Revenue is up at Independence Blue Cross, and the growth is largely coming from one area: Medicaid

The Philadelphia region’s largest health insurer is seeing a dramatic shift in its growth in an increasingly competitive market.

Annual revenue at Independence Blue Cross’ parent company has grown by an impressive two-thirds over the last five years, adding $10 billion in revenue though 2022.

Driving the Center City company’s revenue growth is its majority-owned Medicaid insurance company, AmeriHealth Caritas. The subsidiary with nationwide operations serves people who qualify for the government’s health insurance for lower-income families. It had $20.2 billion in revenue last year.

This contrasts with stagnant revenue in the business lines focused mostly on Southeastern Pennsylvania and South Jersey, including the insurance that employers buy for their workers. For six years, that revenue has remained flat at around $7 billion for parent company Independence Health Group.

IBC’s uneven growth reflects broad trends in health care. Smaller employers are adopting self-insured health plans that lower revenue for companies such as Independence. At the same time, the pandemic spurred a surge nationally in the number of people with Medicaid insurance. This benefited Caritas.

This year, Independence for the first time is facing competition on its home turf from another Blue Cross Blue Shield company. Pittsburgh-based Highmark announced in January that will start selling plans that offer coverage in Southeastern Pennsylvania next year.

Juan Lopez, Independence’s chief financial officer, said the company’s 85 years in the Philadelphia market put it in a strong position for new competition. “I’d say bring it on,” he said.

“We’re a diverse set of companies,” Lopez added. “That geographic and product diversification helps us.”

Indeed, benefits experts said they don’t expect Highmark to have much impact immediately.

“I think it’s going to be a kick-the-tires year,” said Tom Cox, principal at iSolutions, a benefits consulting firm in Audubon. Looking ahead, he expects that Highmark could start winning more Philadelphia-area customers in 2025.

The Blue Cross brand, not specifically Independence, remains strong among Philadelphia-area employers, according to Cox. How much of that Blue Cross loyalty Highmark can peel away from Independence will be carefully watched in the benefits industry.

AmeriHealth Caritas has grown to become the nation’s fifth-largest Medicaid insurer, according to Mark Farrah Associates, a health insurance analytics firm based near Pittsburgh.

Still, Pennsylvania remains a huge market for the Newtown-Square based Caritas.

The state accounted for roughly one-third of the company’s three million Medicaid members. That represented 35% of the statewide market in May, up from 27% five years ago, according to Pennsylvania Department of Human Services reports.

An uncertainty for Caritas is how many enrollees it will lose in the coming months. The federal government recently lifted a pandemic-era prohibition on ending Medicaid coverage.

To offset losses, the company has started selling individual insurance plans through the exchanges set up under the Affordable Care Act in Delaware, Florida, North Carolina, and South Carolina.

This brings Independence into an insurance market, sometimes referred to as Obamacare, that it has already served for a decade in Pennsylvania. The hope is that federal tax subsidies will help people who lose Medicaid to buy individual plans.

In Medicare Advantage, a government-sponsored insurance program for seniors, Independence already dominates in Southeastern Pennsylvania. The company is facing increased competition from national giants, Aetna, Humana, and UnitedHealth, all gaining market share.

Even so, Independence’s Medicare Advantage plans have increased membership by 17% over the last five years, reaching more than 122,000 Pennsylvanians in June, according to federal data. Independence has joint ventures that add 10,000 to that total.

Federal regulators rate plans on a five-star scale, based on the quality of their customer service, how much preventive care they pay for, and how well they help manage chronic conditions. Independence has done particularly well on screenings and customer satisfaction.

“It’s been an extremely competitive marketplace. We’ve retained our membership and actually grown membership in the last two years as a result of our five-star rating,” Lopez said.

UPMC, which has a major insurance presence in Western Pennsylvania, has been offering Medicare Advantage plans in Southeastern Pennsylvania since 2017, but has yet to make significant inroads, with just 773 enrollees in June, federal data show.

Next year, Independence is contemplating bringing its Medicare Advantage plans back into certain New Jersey counties. The company left that market in 2016. At the time it had a market share of 36% in Burlington, Camden, and Gloucester Counties, but was available throughout the state.

“We were in for a short time. We weren’t successful,” Lopez said. “We feel like we’re in a better position now to go back in.”

Independence’s financial headwinds have come in the widespread shift by employers into health plans in which they pay hospital and doctor bills directly. Under these arrangements, companies buy more limited, backup insurance for catastrophic claims, through other insurers.

So-called self-funded plans covered 65% of workers last year, up from 44% in 1999, according to KFF, a Washington not-for-profit that researches health-care policy.

These plans no longer are used only by big companies with a thousand employees or more. Versions are increasingly available to smaller companies, even those with fewer than 50 employees.

At Independence, the percentage of people covered by self-funded plans increased to 67% last year from 57% in 2016.

That means Independence is no longer collecting insurance premiums from an increasing share of its customers. Instead, it is charging them an administrative fee — a less risky but also potentially less profitable business.

AmeriHealth New Jersey last year started selling its version of a self-funded plan for smaller employers, a product line called fixed funded, Lopez said.

The amount of health-care money that Independence administers on behalf of employers with self-funded plans is increasing, the company pointed out. Total health funds under management by Independence reached $37.7 billion last year — $10 billion more then revenue.

The Philadelphia region’s relatively slow economic and job growth has also put pressure on Independence’s ability to expand its private-sector insurance business in its core market.

In the individual insurance market for Southeastern Pennsylvania, Independence is the only company that has offered plans on the ACA marketplace every year it’s been open.

There’s been more competition in recent years, but Independence still has by far the largest share of the business, with 159,425 residents enrolled, according to data from the Pennsylvania Insurance Department.

The next largest is Pennsylvania Health & Wellness Inc., with 9,369, but some of them are outside the five-county area.

In the ACA market for small businesses, Independence is also dominant, with 172,224 people covered in the Philadelphia region.

Competition, however, looms as Highmark is also entering the ACA exchange business in Southeastern Pennsylvania.

Lauren C. Stuart, an executive vice president at Tycor Benefit Administrators Inc. in Berwyn, which administers employee benefit plans for companies, is watching to see whether Highmark will offer premiums that are low enough to convince consumers or employers to change insurers.

“Right now we’re all in a watch, wait, and see mode,” she said.