Blue Cross seeks legislative help

March 22, 1995|By John Fairhall | John Fairhall,Sun Staff Writer

Blue Cross and Blue Shield of Maryland Inc. is apparently seeking last-minute legislation that would allow the historically nonprofit insurer to reorganize and sell stock to investors -- a controversial plan the state insurance commissioner rejected in January as a violation of state law.

Rather than submit a new plan to the commissioner, Blue Cross officials scheduled a meeting last night in Annapolis with House Speaker Casper R. Taylor Jr. to discuss changing the law. Insurance Commissioner Dwight K. Bartlett III was expected to attend.

"I have reason to believe they are going to propose legislation dealing with their restructuring," Mr. Bartlett said before the meeting, referring to the stock plan.

Mr. Taylor said he also expected the company to present a legislative proposal, but he didn't know the details. He said William L. Jews, Blue Cross' president and chief executive, would attend.

Company officials, who have been close-mouthed about their plans since Mr. Bartlett ruled against them in January, did not publicize the meeting and refused to provide information about their legislative intentions.

The company's interest in seeking legislation now underscores its sense of urgency -- that it can't wait until the legislature returns next January.

Despite a 40 percent increase in operating profits in 1994, the company needs to strengthen its financial condition, Blue Cross officials and Mr. Bartlett agree.

But Blue Cross, the state's largest health insurer with nearly 1.4 million subscribers, faces big obstacles. The General Assembly session ends in three weeks and legislators usually are reluctant to tackle new, potentially controversial bills so late.

Consumer and physician groups vigorously opposed the plan submitted to Mr. Bartlett last year, saying that making profits would become more important than service.

The president of the state medical society, Dr. Donald H. Dembo, said that he feared the reorganization plan would "divert many assets, including large sums of money . . . to support the development and operation of multiple for-profit entities."

The reorganization plan would have created a for-profit subsidiary selling stock in Blue Cross' five health maintenance organizations.

The company was established in 1937 as a nonprofit insurer with special obligations to the public and special benefits, including a premium-tax exemption worth $12 million a year.

Mr. Jews insisted that the plan submitted last year would have benefited subscribers by putting the company on sounder competitive and financial footings. Blue Cross, which has been losing customers to its for-profit competitors, had planned to raise $40 million in an initial stock sale this spring.

"We need to grow regionally in order to serve more of Maryland and to increase our market share in this increasingly competitive marketplace," Mr. Jews said at a hearing on the plan last December.

"We need to raise capital to compete, and that money will directly benefit the citizens of Maryland and the parent company," he said. "A sound Blue Cross and Blue Shield is ultimately beneficial to all of the subscribers of Maryland."

Mr. Bartlett supports the company's goal of raising capital. But he said the plan that he rejected in January would have violated state law by converting the company into a mainly for-profit corporation without going through legally required steps.

Those steps would be tough ones for Blue Cross. The company would be required to gain the permission of subscribers, for example. And the conversion law would appear to bar Mr. Jews and other Blue Cross officials from profiting through stock options -- a benefit company officials want to protect.

By seeking legislation, the company avoids the need for Mr. Bartlett's approval. But he expects to wield "considerable influence" because legislators will seek his opinion.

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