Blue impact weighed

By Todd Cohen

Insurance coverage and group rates generally remained stable in four other states after their Blue Cross plans became for-profit businesses, consultants have told Insurance Commissioner Jim Long.

The impact on rates and coverage are key issues Long must consider in deciding –with Attorney General Roy Cooper – whether to approve a plan by Blue Cross and Blue Shield of North Carolina to become a business.

Those issues are likely to be the focus of three public hearings Long begins holding this week on the Blue Cross plan.

Also at issue will be the role in Blue Cross’ big business decisions that will be played by a charitable foundation the conversion would create that initially would own all the insurer’s stock, expected to be worth as much as $3.5 billion.

Health-policy experts Long has retained from Duke University and Wake Forest University have not yet determined the proposed conversion’s potential impact in North Carolina.

But in assessing the impact of conversions in California, Georgia, Missouri and Virginia, Christopher Conover at Duke and Mark Hall at Wake Forest found no strong evidence that group rates spiked or that statewide coverage plunged.

They did find Blue Cross and health-care providers in those states held more volatile rate talks and often could not agree on managed-care discounts, causing temporary disruption in some coverage.

The hearings – Oct. 9 in Asheville, Oct. 15 in Raleigh and Oct. 23 in New Bern — follow a week of sniping between regulators and Blue Cross, which on Sept. 30 gave Long a revised conversion plan.

The new plan includes changes Blue Cross says should overcome objections from regulators and from the Blue Cross and Blue Shield Association, which owns the rights to the names and trademarks Blue Cross says it needs if it becomes a business.

Blue Cross says the plan is modeled on one the association has approved for Empire Blue Cross and Blue Shield in New York.

Regulators and the association have been divided over the corporate role the new Health Foundation for North Carolina would play.

Regulators and consumer advocates want the foundation to have a big say in Blue Cross’ corporate moves, while the association wants to curb the foundation’s role.

“Their recent filing is moving forward,” says J.B. Kelly, general counsel for the state Department of Justice.

Kelly would not comment on plan details other than saying he was pleased Blue Cross had agreed to adopt tough governance rules the department proposed, strong guidelines to keep its directors independent of the company, and a requirement that a quorum of the Blue Cross board or its committees exist only if a majority of those present consisted of independent directors.

Adam Searing, project director for the N.C. Health Access Coalition, says that – even if Long concludes a for-profit Blue Cross would not raise rates or reduce coverage – the revised plan is worse than the plan the insurer submitted in July.

“This plan does not protect the public and the public’s investment in that foundation,” he says.

Searing says the new plan is flawed because it:

* Removes a prohibition in the earlier plan against “breakup fees” Blue Cross might agree to pay potential buyers if shareholders rejected their purchase of the company – fees Searing says could be huge, representing “a tactic to induce stockholders to approve a plan.”

* Effectively removes the foundation’s right to vote on stock-option plans proposed by Blue Cross because a voting trust initially holding 95 percent of the foundation’s shares would have to vote those shares to “mirror” the vote of shareholders other than the foundation and Blue Cross officials.

* Extends for 10 years or until the foundation owns less than 5 percent of Blue Cross’ stock the period during which the foundation cannot solicit offers for the company.

* Gives Blue Cross the right to issue new shares of stock without the foundation’s consent if the insurer wants to merge with or acquire another company unless that other company would gain a majority of the outstanding stock.

Among other changes in its plan, which would let the foundation vote all its shares on any sale of the company approved by the corporate board.

*The foundation would not lose its right to vote on a proposed sale even if it violated a ban on shopping the company or talking to prospective buyers.

*A “designated” director picked jointly by Blue Cross and the foundation would serve on the insurer’s board for six years or until the foundation owned less than 5 percent of Blue Cross’ stock.

*The designated director would be responsible for giving the foundation information and consulting with it on any proposed sale of Blue Cross as long as the foundation owned at least one-fifth of the insurer’s stock.

*Blue Cross would not propose any stock-option plans for directors for a year after the conversion.

At issue in last week’s skirmishing was whether Blue Cross had given state regulators an ultimatum that it would withdraw its plan before the hearings if they did not first telegraph whether they liked the new plan.

In a memo to Blue Cross on Oct. 1, the Insurance Department said state law bars it from approving or disapproving any aspects of the plan until after the public hearings.

The memo said Blue Cross had suggested it might withdraw its plan before the hearings if the department did not signal its “pre-approval” of key aspects of its plan.

And Insurance Department spokesman Chrissy Pearson likened Blue Cross’ request to wanting a “backroom deal.”

In an Oct. 2 letter to Long, Blue Cross CEO Bob Greczyn said he was “astounded” by Pearson’s comment, which he said “mischaracterized a series of widely-attended, long-planned and well-known meetings” with the Insurance and Justice Departments.

Greczyn also asked Long to apologize to Blue Cross.

Negotiators for Blue Cross and the Insurance Department met later that day.

On Oct. 4 – on Greczyn’s recommendation — the Blue Cross board voted to go ahead with the hearings.

Blue Cross last week also distributed a mailing to more than 2,000 business and community leaders with testimonials on the benefits of its proposed conversion from former Gov. Jim Hunt; Lt. Gov. Beverly Perdue; Tom Lambeth, retired executive director of the Z. Smith Reynolds Foundation; Phil Kirk, president of N.C. Citizens for Business and Industry; Gordon DeFriese, CEO of the N.C. Institute of Medicine; and Durham physician Arnett Coleman, president of the Old North State Medical Society.

And the Insurance Department reported on its Web site on Oct. 4 that an automated phone system had been contacting individuals and urging them to oppose the conversion by pressing a button to connect them to the department.

The department said it had nothing to do with the automated message and did not know who was sending it.

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