Q&A: What does the Blue Cross NC ouster mean for State Health Plan members?

Aetna is slated to take over Jan. 1, 2025, as the third-party administrator for the State Health Plan from Blue Cross NC, which held that role for more than 40 years.

The health plan’s board of trustees made the decision to oust Blue Cross during a closed-session meeting on Dec. 14 after a months-long, secretive bidding process, in which the board, State Treasurer Dale Folwell and others involved signed nondisclosure agreements.

The state plan oversees health care spending of more than $17.5 billion across five years and covers 740,000 teachers, state employees, retirees and their dependents.

Many questions remain about what this transition will entail and why the change is occurring, especially as the contract with Aetna and other documents have not been publicly released. A “silent period” in place until appeals are exhausted prevents their disclosure, according to the legal staff at the state treasurer’s office.

Here’s what we do know so far, including answers to questions on deductibles, premiums, prescription drugs and provider networks.

What is a third-party administrator?

A third-party administrator handles all of the administrative tasks associated with health insurance, which include issuing cards, processing claims, setting up technological systems and more. For this, the state pays a fixed per-member cost.

In the case of North Carolina’s State Health Plan, the administrator also lays out contracts with a network of providers and negotiates the prices paid to them for health care services.

It does not pay claims as a typical insurer would. The administrator sends claims to the state, which is on the hook for covering health care costs.

Claims paid out by the state to the administrator are different from the prices paid by state plan members, who pay the rates fixed by the state.

Could the list of ‘in-network’ providers change?

Yes.

Third-party administrators each have their own network of providers for which they have negotiated contracts. With a change in administrators, it’s entirely possible that some providers could fall out of the network or become part of the network. However, Matthew Fielder, a fellow with the USC-Brookings Schaeffer Initiative for Health Policy, said he would expect that most providers in North Carolina would stay in-network because Aetna is such a large provider.

Folwell said he hopes the new deal with Aetna will expand the number of providers in the network. He said his office was looking into how much overlap there is between Blue Cross’ and Aetna’s network of providers.

Jim Bostian, Aetna’s North Carolina president, wrote in a Charlotte Observer opinion article that more than 98% of Blue Cross NC’s claims came from providers currently in Aetna’s network.

“We will continue to work to bring more providers into the network that can offer the high-quality care that state employees deserve,” Bostian wrote.

Meanwhile, Blue Cross NC, in a protest filed Thursday appealing the state’s decision to replace it with Aetna, wrote that its statewide network of total provider locations appears to be 38% larger than Aetna’s.

“A smaller network could result in a significant number of teachers and state employees across the state to change doctors they’ve built relationships with for years and travel farther for in-network care,” they wrote.

Fielder said it’s possible that both statistics are true but that Aetna’s measure is probably the most relevant one to plan members.

However, he added that it matters what types of services are included in the 2% of claims out of Aetna’s network.

“If they’re especially high-cost or high-value services that can’t be easily obtained elsewhere, then enrollees might still care quite a lot even though the number of claims is small,” he said.

Allison Rice, an emeritus law professor at Duke who studies health policy, said it’s also possible that Aetna covers most of the same providers as Blue Cross in urban areas, where the bulk of the claims are coming from, but lags behind in rural areas. That would explain why Aetna matches up with the majority of claims but are outmatched by Blue Cross on provider locations.

Could prescription medications covered by the plan change?

Probably not — with an exception.

The state contracts with a separate company, CVS/Caremark, as a pharmacy benefit manager or PBM, to manage the prescription drug benefits.

Drug formularies, or lists of covered prescriptions, are updated quarterly and are approved by the plan’s Pharmacy and Therapeutics Committee, meaning benefits can change but this would be unrelated to the Blue Cross NC expulsion.

Medications administered by health care providers are the exception to that rule. Coverage of injections or infusions administered in a hospital could change under a new third-party administrator.

Could the price of services change for state employees?

Probably not.

While Aetna may have negotiated prices that are different from those of Blue Cross NC, state employees will likely not see a difference in what they pay out-of-pocket.

The State Health Plan’s Board of Trustees, which has 10 members, sets out-of-pocket rates that do not change, even if Aetna quotes the state higher prices for certain procedures. Folwell said the state has no plans to change co-pays, the fixed fee you pay for a health care service, or deductibles, the amount you pay before your insurance kicks in, other than to lower them.

Could medical services covered by the plan change?

It remains to be seen.

Different administrators could have different requirements for when they cover certain procedures. For example, they could require a patient to try a cheaper alternative before they approve a more expensive procedure, Fielder said.

They could also have different requirements for “prior authorizations,” which require patients to get approval from a health plan before undergoing a procedure or getting a healthcare service.

Folwell said he did not “expect any change along those lines,” but that he wanted to look at pre-authorization requirements and not make “people jump through hoops” for approval.

Pat Ryan, a spokesperson for Aetna, wrote that most insurance carriers have very similar prior authorization policies and that Aetna will work with the state plan to see if there are policies it would like to have customized.

Could premiums increase?

Probably not.

In third-party administrator arrangements, premiums, or the amount you pay for your health insurance every month, are typically set by the employer, not the administrator.

Folwell said the state had frozen premiums for five years despite costs for the State Health Plan rising. He previously told The N&O that the state plan “is going to need billions of dollars over the next several years to stay solvent.”

Folwell’s office shared a letter the board sent on Oct. 13 to state Senate and House leadership. The board wrote that the State Health Plan expects a $4.2 billion budget gap over the next few years and that “absent price concessions from major healthcare providers or material shifts in reimbursement strategy,” the cost will fall on the state and its taxpayers. It also wrote that without price “considerations” from providers, annual appropriations will need to grow from the current $2.6 billion to $3.9 billion by 2028, as previously reported by The N&O.

Will this affect retirees receiving Medicare via the state plan administered by Humana?

Probably not.

The state offers three options for Medicare beneficiaries. Two of those plans are offered by Humana, which are separate from Blue Cross NC and will not be affected.

One option offered to Medicare beneficiaries is the Base Plan PPO, currently administered by Blue Cross NC, which serves as a supplement to Medicare. This plan will not be available once Aetna takes over.

Aetna will need to provide an alternative option that provides the same coverage to replace this plan, according to Frank Lester, spokesman for the treasurer’s office.

Will the state save money with this transition?

The treasurer said in a press release the new contract will potentially save the state health plan $140 million in costs across five years.

Lester said these savings are based on Aetna’s contracted rates with health care providers being lower.

This would cut claims costs.

But Blue Cross said the state used “vague standards” to score the bids on issues related to costs, compared to a previous scoring method.

Blue Cross spokesperson Sara Lang questioned why the request for proposals reduced its evaluation “to a list of yes or no questions” and collected “no further information or details on service levels and capabilities.”

Ryan wrote that Aetna “submitted a strong proposal and fared very well on all of the requirements. At bottom, Blue Cross failed the ‘test’ and now blames the test for their failure. It’s clearly time for a change, and our state’s employees have earned a long-overdue upgrade.”

Why was this transition made?.

Folwell said the decision largely came down to an internal scoring system on which Aetna ranked higher than its competitors. He also cited concerns with Blue Cross NC’s transparency, and financial challenges.

In an interview, Folwell said Blue Cross does not allow the state to see how the company negotiates prices with health care providers, shrouding the decision-making process in secrecy.

Lester said that Aetna had agreed to share provider contracts with the State Health Plan. Ryan confirmed this.

Blue Cross NC allows the State Health Plan access to contracts via an audit process, but not directly, Lester said.

Lang said that while certain contract details are confidential, the state plan can request an in-person audit to access that information and has exercised this right, most recently in 2016.

“Anyone who continues to be in favor of secret contracts, is going to be on the wrong side of history,” Folwell said.

Were there any other factors?

Yes, there were likely more factors, but until contract decisions and bid documents are released by the state, the full picture is not clear.

The North Carolina Tribune reported that technological concerns may have been a big factor in the choice to not renew Blue Cross’s contract.

Blue Cross used a software system called Facets to manage the State Health Plan. The plan’s board of trustees, across multiple meetings, cited many problems with this software, NC Tribune reported, including complaints that claims and vendors were not being paid on time and that physicians were dropped at random from Blue Cross’s system.

Folwell said the state plan had expected to pay a couple of hundred million dollars a month but received bills much lower than that, indicating trouble with claims processing speeds.

“There’s a problem somewhere; that’s where it first came to our attention,” Folwell said.

According to Lester, in the first quarter of 2022, the State Health Plan paid over $575 million in medical claims through Blue Cross NC, compared to over $682 million through the same time period in 2021. In the second quarter, the plan paid $1.38 billion in claims, compared to $1.42 billion in 2021.

“This is an anomaly as claims tend to rise year over year with not such big decreases,” Lester wrote. He added that there are still claims that need to be corrected or paid from a year ago or more.

In recognition of the difficulties related to the Facets implementation, Blue Cross NC gave the State Health Plan a $1 million credit on administrative fees and paid out over $900,000 for failing to meet performance guarantees, according to Lester. He also said the state plan would conduct an audit in a few months to review the accuracy of pending claims and other penalties.

Lang said that “when transitioning large data sets to a new software, it is not unusual to experience issues” and that Blue Cross had worked “closely and transparently” with the state plan to address these challenges.

How many people are working on this transition?

Folwell said 400 Aetna employees are already working on the transition and 600 employees will be dedicated to serving the state plan. Asked whether he thought this would lead to a net increase in jobs in the state, Folwell said he did.

Ryan said Aetna had 600 staff dedicated to the transition and would hire additional North Carolina-based employees.

In the interim, Blue Cross would “continue to provide the highest level of service,” Lang told The N&O.

As for post-transition, Bostian wrote, “members will be getting a level of customer care unrivaled in the marketplace,” and Aetna has existed for over 170 years because it values relationships and service.

“That was true at our founding, and it will be true on Jan. 1, 2025, when we formally assume health insurance responsibility for those who teach, protect, and serve North Carolina,” he wrote.

Ryan wrote that the state plan had spent all of last year trying to resolve disruptions caused by Blue Cross, “so no, customers will not be getting the ‘same’ level of customer care from Aetna – that level of care is what prompted the State Health Plan to pursue a new procurement process in the first place,” he wrote.

Is this change final?

No. Blue Cross filed a protest on Thursday.

It could take up to several weeks for the State Health Plan to decide on the appeal.

Lang said while their first step is the appeal via the treasurer’s office, they will follow other remedies available to them. Asked what those remedies were, Lang said she would need to follow up on that question but did not respond to subsequent inquiries about the question.

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