Blue Cross is denied mutual insurer status

December 27, 1990|By Peter H. Frank

The state's insurance commissioner, saying it could "endanger the future of health care delivery" in Maryland and increase its cost, has turned down a request by Blue Cross and Blue Shield of Maryland Inc. to convert to a non-profit mutual insurance company.

Blue Cross, the state's largest health insurer, applied in July to drop its current special status as a non-profit health-service plan as a way to expand its powers and compete "on an even playing field" with other insurance carriers in Maryland.

But Maryland Insurance Commissioner John A. Donaho, in a critical assessment of the company's proposal, said the conversion was "not in the best interest of its subscribers and policyholders, nor the citizens of the state of Maryland."

"I would be remiss in my duties and responsibilities to the citizens of Maryland," he wrote, "if I allowed BCBSM [Blue Cross and Blue Shield of Maryland] to gamble with and endanger the future of health care delivery by allowing mutualization to proceed at this time."

Amy Levy, a Blue Cross vice president, said the company had not seen the written decision and could not respond in detail to its conclusions.

"We're disappointed," she said. "We'll be exploring options. We've got to read it and figure out what it says and what our options are."

In particular, Mr. Donaho questioned the ability of Blue Cross to shoulder the additional expense of paying Maryland's 2 percent premium tax, from which the company is currently exempt.

Insurers in Maryland pay the annual tax on the amount of premiums collected from direct subscribers. Premiums collected from companies that are self-insured are not taxed.

But Mr. Donaho said the benefits that could come from the proposed change would not outweigh Blue Cross' additional burden of paying $8 million to $10 million in premium taxes a year.

Instead, he suggested that roughly five years' worth of premium taxes, or about $50 million, would be better used to pay for "an adequate claims processing system" that could help convert Blue Cross "to an efficient business entity that can promptly deliver affordable and accessible health care insurance." Mr. Donaho, in his written decision, did not elaborate.

Blue Cross had argued that its conversion to a mutual insurer was a necessary step for the company to begin competing more equitably with other insurers in the state. With roughly 1.4 million subscribers, thecompany has said it is unfairly hamstrung by continuing to operate under special legislation passed in 1937 that facilitated its creation.

But Mr. Donaho said the proposals that Blue Cross executives offered as a means to offset the additional expenses represented "speculative and ill-defined ventures" that did not support the company's contention that a change was well-conceived.

"It is apparent to me that the activities envisioned by management to enable BCBSM to compete with commercial insurers will only deviate from and dilute the primary purpose for which BCBSM was legislatively created," Mr. Donaho wrote in his decision.

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