More Blues moving to for-profit

North Carolina and New Jersey Blue Cross Blue Shield plans are the latest to ask to convert from nonprofit companies as Blues consolidations pile up.

By Julie A. Jacob, amednews staff. Jan. 14, 2002.

Two more nonprofit Blue Cross Blue Shield plans want to join the wave of Blues plans that are converting to for-profit companies.

Blue Cross and Blue Shield of North Carolina, headquartered in Chapel Hill, announced Dec. 12, 2001, that it will be filing a conversion petition with the state insurance department. Two days later, Horizon Blue Cross Blue Shield of New Jersey, based in Newark, announced it will start discussions with state regulators regarding a similar conversion.

The North Carolina and New Jersey Blues plans are the latest in a series of Blue Cross Blue Shield licensees that have recently converted from nonprofits or mutual insurers to for-profit companies, or that have announced plans to do so.

Representatives of both the North Carolina Blues and Horizon said that the companies want to convert in order to be more competitive players in the health insurance industry.

"It will be a way to raise capital and better serve our customers," said Mark Stinneford, a North Carolina Blues spokesman.

"We're doing it to maintain financial strength," said Fred Hillmann, a spokesman for Horizon Blues. "We are in a very competitive environment and our competition is getting stronger and stronger."

Both spokesmen said the companies have no plans to merge with other companies, even though for-profit WellPoint Health Networks Inc. of Thousand Oaks, Calif., and Anthem of Indianapolis -- both of which control Blues plans -- have sought merger partners.

Conversions elsewhere

Anthem, which owns Blues plans in eight states, converted from a mutual insurer to a for-profit company early last year, a process that culminated in a $1.7 billion initial public offering.

If Anthem's proposed merger with Blue Cross and Blue Shield of Kansas is approved, the Kansas Blues will also convert to a for-profit insurer.

CareFirst Blue Cross Blue Shield in Maryland is also converting to a for-profit insurer as the first step in its planned merger with WellPoint Health Networks Inc., the publicly traded parent company of Blue Cross of California, Blue Cross and Blue Shield of Georgia and Unicare.

Currently, of the 44 Blue Cross Blue Shield licensees, 25 are nonprofit, 13 are mutual insurers and six are for-profits. The for-profit companies are Anthem Blue Cross and Blue Shield; Cobalt Corp. in Wisconsin; RightChoice Inc. in Missouri; Trigon Blue Cross Blue Shield in Virginia; WellPoint Health Networks; and Triple-S in Puerto Rico.

While the companies tout the advantages of for-profit conversion, some consumer groups and legislators have in the past opposed conversions because of questions over whether Blues companies must establish charitable foundations with the company's assets when they convert. There are also questions about the companies' obligation to provide coverage to people who can't find health insurance elsewhere.

In 1997, Horizon, then known as Blue Cross Blue Shield of New Jersey, and Anthem terminated a merger after a state court ruled that the New Jersey Blues was a charitable corporation and, as such, was required to turn over its assets to a charitable foundation as a condition of its merger.

When Blue Cross Blue Shield of Missouri transferred 80% of its business into its for-profit subsidiary, RightChoice, in 1994, the company became enmeshed in a six-year legal battle with state regulators regarding its obligation to establish a charitable foundation. The state and the Missouri Blues reached an out-of-court settlement last year in which the Missouri Blues agreed to give 80% of its RightChoice stock to a charitable health care foundation.

State Legislatures in New Jersey and North Carolina, aware of the tussles over for-profit conversions that have occurred across the country, have both passed laws regarding health plan conversions.

In 1998, the North Carolina Legislature passed a law detailing the steps the North Carolina Blues must follow if it converts to a for-profit, including the establishment of a charitable foundation. Last year the New Jersey Legislature passed a law allowing the New Jersey Blues to convert to a for-profit company if it gives its assets to a charitable foundation.

Nonetheless, Stacie Berger, a program director for the consumers group New Jersey Citizen Action, said the organization is worried about the impact of Horizon's conversion on New Jersey residents.

Said Berger, "Given the recession and the huge number of uninsured in New Jersey, this is not going to help address the level of health care people are getting now. ... We've seen mergers where the health care plans merge and then they drop the least desirable customers."

The North Carolina Medical Society, while pleased that the North Carolina Blues will establish a charitable foundation, are leery about the conversion because it fears it's just the first step in a merger, said Robert Seligson, the medical society's executive vice president and CEO.

"As a for-profit, it makes them vulnerable to be purchased," he said.