Blue Cross proposal receives cautious OK

November 24, 1994|By John Fairhall And Jay Hancock | John Fairhall And Jay Hancock,Sun Staff Writers

State Insurance Commissioner Dwight K. Bartlett III said yesterday he has no immediate objections to a proposal by historically nonprofit Blue Cross and Blue Shield of Maryland to sell stock as part of a sweeping corporate reorganization.

"To the extent it allows them to strengthen their capital structure, I happen to think it's a desirable outcome, as long as it does not create unanticipated difficulties," said Mr. Bartlett. He cautioned, however, that he would withhold a formal opinion until after he holds a public hearing on the proposal Dec. 19.

Parris N. Glendening, the governor-elect, said he had a mixed reaction to the proposal from Blue Cross, the state's largest insurer with 1.4 million subscribers, to create a profit-making enterprise accountable to stockholders.

"On the one hand, I think it is clearly in the citizens of Maryland's interest to have a strong company," he said. "But we also recognize that Blue Cross and Blue Shield of Maryland is chartered to meet other expectations," including providing insurance for all who want to purchase it.

"And we've got to protect the ratepayers," Mr. Glendening said, referring to insurance buyers. He said he would not reach a "final verdict until we see specifically what they're proposing and what the impact is."

Blue Cross' proposed reorganization, disclosed Tuesday by the commissioner's office, would position the company to compete in other states and in Maryland against another Blue Cross plan operating in the Washington suburbs.

Blue Cross' health maintenance organizations, a new non-HMO insurance business and a new insurance sales agency would operate under the umbrella of the proposed publicly held company, which would try to raise $40 million to $50 million through a stock sale next spring.

Some important operations would remain under the nonprofit parent company, including Blue Cross' existing non-HMO business.

Although company officials refuse to discuss the proposal submitted to the insurance commissioner, they have been saying for some time that they'd like to raise capital to compete more effectively against publicly held insurers. Blue Cross has lost customers to aggressive competitors and has been forced to cut prices and lay off more than 200 people.

A brief Blue Cross statement issued Tuesday suggested subscribers would benefit. "Restructuring affords the company the opportunity to enhance its market position and to be responsive to competitive pressures without compromising the philosophy and direction of Blue Cross and Blue Shield of Maryland."

But Mr. Bartlett said some people may worry about the effect of a reorganization on subscribers.

"I think people who generally have a negative image of the Blues are apt to show up" at the hearing Dec. 19 "and express concern about the implications for what the rates will be for Maryland Blue Cross and Blue Shield," he said yesterday.

Mr. Bartlett will have to be convinced, however. "Unless somebody can bring to my attention at the hearing some concerns that aren't apparent to me, it sounds like they're heading in a sensible direction."

The proposed new insurance sales agency would unify Blue Cross' marketing operations and is intended to "allow them to be more aggressive in the marketing of their products," Mr. Bartlett said.

This new business would not compete with other agencies, according to William F. Simmons, president of Group Benefit Services, who said he received that assurance from Blue Cross officials yesterday. "All they're doing is stream lining the operation to make it more competitive," he said, terming the reorganization a good idea.

Robert H. Davis, executive director of the Maryland Health Care Coalition, an employer group dedicated to keeping health costs down, also applauded the Blue Cross plan to sell stock.

"I think there's silent applause that Blue Cross Blue Shield is open enough to take this shot in the real world and not hide behind their non-profit badge," he said. "It's nice to get an infusion of cash right now to develop new products. How else can they do that?"

A spokeswoman for Blue Cross and Blue Shield of the National Capital Area, which might face competition from Maryland Blue Cross' proposed new publicly held company, professed no concern.

Competition between neighboring Blues plans is "happening all over the country," said Deborah Hohlt, communications director.

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