Time running out for Blues proposal

March 29, 1995|By David Conn | David Conn,Sun Staff Writer

A legislative plan to turn the nonprofit Blue Cross and Blue Shield of Maryland into a for-profit company and sell stock to the public is practically dead for this session, the victim of a stalemate between the company and the state insurance commissioner.

With less than two weeks before the General Assembly adjourns for the year, Blue Cross has not yet submitted a "conversion" bill, although it circulated a draft version on Monday.

But unless the two parties can come to a compromise within the next day, legislators say they won't consider a bill this year.

"I think there is a general feeling that if they can't get [their differences] resolved, this is something that'll have to be dealt with in the interim," said House Speaker Casper R. Taylor Jr., an Allegany Democrat.

A press conference to discuss the Blue Cross plan was scheduled for this morning by Del. Michael E. Busch, of Anne Arundel, and Sen. Thomas L. Bromwell of Baltimore County, who chair the business committees of the House and Senate, respectively. Insurance Commissioner Dwight L. Bartlett III and Blue Cross' president and chief executive, William L. Jews, are also expected to attend.

"I think they're all coming together to put an end to this thing," Mr. Taylor said. Mr. Busch and Mr. Bromwell could not be reached for comment last night.

Blue Cross has warned of the threat to its financial health without the benefits it says the conversion plan would provide: the ability to expand beyond Maryland, to reduce part of its regulatory burden, and to raise as much as $50 million in capital through the stock market.

The collapse of the plan for this year won't devastate the company, Mr. Jews said. But, "I predict we would begin to see some erosion in the ability of Blue Cross to improve our position in the marketplace," he said.

Blue Cross has proposed to set up a for-profit subsidiary that would own managed care businesses, a traditional indemnity insurer and a marketing company. The parent would still operate some not-for-profit insurance plans. About 35 percent of the subsidiary's stock would be sold to the public, and 65 percent would be owned by the parent company.

Mr. Bartlett, the insurance commissioner, rejected that plan in January, partly because he said the law didn't allow it. The two sides have been discussing the issue ever since. But last week, Blue Cross approached lawmakers about legislation to allow for the conversion.

The primary conflict between Blue Cross and the insurance commissioner is over the structure of the parent company. Blue Cross wants to establish a new entity called a "non-stock health insurance corporation." The officers and directors of this corporation would have control over the parent company's share of the subsidiary.

But Mr. Bartlett said the Blues' plan does not adequately protect the interests of the company's 1.4 million subscribers. He favors a "mutual" insurer, which would be owned by the subscribers.

"I much prefer the mutual company route, because any profits generated by the subsidiary, an appropriate level of those profits would accrue to the benefit of the policyholders," Mr. Bartlett said, primarily through rate decreases.

Under the other option, the "non-stock" corporation, a charitable health care foundation would be established to receive -- and spend -- some portion of the subsidiary's profits.

"That's all very noble," Mr. Bartlett said. "But I guess if I were a plan subscriber, if I had the choice of a charitable foundation or lower rates, it's pretty clear which one I would choose."

Mr. Bartlett said that while he stands by his opinion, he doesn't plan to fight Blue Cross. Legislators must decide for themselves whether the charitable foundation would benefit the public more than the prospect of lower rates for Blue Cross subscribers, he said. But the lawmakers said they won't consider the bill this late in the session as long as Mr. Bartlett opposes it.

Mr. Jews said the company can't accept a mutual structure. Its investment bankers, Alex. Brown Inc. and Legg Mason Inc., have advised Blue Cross that the stock market will not pay a reasonable price for the shares of a subsidiary that is controlled by Blue Cross' subscribers, instead of its officers and directors.

"The mutual form . . . does preclude us from procuring access to the capital markets," Mr. Jews said. "We don't have an option."

A mutual company also would subject the subsidiary to the threat of a hostile takeover, which would not be in Marylanders' best interests, he said.

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