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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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