Blues say stock could help uninsured

January 19, 1995|By John Fairhall | John Fairhall,Sun Staff Writer

Trying to win state approval of a plan to sell stock to investors, Blue Cross and Blue Shield of Maryland is telling regulators the sale could eventually help fund health care for uninsured Marylanders.

But there are no guarantees, company officials acknowledge. And a consumer group cast doubt yesterday on this aspect of the Blue Cross stock plan, saying it wouldn't assure that uninsured Marylanders receive the promised benefits.

State Insurance Commissioner Dwight K. Bartlett III is mulling this and other issues raised by the stock plan, which would be a major change for historically nonprofit Blue Cross, the state's largest health insurer with 1.4 million subscribers. Blue Cross has urged him to act quickly on the plan.

Blue Cross wants to create a large for-profit subsidiary that would own the company's five health maintenance organizations. The subsidiary would sell stock, initially about $40 million, but the nonprofit Blue Cross parent company would retain controlling interest in the subsidiary.

Blue Cross says uninsured Marylanders -- about 15 percent lack coverage -- could benefit through a company foundation funded indirectly by the initial sale of stock. But Blue Cross officials have told Mr. Bartlett they can't be sure the foundation would ever receive funds.

The uncertainty arises from the funding mechanism proposed by the company.

Blue Cross says money for the foundation would become available if stock held by the nonprofit parent company grew in value to the point that the company's assets exceeded state requirements. At that time, the insurance commissioner could direct that the excess be transferred to the foundation, which Blue Cross recommends be devoted to helping the uninsured.

But asked by Mr. Bartlett when the foundation would begin receiving funds, Blue Cross general counsel John A. Picciotto said, "It may be in 1997 or 1998 before it happens. It may happen earlier. Or it may never happen."

The availability of funds depends on the stock appreciating in value, according to Blue Cross officials, on the income and liabilities of the nonprofit parent company, and on any changes in law and regulations governing Blue Cross finances.

If funds do become available, Blue Cross proposes retaining control of the foundation. But a consumer group says that would be a serious mistake.

The "integrity of the foundation is critical," said Jeanne Sinberg, senior attorney in the San Francisco office of Consumers Union, publisher of Consumer Reports. "As long as Blue Cross is controlling the donations under that foundation, it is impossible to assure that the primary needs of the public are addressed."

Consumers Union is involved in a dispute over a similar Blue Cross plan. After converting entirely to a for-profit company and selling stock, Blue Cross of California has been pressured by regulators into agreeing to transfer all of the stock it retains -- at least $2 billion worth -- to a charitable health care foundation Blue Cross wants to control.

California regulators said the assets should be transferred to compensate the public for the value of tax exemptions granted through the years. Although Maryland Blue Cross officials distinguish their stock plan from California Blue Cross', they acknowledge an obligation to the Maryland public.

Mr. Picciotto said at a hearing last month that the Maryland Blue Cross foundation would "make charitable donations and in that way the assets that Blue Cross had developed over the years would be distributed back to the citizens generally."

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