Highmark Inc. has spent more than a decade building a dam around the region, keeping other insurers out while amassing a health plan market penetration that was the envy of other regional carriers.
But UPMC says that dam is showing some cracks -- and soon may be ready to burst.
UPMC has made a point of noting each high-profile account that has fully or partially left the Highmark stable over the past year. The list includes Westinghouse, the city of Pittsburgh, PNC, Dick's Sporting Goods, American Eagle Outfitters, BNY Mellon and EDMC, all of which have either selected another carrier to manage their health plans or are offering additional plans alongside Highmark policies.
"There is a fundamental shift [that has] already started," said UPMC spokesman Paul Wood. "Brokers are telling their clients to be prepared."
The reason for that preparation is the concern that Highmark's regional customers might lose access to most of the UPMC hospital network at the end of this year. Highmark says it wants a new contract, but UPMC says it does not because Highmark is now a competitor that runs its own hospital system, the Allegheny Health Network.
Highmark wouldn't comment on specific market trends for this story, saying only that, "Highmark maintains a very strong membership base, with some customers who have signed multiyear agreements." But spokesman Aaron Billger said CEO William Winkenwerder Jr. will address enrollment numbers, retention rate and other figures at a media briefing on Monday.
The "fundamental shift" referenced by Mr. Wood could accelerate in the next few months -- starting now, in fact. That's because any employer that signs up for a yearlong benefits deal starting this month would have a contract that spans beyond the Dec. 31 endpoint of the current pact between Highmark and UPMC.
January and July are by far the two most popular months for renewals and new contracts to take effect, and often, those contracts last for a year, if not for several years. But contracts can, and do, start in any month.
So a company that buys insurance or self-insures through Highmark's network, starting in February and beyond, would do so without any certainty that its employees will have full UPMC access through the duration of the yearlong contract.
"It's still early in the year, but beginning perhaps [this] month, we could see groups concerned about losing UPMC access start to assess their health insurance options," said Walt Cherniak, spokesman for Aetna.
Employers could offer multiple plans, they could bolt to another insurer with full UPMC access (UPMC Health Plan, Aetna, UnitedHealthcare, Cigna), or they could sign a deal with Highmark with a clause that allows them to reopen the contract next year.
Or they could stick with Highmark, which still dominates the regional market with 1 million or so commercial network customers.
But that dominance is eroding: According to UPMC's estimates, Highmark controls less than half of the commercial accounts in Allegheny County, perhaps as low as 40 percent of the commercial market. Eight years ago, Highmark controlled 60 percent of the commercial (non-Medicare, non-Medicaid) market.
Still, 40 percent is a lot of control, and despite those years of attrition from Highmark, UPMC still gets 20 percent of its gross patient services revenue from Highmark commercial accounts, as of the first six months of the current fiscal year.
UPMC is clearly gambling that even more commercial accounts will defect from Highmark between now and Dec. 31. But that's a $2 billion-a-year gamble. Can UPMC really afford to walk away from a fifth of its business? Or even a sixth, or a seventh, should Highmark's attrition accelerate?
"In a nutshell, we haven't seen a big shift yet," said Jim McTiernan, benefits analyst with Pittsburgh-based Triad USA, a division of Arthur J. Gallagher & Co.
"I don't think there's going to be a big shift, because [Highmark's] pricing is going to be aggressive," both in terms of the quotes it provides for smaller businesses and the administrative cost quotes to large, self-insured businesses that pay their own health claims. "For a lot of clients, it's going to be hard to walk away from Highmark."
Mr. McTiernan said that, while he's not privy to what the "necessary movement" figures might be in order for UPMC to part with Highmark without suffering significant financial damage, "I can't see more than 10 or 15 percent of the market moving."
Would that be enough for UPMC to go it alone? If Highmark loses, say, 150,000 of the 1 million commercial members it now has in southwestern Pennsylvania, is that enough for UPMC to carry on unaffected?
"I can't imagine it is," Mr. McTiernan said.
He still believes the two will arrive at an extension, and that UPMC's insistence that it won't sign a contract with Highmark is simple, through-the-media negotiation. "They have to play it as hard as they can" up until the last minute, to get the best possible leverage, he said.
Mr. Wood said UPMC is not the one that's doing the gambling -- it's customers and businesses that don't plan for a separation. There's a reason, he said, that UPMC Health Plan's enrollment has grown to 500,000 commercial subscribers.
"Almost all of that has moved from Highmark," he said.
Bill Toland: email@example.com or 412-263-2625.