Blue Cross drops conversion

By Todd Cohen

Blue Cross and Blue Shield of North Carolina has withdrawn its plan to become a for-profit business.

The move ends plans for a big new health foundation the conversion would have created under state law.

While Insurance Commissioner Jim Long had not been expected for months to decide whether to okay the conversion, CEO Bob Greczyn said Long likely would have imposed “limitations and restrictions” and released confidential information that would have hurt Blue Cross’ ability to compete.

Greczyn also said Blue Cross had spent $18 million on the conversion and still was spending $1 million a month, yet saw “no end in sight.”

So Blue Cross’ board, at the second of two meetings it held in the last week, voted unanimously July 7 to halt its conversion plans.

“This now closes the book on conversion,” Greczyn said at a news conference July 8. “We do not intend to refile our plan of conversion. We will not pursue or support legislative efforts to allow us to convert.”

Blue Cross said the Health Foundation for North Carolina, which was created under state law and initially would have received all the stock in a for-profit Blue Cross, would be dissolved.

Greczyn disclosed, for the first time, that consultants hired by Long had estimated, based on two-year-old data, that Blue Cross’ stock would have been worth $950 million, an amount that likely would have been discounted another 25 percent for an initial sale of stock.

He said he was releasing the estimate because federal rules barring disclosure no longer applied now that Blue Cross would not be selling stock.

Greczyn added that only the market would have determined the actual value of the stock, which some experts believed would have totaled $1 billion or more.

Blue Cross, which proposed the conversion in December 2001, said it needed to be a for-profit company to get the business flexibility and access to capital it needed to compete in the health-care market.

But the conversion plan met stiff opposition from regulators and watchdogs that said a for-profit Blue Cross would mean higher rates and less coverage for North Carolinians.

Blue Cross said rates would not rise and coverage would not shrink as a result of its conversion.

Regulators and watchdogs also wanted Blue Cross to set tighter rules on stock sales, stock-option plans and corporate ethics, and give the foundation a bigger role in Blue Cross’ business decisions so it could protect the value of its stock.

The Blue Cross and Blue Shield Association, which owns the Blue Cross names and marks, also fought the plan, saying Blue Cross should face fewer restrictions and that the foundation should play a smaller role in Blue Cross business.

Blue Cross revised its plan to try to meet objections that were raised.

In announcing Blue Cross was withdrawing its conversion plan, Greczyn said the insurer now would have to compete “without access to capital and business flexibility that our major competitors have – and that, of course concerns us.”

But because of its “business discipline and customer focus” in recent years, he said, Blue Cross was “positioned to continue to compete successfully today.”

 Greczyn said he did not expect Blue Cross’ decision would “have any impact on my tenure,” and that he did not have “any regrets about anything we did during this process.”

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