D.C. Blues to join with Va. Blues Merger would create giant in health insurance

October 29, 1992|By Patricia Meisol | Patricia Meisol,Staff Writer Reporter Ann LoLordo contributed to this article.

The financially troubled Blue Cross and Blue Shield of the National Capital Area yesterday announced it would join forces with Blue Cross and Blue Shield of Virginia by the end of the year.

The chief executives of the Virginia plan and Group Hospitalization and Medical Services Inc., parent company of the District of Columbia Blues, said they signed a letter of intent to combine operations and expect to close the deal Nov. 30. They provided no further details.

The move comes amid an in-depth financial examination of the D.C. Blues by Virginia regulators, a congressional investigation of the plan's operations, a drop in its assets linked to its real estate holdings and expected operating losses by the plan of $14 million this year.

The D.C. plan covers 1.1 million subscribers, primarily in the Washington metropolitan area, including more than 400,000 Marylanders in Prince George's and Montgomery counties as well as retired federal workers. It has 4,200 employees.

The Virginia plan covers 1.8 million customers in that state and has 3,750 workers.

The deal would provide a source of new capital for the D.C. Blues, and a ready client base for the Virginia plan, which is among the strongest Blues plans in the nation. If approved, the resulting company, with $3 billion in annual revenues, would be the third-largest Blues plan in the country, officials of both plans said.

The combined operation will be headed by Norwood H. Davis Jr., chairman and chief executive officer of the Virginia plan.

Before the deal is final, a team of auditors, financial consultants and lawyers assembled by the Virginia Blues will scrutinize the D.C. Blues' condition.

If the review shows that those opportunities "are actually not there and the financial condition of the D.C. Blues is not what it's reported to be, if there are liabilities that are materially different than what we expect them to be, that could cause a change in our thinking," Mr. Davis said.

But Mr. Davis said the Virginia Blues would not have entered into the agreement if it did not believe it would benefit the company, as well as subscribers of both plans.

The proposed combination, which needs the approval of state regulators in Washington, Virginia and Maryland, comes in the midst of a U.S. Senate subcommittee investigation of the troubled financial structure of the District of Columbia plan.

In recent weeks, the D.C. Blues has put seven of its subsidiary companies up for sale and announced the retirement of its longtime chief executive. The congressional investigation, which has already scrutinized Blues plans in Maryland and West Virginia, is part of an ongoing probe of fraud and abuse in the insurance industry. The subcommittee will hold hearings on the District plan in January, according to congressional staffers.

Overall, the D.C. Blues' net worth is expected to be $54 million at year's end. That is $17 million more than the minimum required by Virginia regulations, he said.

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