California, which was founded in 1982 with the consolidation of Blue Cross of Northern California (established in 1936) and Blue Cross of Southern California (established in 1937). WellPoint was formed in 1992 to operate Blue Cross of California’s managed care business, which was later sold. In 1996 Blue Cross of California completed the conversion of all its business to for-profit status, resulting in a restructuring that designated WellPoint Health Networks Inc. as the parent organization. In 1996 WellPoint also acquired the Group Life and Health Subsidiary of Massachusetts Mutual Life Insurance. In 2000 WellPoint acquired Rush Prudential Health Plans of Illinois. The next year it acquired BCBS of Georgia, and in 2004 it acquired Cobalt Corporation, which included BCBS of Wisconsin.

Anthem grew out of two Indianapolis-based corporations, Blue Cross of Indiana (formed in 1944) and Blue Shield of Indiana (formed in 1946). Both were mutual insurance companies providing health insurance to residents of Indiana. The two eventually merged to form Blue Cross and Blue Shield of Indiana. In 1993 Anthem merged with BCBS of Kentucky—the first Blue merger across state lines. In 1995 Anthem merged with BCBS Ohio, then again with BCBS Connecticut in 1997. In 1999 Anthem acquired BCBS of New Hampshire and BCBS of Colorado and Nevada. In 2000 Anthem acquired BCBS of Maine. In October 2001 Anthem converted its business to for-profit status and conducted an initial public offering of common stock. In 2002 Anthem acquired a BCBS plan in Virginia.

Anthem and WellPoint merged in 2004, becoming the largest health benefits company in terms of commercial membership in the United States. In 2005 WellPoint merged with WellChoice, effecting the acquisition of BCBS of New York.

Exhibit 2: The Key State Organization

Reporting to Bob Miles, the president and CEO of Key State BCBS, were the following:

  • Strategic planning. This unit collected data and organized the strategic planning process, but did not actually make strategy decisions. Those were made by the CEO and others he chose to involve, typically the CFO, COO, CIO, VP of human resources, VP of underwriting, VP of customer service, VP of major account sales, and the three regional VPs.
  • CFO. Reporting to the CFO were the treasury function (which also handled billing), investments (this group invested premium dollars), and internal audit.
  • Marketing and public relations. This group was responsible for all advertising, communications with all relevant constituents (see above under customers), and for the public image of the plan.
  • Human resources
  • Legal
  • Also reporting to the CEO was the COO, who supervised:
    • Actuarial. This department assembled data, e.g. expected morbidity and mortality rates for a known population.
    • Pricing. This department assembled data on costs of all kinds of providers (physicians, hospitals, clinics, pharmacies, etc.).
    • Underwriting. This department received data from actuarial and pricing, analyzed the risk factors associated with a group, and then developed the price quote for insurance.
    • Medical policy. This department worked with data from a number of departments (legal, actuarial, pricing, and underwriting) to establish policies as to what kinds of medical treatments and disease conditions were to be covered and which were not, e.g. deciding whether there would be coverage for medicated stents or cochlear implants for hearing-impaired children.
    • Medical management. This department monitored and assembled quality data on providers in and out of the plan’s network. It also measured member case and medical outcome statistics.
    • CIO
    • Customer service. This provided customer service for all national and key accounts and large and small groups, but not for individuals. Its activities were described in detail below.
    • Major account sales. This group included the national and key account managers.
  • Also reporting to the COO were three regional VPs for North, Mid-, and South State. Each of these VPs had reporting to them:
    • Sales and marketing for large and small groups
    • Sales and marketing for individuals
    • Individual underwriting and customer service
    • Provider relations and medical management. This department worked with local providers to maintain good relationships with Key State.
    • Pricing. Because provider prices varied by region, this unit cooperated with underwriting to establish the price of policies after establishing local provider charges.

Exhibit 3: Account Executive Types Based on Account’s Needs

A consulting group asked twenty-five key accounts for a profile of what they would consider an ideal account executive (AE). Four ideal types were found:

  • Strong consultative or problem-solving skills. These accounts wanted AEs that could give strategic advice on wellness programs and on medical and care management programs. These AEs would also be able to give the account advice for specific plan features based on an analysis of the actual utilization and claim experience of the account’s members as well as on an analysis of their health care management activities. Benefits consultants typically did not have this kind of data. Accounts wanted AEs to use the BCBS data to tailor their plans to the actual medical experience of the account’s members. Even though accounts used multiple insurers, BCBS got most of its business because BCBS let key accounts define the cost and quality of their plans. Key accounts saw BCBS as providing better consultative services than the competition. Consequently, the AE had to be skilled in analyzing and presenting this data.
  • Relationship management skills. These accounts wanted AEs to be proactive in providing new information (e.g., government policy initiatives, BCBS research reports, press clippings, industry best practices, etc.) as well as initiate relationship-building activities such as lunches/dinners or seminars.
  • Project and operations support skills. These accounts wanted AEs who would provide timely reports on the client’s claims experience, group utilization, and participation in the client’s health care management activities. These accounts wanted to see their AEs in the role of the account’s project manager, overseeing timelines and acting as a liaison with other BCBS functions. The AE would also educate the account’s employees on services that BCBS provided by developing and distributing information on these services.
  • Subject matter expertise. These accounts wanted AEs who possessed in-depth knowledge of BCBS products and their application to the account’s needs. The AE would also be a subject matter expert on health industry trends as well as regulatory and policy trends.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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