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Blue Cross revising plan

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By Todd Cohen

Facing opposition from state regulators and its own trade group to its plan to become a for-profit business, Blue Cross and Blue Shield of North Carolina says the charitable foundation its conversion would create should get “additional rights and protections.”

Blue Cross says it will file a new conversion plan within days to address some of regulators’ concerns, although it says differences on other issues still will have to be resolved.

Generally, regulators and consumer advocates want the new Health Foundation for North Carolina to play a bigger role in Blue Cross’ big business decisions than the insurer has proposed, and to serve as a watchdog to help prevent corporate abuses.

The Blue Cross and Blue Shield Association, which licenses the Blue Cross names and trademarks Blue Cross says it needs, wants the foundation to play a smaller role.

To ease one association objection to the conversion plan it submitted to regulators on July 26, Blue Cross says the foundation should not be allowed to vote its shares on stock-option plans the insurer proposes for its executives and employees – but should be allowed to vote its shares “in agreement with the vote of other public shareholders.”

That change — letting the foundation vote the same percentage of its shares as those voted by the majority of shareholders other than the foundation and Blue Cross directors, officers, employees and affiliates – reflects a proposal that Empire Blue Cross and Blue Shield in New York has made in its conversion plan that the association has indicated it will approve.

Blue Cross, which says it has not proposed or acted on any stock option plan, says the association “has state clearly that it will not approve any provisions that go beyond the scope of this language.”

Blue Cross also says it will:

* Strengthen its plan to ensure that members of its corporate board meet tough “independence” guidelines adopted by the California Public Employees Retirement System.

* Adopt a series of “good corporate practices” proposed by the state Department of Justice.

* Not require that the foundation lose its right to vote its stock on any proposed sale of the company if the foundation solicits potential buyers in violation of the conversion plan Blue Cross is proposing. But Blue Cross says it still would be able to sue the foundation in court if it wrongly solicited buyers.

The state Department of Insurance — which with the Justice Department is charged by state law with deciding whether to approve the conversion – says its investment bankers have estimated the foundation initially could be worth $2 billion to $3.5 billion, based on Blue Cross’ fair market value at the time of the conversion.

The Insurance Department says that estimate, by Fox-Pitt, Kelton, is based on the $4.2 billion that Indianapolis-based Anthem Inc. paid for Trigon Blue Cross Blue Shield in Virginia – and on a confidential business plan Blue Cross has filed with state regulators.

Blue Cross says the Insurance Department is implying the insurer’s value can be deduced from the business plan – an aspect of the plan that Blue Cross says state law prohibits the Insurance Department from talking about publicly.

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