With Cigna Acquisition, Qualcare’s Unique Insurance Model Could Go National

Andrew Kitchenman | January 27, 2015 | Health Care
Hospital-based company will become subsidiary of insurer with growing NJ presence

Lt. Governor Kim Guadagno (left), Annette Catino, QualCare’s CEO, and Cigna Senior Vice President John Wray.
New Jersey’s only hospital-owned source of health coverage was purchased yesterday by a more typical insurer, but that doesn’t mean its way of doing business will disappear.

It may, in fact, expand.

Connecticut-based insurance giant Cigna announced an agreement yesterday to purchase Piscataway-based QualCare for an undisclosed sum, making the combined company one of the largest insurers in the state.

For 22 years, QualCare Alliance Networks Inc. has played a unique role in New Jersey, providing health insurance coverage while being owned by hospitals. It started by administering health benefits for its hospitals’ staffs, but has added local governments and small- to medium-sized businesses. This has led to self-insured health plans that are known for their association with local hospitals and doctors, providing large networks of providers to members.

Self-funded insurance plans differ from traditional, fully funded plans in that the employer will pay for employee medical expenses with its own funds and companies like QualCare administer the plan. In fully funded plans, the employer and workers pay a monthly premium to the insurer and the insurer pays the medical bills.

QualCare currently serves 200,000 members in self-funded insurance plans, and its provider network serves hundreds of thousands of others through worker’s compensation, federal health insurance marketplace insurers, and other programs.

While it will no longer be owned by hospitals, QualCare will continue its current operations as a subsidiary of Cigna, with an eye toward expanding nationally, according to Annette Catino, QualCare’s CEO, who will continue in the role within Cigna.

Catino said Cigna’s expansion “is going to bring some well-needed competition in New Jersey,” and described Cigna as “a Fortune 100 company” that’s “doubled down” on its investment in the region. And for QualCare, it will be a chance to build similar hospital-based plans in other states — and to expand to New Jersey employers that have large numbers of employees in other states.

“For the last 22 years I really have been at the forefront of engaging providers in discussions with the employers on how to change the paradigm of health plans to really service employers locally,” with a focus on improving the quality of care while limiting costs, Catino said.

Catino said QualCare was built gradually by trying different ideas on a small scale.

“I think it’s that entrepreneurial spirit,” that attracted Cigna, she said. “I think they see us as almost an incubator for innovation and I’m excited about that.”

Within New Jersey, Cigna brings to the table a new group of customers for QualCare — companies that operate in several different states that QualCare previously couldn’t serve because its network was limited to New Jersey.

As the expansion that Catino described advances, it will mean more jobs for New Jersey, she said. Information technology, customer service, and insurance claims workers should be added in New Jersey, she said.

Cigna Senior Vice President John Wray, who oversees network contracting and delivery-system collaboration, said the deal wouldn’t have any short-term effect on customers for either company in the state. But in the long term, he anticipates that employees and customers of both companies will benefit. Cigna serves nearly 500,000 people in self-funded insurance plans in the state, so the combined company will have nearly 700,000 customers receiving medical coverage.

“Understanding how hospitals operate — what their needs are — is really in their DNA,” Wray said of QualCare.

Wray also said that QualCare’s approach would fit in well with Cigna’s growing focus on paying providers for the value of the services they provide — as measured by the health outcomes for their patients and the cost — rather than the volume of services. Cigna has been a national leader in building accountable care organizations and other healthcare delivery models that pay providers for value rather than volume.

QualCare currently supplies the provider network for both Health Republic Insurance of New Jersey — a nonprofit that last year began serving individuals through the federal marketplace and small employers — and Oscar Health Insurance, which is aiming to attract customers through a focus on technology. Cigna and QualCare officials said they expect QualCare’s current business relationships to continue. Cigna hasn’t announced plans to join the federal marketplace in the state.

Linda Schwimmer, vice president of the New Jersey Health Care Quality Institute, said she would be interested to see how the insurers like Health Republic and Oscar interact with Cigna.

“I think that the impact of the announcement obviously remains to be seen, but it has the potential to be disruptive to the market,” she said. “Cigna nationally has been a leader in the accountable-care-organization work. To the extent that this purchase accelerates that work, it has a lot of potential for change in New Jersey.”

Rutgers Center for State Health Policy Director Joel Cantor noted that the combined company would be substantial.

“That’s enough to be a serious player in the market,” he said of the combined customer base. “We see this trend toward more carriers entering the market and (bringing) more market competition.”