While the political squabble over the federal health care law continues, two Massachusetts health insurers see an opportunity to expand their out-of-state businesses and pick up thousands of new customers who must have coverage or face penalties.
Tufts Health Plan and Harvard Pilgrim Health Care, which already operate in some nearby states, are strategizing on how they can boost their market share outside Massachusetts as about 30 million Americans who do not have insurance buy subsidized private coverage or become eligible for Medicaid under the law upheld by the Supreme Court last month.
Their competitive advantage, they say, is experience in doing business under the 2006 Massachusetts health care overhaul, which made the state the first in the county to bring coverage to most uninsured residents.
“Conceivably the expertise we’ve developed here could be useful in other states,” said James Roosevelt Jr., chief executive of Watertown-based Tufts Health Plan, which sells insurance in Massachusetts and Rhode Island. “Particularly in the subsidized and Medicaid markets, we’re considering other states.”
Roosevelt said Tufts will decide by next year whether to enter Medicaid and individual insurance market niches that are expected to expand in Rhode Island and elsewhere, creating potential business for insurers. To tap markets outside New England, he said, Tufts could potentially strike partnerships with health plans based in other states.
The goal would be to be ready by Jan. 1, 2014, when billions of dollars in additional Medicaid funds and federal subsidies for enrollment in individual “nongroup” insurance plans begin flowing to states under the Affordable Care Act. On the same date, most states will launch online marketplaces called exchanges — modeled after the Massachusetts Health Connector created by the 2006 overhaul — where consumers and businesses can shop and buy coverage.
Massachusetts’ success in enrolling more residents underscores the opportunities beyond its borders. The state has added more than 400,000 people to the insurance rolls over the past six years, reducing the share of uninsured from about 9 percent to about 2 percent, the lowest in the nation, according to state officials.
The states most likely to be targeted for expansion by Massachusetts health plans have uninsured rates that are relatively high for the Northeast — 12 percent in Rhode Island, which suffers from high joblessness, and 10 percent in Maine and New Hampshire — though below the 16 percent national uninsured rate, according to 2010 figures from Kaiser Family Foundation.
For Wellesley-based Harvard Pilgrim, which does business in Massachusetts, New Hampshire, and Maine, the situation is more complex.
In both northern New England states, political opposition to President Obama’s national health care law has brought pressure to reject additional federal funds for Medicaid, the government insurance program for low-income residents, “opting out” of the expansion as the Supreme Court has allowed them to do.
The federal government would cover all of the costs of the Medicaid expansion for the first five years under the president’s health care law. But after that, states would have to put up additional money themselves to help insure new enrollees, an expense some say they cannot afford. Maine already is moving to cut thousands of people from Medicaid to balance its state budget.
Even if New Hampshire and Maine turn down the federal dollars to expand Medicaid, the emergence of new federally subsidized insurance products in the so-called nongroup market for individuals — many of them independent contractors and sole proprietors who earn too much to qualify for Medicaid — could create a new line of business for Harvard Pilgrim. The insurer, like Tufts, sells health insurance mostly to larger employers out of state.
“It’s a very strong opportunity, especially for regional health plans like ours that are connected to the local markets,” said Harvard Pilgrim’s chief executive, Eric Schultz. But the scale of the potential business, he said, “is going to be directly impacted by state-level decisions on how they define the range of individuals who are eligible for Medicaid and subsidized insurance.”
Although the Medicaid expansion has garnered more attention, insurers think the bigger chance to enroll new members could be in the private market, where other states are expected to create insurance options comparable to Commonwealth Care, a subsidized low-cost program for uninsured residents in Massachusetts that operates through the Connector.
One company that will not be able to capitalize is Blue Cross Blue Shield of Massachusetts, the state’s largest health insurer. Under rules set forth by the Blue Cross and Blue Shield Association, the trade group for locally operated Blue Cross and Blue Shield plans across the country, the Massachusetts insurer is not allowed to sell to employers or individuals based in other states, said its spokeswoman, Sharon Torgerson. Like its competitors, it does service out-of-state offices of Massachusetts companies through affiliations with Blue Cross carriers in other states.
Out-of-state expansion could strengthen both Tufts and Harvard Pilgrim financially as they vie with one another and with Blue Cross Blue Shield of Massachusetts on their home turf. With last year’s purchase of Network Health, a Medicaid managed-care plan, Tufts boosted its Massachusetts membership to 955,000, in addition to 25,000 members in Rhode Island.
Harvard Pilgrim, meanwhile, reports 999,867 members in Massachusetts, 118,117 in New Hampshire, and 66,332 in Maine. Both trail Blue Cross Blue Shield of Massachusetts, based in Boston, which has 2.8 million members in the state.
Tufts’s acquisition of Network Health, which had previously operated under the umbrella of Cambridge Health Alliance, could help the Watertown insurer enroll uninsured residents elsewhere, Roosevelt believes. “If there are people who have never had coverage, that would be an opportunity for someone to increase market share,” he said.
Harvard Pilgrim and Tufts are both nonprofit insurers. But for-profit insurance companies also are preparing to capitalize on the expanded Medicaid coverage that will result from the national health care overhaul.
WellPoint Inc., the for-profit Blue Cross Blue Shield licensee for more than a dozen states, agreed earlier this month to pay $5 billion for Amerigroup Corp., the nation’s largest Medicaid managed-care company. Insurance giants, such as Aetna Inc., Cigna Corp., and UnitedHealth Group, also have grown businesses managing Medicaid programs for states.
The health care industry has long been more locally focused than other sectors. Earlier efforts by Boston-area hospitals such as Lahey Clinic and Tufts Medical Center to expand their franchises into New Hampshire and Rhode Island proved unsuccessful.
But the moves being contemplated by Tufts Health Plan and Harvard Pilgrim, combined with Steward Health Care System’s planned buyout of a Woonsocket, R.I., hospital and the hiring of Massachusetts chief executives by two larger Rhode Island hospital groups, could signal fresh interest in interstate expansion.
“There’s a new generation of regional exploration going on,” said former health care executive Tom Glynn, a public policy lecturer at Harvard’s Kennedy School of Government.
Robert Weisman can be reached at email@example.com.