Highmark might send work overseas

Health insurer Highmark Inc. is considering sending work overseas, possibly technology or call center jobs, in an effort to shave administrative expenses.

Several sources told the Post-Gazette that Highmark has been considering a fact-finding trip to India, purportedly to research whether the insurer should locate some of its jobs, or hire contractors, there.

Last week, Highmark's spokesman said that no "senior executive, nor anyone else acting on Highmark's behalf has been to India or any other Asia country on a trip related to the issue of outsourcing, nor is a trip planned at this time."

Discussion of such a trip, though, had been the subject of angst among some of Highmark's information technology, Web and back-office customer service employees, mainly because those employees are the ones who could be affected if Pittsburgh's largest health insurer ever decided to outsource, or off-shore, some of its jobs.

Highmark employs about 10,000 people in the state.

Highmark spokesman Michael Weinstein acknowledged that outsourcing discussions have been ongoing for much of 2009. "One of the options we're looking at -- are there opportunities for a narrow band of services that could be handled in an outsourcing, off-shore [basis]?" he said.

Mr. Weinstein also stressed, by phone and in an e-mailed statement, that the off-shoring talks are preliminary.

"We're not even there yet. There is no plan yet to outsource any of our business operations," he said in a phone interview this month.

He added by e-mail: "We're currently evaluating a number of new approaches as we look to grow our business and reduce our administrative costs. Among the many options we're reviewing are our sourcing models, including the exploration of outsourcing and off-shoring. ... We're in the early stages of our evaluation, which will take several months to complete."

He also said Highmark wouldn't commit to sending jobs overseas unless "this analysis [clearly demonstrates] that significant administrative cost savings will be generated for our customers."

The topic of outsourcing professional services overseas has been a sensitive political and business issue for much of this decade, as the advent of high-speed Internet made it easier to transfer data instantly across vast distances. Insurers, like many other types of businesses, are always looking for ways to reduce overhead and personnel costs, and moving jobs to lower-wage countries such as India and China is one way to achieve those cuts.

Big insurers such as Aetna, Principal Financial Group, Aviva and many others have sent work overseas -- either by setting up an actual work site (commonly called off-shoring) or by sending big chunks of work to third-party contractors (out-sourcing) -- calculating that the long-run savings will outweigh the short-term public relations injury often suffered when jobs are displaced.

While out-sourcing to vendors across town or even to Canada (sometimes called "near-shoring") is common and politically palatable, sending work to developing countries can generate controversy, mainly because the money saved comes at the expense of local workers.

Mr. Weinstein noted that the outsourcing talks are just one possible move on a menu of cost-saving possibilities (including some measures already put into place): freezes on merit pay increases, cutting down on paperwork, more efficient lighting and computer equipment or even bringing some work done by outside vendors back in-house.

All those options, he said, must be contemplated if Highmark is to remain competitive in a field of for-profit, multi-state players, especially given that 2008 and 2009 have been difficult for health insurers in general.

One move meant to make Highmark more competitive actually involves the insurer's own for-profit subsidiary, Highmark Health Insurance Co., which soon will be selling the company's small-group insurance products. The shift, affecting about 14,000 group clients and 194,000 individual policy-holders in Western Pennsylvania (of more than a million total policy-holders in the region), allows Highmark to use different risk analysis techniques in offering products, and prices, to specific clients.

To date, because of government restrictions on how the Blues may price their products, Highmark has considered only age, sex and industry-specific factors when setting prices for a specific group client. But when the products are sold through the for-profit subsidiary, Highmark Health Insurance Co. will be able to "medically underwrite" certain products -- meaning a customer's health, smoking habits and other factors could play a role in determining the group's rate.

For years, Highmark had been lobbying Harrisburg to change the rules -- Pennsylvania, the insurer says, is one of only two states that forces for-profits and non-profits to play by different sets of rating rules -- but it's become clear that the legislature isn't interested in small-group rating reform, said Tom Fitzpatrick, Highmark's vice president of strategic accounts.

"We can not attract the good-risk business ... we cannot get rates that match the risk" on the high-risk end, he said, explaining the reason for the shift.

Low-risk groups can be poached by other companies with lower premiums, while high-risk groups are lured to other carriers by low introductory rates, then are hit with higher premiums after a year.

The other Blue Cross insurers in the state already sell small-group products via their own subsidiaries. Highmark was the last of the Blues to sell its small-group products through its mainline, non-profit umbrella company. The shift is effective July 1.

Highmark has notified the state Department of Insurance that it will be withdrawing the small-group plans from the Highmark banner and moving them to the for-profit subsidiary.

That subsidiary, Mr. Fitzgerald said, is a "shell" company that Highmark purchased in August 2005 from WellPoint for $16 million. The company, Trigon Health and Life Insurance, was based in Virginia, but is now on the books as a Pittsburgh firm. Under Highmark, it was renamed and started out as a company that provided Medicare PPO products to West Virginians, but it is licensed to issue products across the country.

The shift theoretically could affect the amount of money the insurer sets aside for the state's Community Health Reinvestment Agreement, under which Highmark and the other Blues offer a percentage of their mainline health care premiums to a fund for uninsured and under-insured Pennsylvanians. Premiums that come through the for-profit subsidiary aren't subject to the agreement.

But given that the small-group shift won't happen until next summer and that the Community Health Reinvestment Agreement pact expires at the end of 2010, the actual financial hit to the fund might not be great.