Earlier this month, notices were sent out to Blue Cross Blue Shield subscribers notifying them of a settlement reached in a class-action suit that dated back to 2014. Although there seems to have been some confusion as to the veracity of the notices, they’re quite real. The settlement brings to an end a suit in the US District Court for the District of Alabama that court documents say was extraordinarily complex, protracted, and hard-fought over the past eight years. Defendants filed, and the court addressed, over a dozen motions to dismiss. The parties spent months on production of multiple terabytes of structured health insurance data from 37 separate Defendants, many with different data management systems.

And so on through 150 discovery motions, 120 witness depositions, and 450,000 documents.

The litigation was the result of the anti-competitive practices of healthcare mega-giant Blue Cross Blue Shield Association (BCBSA, which insures one in three Americans) and the three dozen insurers that constitute the trade group. The suit’s chief allegation was that BCBSA, by allowing only one insurer access to any one sales territory, effectively eliminated competition. Such corporate behavior is unquestionably illegal, as the complaint states:

The Antitrust Division of the United States Department of Justice defines per se illegal market division as follows: “Market division or allocation schemes are agreements in which competitors divide markets among themselves. In such schemes, competing firms allocate specific customers or types of customers, products, or territories among themselves. For example…competitors agree to sell only to customers in certain geographic areas and refuse to sell to, or quote intentionally high prices to, customers in geographic areas allocated to conspirator companies.”

That is precisely what BCBSA had been doing:

Defendants have engaged and are still engaging in per se illegal market division… In part through the artifice of the Plan-owned-and-controlled BCBSA, an entity that the Individual Blue Plans created and wholly control, Defendants have engaged in prohibited market allocation by entering into per se illegal agreements under the federal antitrust laws that:

a. Prohibit the Individual Blue Plans from competing against each other when using the Blue name by allocating territories among the individual Blues;

b. Limit the Individual Blue Plans from competing against each other, even when they are not using the Blue name, by mandating the percentage of their business [which stands at 66 2/3%] that they must do under the Blue name, both inside and outside each Plan’s territory;

and/or c. Restrict the right of any Individual Blue Plan to be sold to a company that is not a member of BCBSA, thereby preventing new entrants into the individual Blues’ markets.

Such was not the original structure of Blue Cross Blue Shield. Blue Cross, initially a not-for-profit entity, was created to cover hospital expenses; Blue Shield was the answer to Blue Cross that paid for physician bills. In the earlier days of the companies, competition was fierce, and not until the 1970s did individual plans begin merging and raising antitrust concerns. In 1982, Blue Cross and Blue Shield themselves merged, yielding BCBSA. The move toward the current anti-competition structure of the Association began in 1996, and internal documents quoted in the class-action complaint show that that structure didn’t just happen, but, rather, was the result of an attempt to maximize BCBSA revenue:

inflated premiums…would not be possible if the market for commercial health benefit products in these Individual Blue Plans’ Service Areas were competitively unrestrained. Competition is not possible so long as the Individual Blue Plans and BCBSA are permitted to enter into agreements that have the actual and intended effect of restricting their ability to compete with each other, either as a Blue or a non-Blue Plan.

Indeed, this has led to large profits and surpluses. As an example, the supposedly not-for-profit Blue Cross of California and Blue Shield of California were, according to 2010 figures, holding surpluses in excess of $2.2 billion. That enriches executives by paying them huge bonuses. It does nothing to guarantee Californians access to better healthcare.

What might do that, on the other hand, would be fair competition in the marketplace, even in a day and age when antitrust laws are regularly flouted by giant, well-known companies. Yet fair competition is within the reach of the current system:

BCBSA is entirely controlled by its member plans, all of whom are independent commercial health benefit product companies that license the Blue Cross and/or Blue Shield trademarks and trade names, and that, but for any agreements to the contrary, could and would compete with one another.

The settlement finally reached in November 2020 was $2.78 billion. In addition, the settlement provides “historic” injunctive relief that, most importantly, removes the requirement that two-thirds of each member plan’s business be conducted under the Blue brand. The settlement also makes it possible that certain national accounts that formerly could only seek one Blue bid can now seek bids from two Blue plans.

Although the settlement doesn’t break up the BCBSA into separate competitive entities, it does take several large steps toward creating a more competitive insurance marketplace that could benefit consumers. The settlement also shows that individual Davids can succeed against corporate Goliaths in a day and age in which anti-competitive practices have been running rampant. Today the BCBSA…tomorrow Google?

Note that there is a concurrent suit against BCBSA brought by physicians, resulting from the negative effects of non-competition on their side of the healthcare equation. They allege a virtual monopsony on the part of BCBSA that permits the insurer to set the rates doctors may charge for their services. That litigation is ongoing.