Capital Blue Cross and Subsidiaries - Page 52

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               Organizations (HMOs), Preferred Provider Organizations                 
               (PPOs), and other new delivery and financing schemes.                  
                    Many of these new competitors are sponsored by or                 
               joint ventures with the doctors and hospitals who also                 
               provide care.  This fading of the line between                         
               financing and delivery represents a major turning point                
               for our industry.  It creates a challenge to all of the                
               traditional assumptions about our business.                            

               Minutes of petitioner’s 1986 corporate planning meeting                
          state as follows:                                                           

               The Plan will continue to face competition from new                    
               entities, e.g., self insurance, TPA’s, HMO’s and PPO’s.                
               As this competition increases Capital Blue Cross must                  
               protect against cost shifting and adverse selection and                
               become responsive to a changed marketplace.                            
               * * * Greater efforts will be made by commercial                       
               carriers to increase their share of the market.  These                 
               carriers who are able to provide life, health,                         
               accident, etc., will be in an advantageous position by                 
               being able to provide wide-ranging benefits.                           

               By basing the lapse rates for his lifing analysis of                   
          petitioner’s group contracts on 1982-1986 lapse rate information            
          relating to petitioner’s group contracts, petitioner’s expert               
          largely ignored the industry changes of which petitioner’s                  
          management, as of January 1, 1987, was aware.  Any valuation of             
          petitioner’s group contracts should have considered the changes             
          occurring in the insurance marketplace as of January 1, 1987.               
               Further and significantly, because petitioner’s group                  
          contracts were effectively terminable at will, petitioner’s                 
          customers could cancel their contracts with petitioner for any              
          number of reasons, making the realistic useful life or duration             
          of petitioner’s health insurance group contracts directly                   




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Last modified: May 25, 2011