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Red light for Blue deal

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By Todd Cohen

Blue Cross and Blue Shield of North Carolina has run into another hurdle in its plan to become a for-profit business, a plan its CEO says now hinges on quickly fashioning a new role for the charitable foundation the conversion would create.

A panel of the trade group that owns the “Blue Cross” and “Blue Shield” names and marks has voted not to approve Blue Cross’ plan, saying it would give the foundation too much voice in the insurer’s big business decisions.

Saying the insurer “cannot and will not convert” without the approval of the trade group, the Chicago-based Blue Cross and Blue Shield Association, Blue Cross CEO Bob Greczyn says “it is possible for conversion to result in a strong for-profit company and a strong charitable foundation, but it will require breaking new ground very quickly.”

That will require “a new approach” to satisfy the association, he says, adding that the new North Carolina foundation would play a bigger corporate role than any other foundation created by Blue Cross conversions in other states.

Lawyers advising state regulators have said the trade group’s own rules give it room to give the new North Carolina foundation more clout in the insurer’s business.

The foundation’s role has become the major sticking point in talks with state regulators that must decide whether to approve the conversion.

While the trade group wants the foundation to have a smaller role in Blue Cross business, regulators want it to have a greater role – as do consumer advocates.

Blue Cross and regulators – the Department of Insurance and Department of Justice – face their own pressure in the face of a new estimate by investment bankers advising the Insurance Department that the new foundation could be worth $2 billion to $3.5 billion.

That estimate, by Fox-Pitt, Kelton, is based in large part on the $4.2 billion pricetag that Indianapolis-based Anthem Inc. paid to buy Trigon Blue Cross Blue Shield in Virginia, says Chrissie Pearson, an Insurance Department spokesman.

Trigon has 2.2 million members, compared to 2.8 million members served by Blue Cross and Blue Shield of North Carolina.

The estimate also is based on a confidential business plan that Blue Cross has submitted to state regulators along with its conversion plan, Pearson says.

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