The Regence Group

200 S.W. Market Street
Portland, Oregon 97201
U.S.A.
Telephone: (503) 225-5221
Toll Free: 800 452-7278
Fax: (503) 225-5274
Web site: http://www.regence.com

Private Company
Incorporated: 1996 as The Benchmark Group
Employees: 6,000
Total Assets: $6.7 billion (2003)
NAIC: 524113 Direct Life Insurance Carriers; 524114 Direct Health and Medical Insurance Carriers

The Regence Group is the largest operating group of BlueCross BlueShield companies in the Northwestern United States. Through its subsidiary companies—Regence BlueCross BlueShield of Oregon, Regence BlueCross BlueShield of Utah, Regence BlueShield in Washington, and Regence BlueShield of Idaho—the non-profit company provides health insurance products and related services to nearly three million members and has close to 39,000 providers in its networks. The company also provides life, disability, and short-term medical insurance through its Regence Life & Health Insurance subsidiary. The BlueCross BlueShield Association, of which Regence is a member, consists of more than 50 independent Blue Cross and Blue Shield companies nationwide. Most are huge nonprofit corporations, the descendants of hospital and doctor associations founded in the 1930s and earlier.

Mid-1990s Formation of The Regence Group

In 1995, as an increasing number of BlueCross BlueShield companies were merging to take advantage of economies of scale and to become more attractive to employers with workers in more than one state, four BlueCross BlueShield providers in the Northwestern United States formed a ground-breaking affiliation in Portland, Oregon. King County Medical, Pierce County Medical, and BlueCross BlueShield of Oregon, with one other Blue Shield participating under contract, formed a non-profit regional health plan called The Benchmark Group. Benchmark's purpose was to share best practices, databases, and strategic planning among its affiliates; to save money through group purchasing of supplies and technology; to consolidate background functions such as information technology, human resources, legal and finance; to develop uniform products and a regional network of providers; and to market a single package to multi-state employers.

The initiative was designed to become a new business model for Blue Cross and Blue Shield groups nationwide that wanted to preserve their locally focused no-for-profit heritage, according to Richard Woolworth, who later became chief executive officer in a 2001 Lewiston Morning Tribune article. "We can do this without actually merging and without losing what we've always been—not-for-profit organizations with a commitment to local communities, our customers and community service."

Benchmark had no separate officers or employees. Its officers were the chief executives of each of the operating companies with the head of BlueCross BlueShield of Oregon acting as the affiliation's chief executive. Each plan continued to operate from its separate facility under its own board of directors; and each appointed directors to the Benchmark board in proportion to its size: nine from Oregon, seven from King County, and three each from Pierce County and Idaho. Together the nonprofit companies had 2.3 million customers and $2.8 billion in annual revenues.

In 1996, the four companies launched the Pacific North-west's first regional health plan, a preferred provider organization that targeted large companies with employees and encompassed more than 20,000 providers and 120 hospitals. The advantage to a multi-state single plan for employers was twofold: it allowed companies to get rates based on their entire pool of workers and allowed them to deal with one insurer instead of several. Benchmark also offered life insurance, Medicare HMO programs, and workers compensation coverage.

Additions and realignments took place among The Benchmark Group's members. BlueCross BlueShield of Utah joined the group in 1996. In 1997, King County Medical BlueShield, which was dominant in Tacoma, and Pierce County Medical Bureau, which was strong in Seattle, merged into a new company named Regence Washington Health. The merger resulted in the largest medical insurer in Washington. Benchmark, too, changed its name to The Regence Group, Regence being a combination of "region" and "alliance." The Regence Group's affiliates changed their names accordingly to Regence BlueCross BlueShield of Oregon and Regence BlueShield of Idaho. All together The Regence Group's members served 2.4 million medical subscribers.

Structural Changes Through the Year 2000

The late 1990s continued to be a hard time financially for health insurance companies. Regence Blue Shield of Washington responded to the need for cost-cutting in 1999 by discontinuing new individual health insurance plans in Washington. The 50,000 individuals already enrolled kept their coverage. A year later, once the state insurance board in Washington approved a new law that allowed insurance companies to impose longer (up to nine-month) waiting periods for individual plans, Regence Blue Shield resumed offering the individual plans. The new Washington law also allowed insurers to direct the sickest 8 percent of applicants: those with congenital and congestive heart failure, coronary artery disease, kidney failure, an HIV or AIDS diagnosis, or needing an organ transplant—to the state's high-risk plan, while at the same time requiring insurers to offer maternity and prescription benefits that had been cut by carriers in recent years. Regence BlueShield of Washington began offering three plans, two of which include prescription drug, preventive care, and maternity benefits. The third plan offered basic coverage only.

As another aspect of change, The Regence Group formed its own not-for-profit pharmacy benefits management service in 1999, and in 2000 it joined with Myhealthbank to jointly develop defined-contribution health care "solutions" for employers. The first arrangement of its kind in the country, Myhealthbank allowed employers to tailor their workers' group benefits by making financial contributions into employees' personal health bank accounts. Each employee then selected his or her individual insurance coverage from a range of contribution levels to medical, dental, pharmacy, disability and life insurance plans. Any remainder in an individual's account could be put toward such things as co-payments on medications, alternative care services, or medical devices.

The Regence Group underwent internal structural changes as well in the early years of the new century. In 2000, John Ruch, president of Regence BlueCross BlueShield of Idaho became president of BlueCross BlueShield of Utah as well. He replaced Jed Pitcher, who became president and chief operating officer of The Regence Group in Portland, Oregon. Pitcher had worked in a variety of positions at BlueCross BlueShield of Utah for 30 years and had been its president and chief executive officer for 20 years.

Meanwhile in Idaho, Regence BlueShield was moving a majority of its executive team out of its Lewiston offices to Boise. Another 40 percent of its Lewiston executives were reassigned as part of a consolidation plan that called for moving most of the executive team out of the Lewiston office in the coming two to five years in order to improve the company's productivity. In a separate move, this one to offices in Lewiston's new business and technology park, created about 100 new jobs for claims analysts. The newly formed claims processing unit covered new customers joining The Regence Group in Idaho, Washington, Oregon, and Utah.

Challenges in the Early 2000s

By 2001, The Regence Group had three million members. As part of the ongoing trend among the nation's Blue Cross and Blue Shield plans to work together to compete against national health plans such as Aetna and United Healthcare, the company embarked on plans to join with Chicago-based Health Care Service Corp., the nonprofit owner of BlueCross BlueShield of Illinois, New Mexico, and Texas. The new alliance stood to make The Regence Group the largest non-profit health insurance organization in the nation with nearly 10 million customers and 16,000 employees.

Consumer advocates were concerned about the deal, suspecting that it would reduce customer choice, raise premiums, drive down payments to physicians, force small medical groups out of practice, and put aspects of The Regence Group's business beyond the reach of state regulators. At the time, several Blues nationwide were becoming for-profit stock companies for the opportunity to sell stock to raise money for expansion and new technology. Regence insisted that it remained committed to the organization's not-for-profit mission, and, after a year spent developing the plan, the two companies dropped it. However, one of the leading factors in the decision to withdraw was not consumer protection, but the discovery that neither entity would save money in moving to a single, shared claims processing system.

Company Perspectives:

It is our mission to provide customers with the best value in health, dental, vision and life insurance benefits, and administrative services. We will accomplish this by being customer focused and market driven, using the strengths, synergy and opportunities created by The Regence Group of health plans. It is our responsibility to ensure the availability of affordable, quality health insurance products in our service area. We have an obligation to effectively manage costs and to provide customers with a choice of competitively priced, quality health products in return for their investment. We are committed to keep health-care costs as low as possible for our customers. This is being achieved through the negotiation of fair rates for health-care services. We are dedicated to these principles and are working diligently to fulfill the common vision of The Regence Group: to set the industry standard in health-care access, financing and service.

The company continued struggled with profit losses in the early years of the new century, despite revenues of $6.2 billion in 2002. Faced with health care benefit expenses that rose more than eight times the rate of inflation in Oregon and Washington, many employers in those states chose to have their higher wage earners pay proportionately more of the cost of their health insurance premiums. "You'll see more employers cutting back on [health insurance] programs dramatically . . . and some employers even getting out of providing health insurance altogether," predicted Pitcher of the future state of affairs, in a 2003 Salt Lake Tribune article. The Regence Group itself launched a four-tiered system for its own 2,000 employees. Despite such changes, the company still faced higher medical claims and falling membership.

There were also several changes of guard in 2003. Mark B. Ganz became the company's president and chief operating officer, succeeding Pitcher, under whose tenure the company had grown from 300,000 customers in 1980 to 615,000 in 2003. Ganz had been part of the formation of The Benchmark Group, and since 2001, he was president of Regence BlueCross BlueShield of Oregon. He was replaced by J. Bart McMullan, Jr.

Regence BlueShield of Idaho also got a new president in the person of John Stellmon, replacing Ruch, who had been president of Idaho and Utah since 1997. Ruch was replaced in Utah by Scott Ideson, who had been with the company since 1999. Mary McWilliams, who had been president of Regence BlueShield in Washington since 2000 remained in her position.

In addition, the company began another round of restructuring in late 2003 that continued into 2004. It created a single, coordinated claims and membership system that included all four states. It reduced its operating budget by 13 percent across the board, initiated a 10 to 15 percent cut in its executive ranks across the four states, instituted layoffs of 170 workers, and increased the rate of lower-cost generic prescription drugs that members took. It also began encouraging its members that used some of the more prescribed drugs (Celexa, Zoloft, Lipitor, Zocor, and Vioxx) to buy higher-dosage pills and split them in half. The controversial program, called the Half Tablet Program, issued pill splitters to members, who doubled their supply of medication, while halving their co-payments and trips to the pharmacy. Concern among health care practitioners primarily cited the possibility that patients might take incorrect dosages.

The Regence Group also launched a new product platform for employers in 2003 that it extended to members in 2004. Based on a collection of preferred provider plans, enrollees chose from multiple benefit tiers and provider panels that allowed them to tailor their benefits to meet desired price points. The company looked to this platform as a means of ensuring its affordability and, thus, profitability, as it anticipated a future of ongoing increases in health care costs to both consumer and insurer.

Principal Subsidiaries

Regence BlueCross BlueShield of Oregon; Regence BlueCross BlueShield of Utah; Regence BlueShield; Regence BlueShield of Idaho; Regence Life & Health Insurance Company.

Key Dates:

1995:

The Benchmark Group forms out of four BlueCross BlueShield providers in Oregon, Washington, and Idaho.

1996:

The Benchmark Group launches the Pacific North-west's first regional health plan; BlueCross BlueShield of Utah joins the group.

1997:

King County Medical BlueShield and Pierce County Medical Bureau merge to become Regence Washington Health; Benchmark changes its name to The Regence Group; the other members adopt the Regence name.

1999:

The Regence Group establishes a nonprofit pharmacy benefits management service.

2000:

The company joins with Myhealthbank.

Principal Competitors

Pacificare Health Systems Inc.

Further Reading

Beason, Tyrone, "Activists Suspect Insurers' Motives; Regence Won't Stay Nonprofit Once Deal Is Done, States Warned," Seattle Times, September 7, 2000, p. C2.

Gollhofer, John G., "Insurance Consolidation Puts Health Care at Risk," Seattle Post-Intelligencer, January 8, 2000, p. A7.

Herzog, Boaz, "Regence is Singing the Blues for Now," Oregonian, April 10, 2004, p. B 8.

——, "Splitting for Savings," Oregonian, September 9, 2004, p. D1.

——, Strategies Seek to Cool Health Care Costs," Oregonian, May 11, 2004, p. D1.

"Regence Wants to Join Up With Other Midwest Blues," Lewiston Morning Tribune, March 18, 2001, p. 3E.

Mitchell, Lesley, "Businesses Rethink Health Care Benefits," Salt Lake Tribune, December 7, 2003, p. E1.

Rojas-Burke, Joe, "Regence Drops Plans to Form No. 1 Insurer," Oregonian, August 16, 2001, p. D1.

Rothschild, Mary, "Individual Insurance Back on Sale; New Law Drew Insurers to Market Again," Seattle Times, December 3, 2000, p. B1.

—Carrie Rothburd