Blue Shield Acquires Lifeguard to Become State’s Third-Largest Insurer

Blue Shield of California has agreed to acquire Northern California HMO Lifeguard Inc., making the insurer the state's third-largest health plan, the Contra Costa Times reports. Financial terms of the deal between the two not-for-profit firms were not disclosed. With the addition of Lifeguard's 200,000 subscribers, Blue Shield's membership will increase to 2.8 million. According to executives from both health plans, there will be no "immediate changes" in the operations of Lifeguard, with the HMO "function[ing] independently of Blue Shield" and plans and services remaining the same this year (Silber, Contra Costa Times, 5/31). Lifeguard has reported profits in the first four months of this year, but last year it lost $24 million and its assets fell by more than 50% to $43 million. In addition, Lifeguard's membership fell by 30,000 members this year when it lost its CalPERS contract (Lee, Los Angeles Times, 5/31). The merger will allow Blue Shield to spread administrative and product-development costs over more customers, as well as increase its leverage in contract negotiations with providers, according to Joy Grossman, associate director of the Center for Studying Health System Change (Contra Costa Times, 5/31).

Some analysts said that the merger is a "sign of renewed consolidation in the managed care industry after a relative lull in the last couple of years." The merger reduces the number of commercial HMOs in California to fewer than 20, down from approximately 30 five years ago, according to Allan Baumgarten, an independent analyst in Minnesota who researches the industry in California and other states. The trend concerns consumer advocates, who say that "greater market concentration will reduce choices for consumers and employers." But Dr. Mark Smith, president of the California HealthCare Foundation, said that Lifeguard members "probably will benefit by becoming part of a stronger health plan with deeper resources" (Los Angeles Times, 5/31).