Blues draft new plan to reorganize

Working unusually closely with state regulators, Blue Cross ,, and Blue Shield of Maryland is completing a reorganization plan that could turn the nonprofit company into more of a profit-oriented Wall Street enterprise.

Company officials said last week that they wouldn't disclose details but expect the plan to be finalized "within a month."

In January, Insurance Commissioner Dwight K. Bartlett III rejected such a plan, which medical and consumer groups charged would benefit shareholders at the expense of subscribers.

For several months, Mr. Bartlett and his state lawyer have been meeting and talking privately with Blue Cross officials to help the company overcome his earlier objections. The meetings have the blessing of legislative leaders and Gov. Parris N. Glendening, who agree that Blue Cross needs access to outside capital and want the commissioner to work with the company.

But the closed-door process is raising concerns. Jeanne Finberg, senior attorney of Consumers Union, termed the private nature of the discussions "scary" because they involve significant issues affecting the company's 1.3 million subscribers. Blue Cross has more Maryland customers than any other insurer.

"If there is a closed-door negotiation whereby the public is shut out it seems likely the public's interests aren't going to be represented fully," Ms. Finberg said.

Joseph A. Schwartz III, an attorney and lobbyist who fought the company's original plan, expressed a similar concern about the issues involved. "If they're going to change [Blue Cross] so Wall Street owns it, rather than the subscribers of Blue Cross, then that's a major change."

Although Mr. Bartlett said he expects to hold public hearings on the reorganization plan when he receives it from Blue Cross, he has already made up his mind on an issue that Ms. Finberg says is critical and needs further analysis.

Mr. Bartlett says Maryland law would not require Blue Cross to turn over its assets to a charitable foundation in exchange for the right to sell stock and engage in more profit-making activities. But Ms. Finberg sees a parallel with California law, which is requiring a Blue Cross plan there to transfer $3.2 billion to a foundation as the price of converting to a for-profit business.

"There are many millions of dollars in assets at stake that Blue Cross of Maryland owns, that we think should be irrevocably dedicated to health-care charities," said Ms. Finberg, whose organization publishes Consumer Reports magazine.

Mr. Bartlett, who says he hasn't met with company officials for about three weeks and doesn't know many details of the developing plan, emphasized that the public will have the opportunity to review it.

"Even though we're engaged in these private conversations, that does not relieve [Blue Cross] and me of our responsibility to seek input from the public when there is substantial public interest at stake here," he said.

Still, the regulatory process is very different from last year. Blue Cross submitted a reorganization plan without closely consulting vTC with Mr. Bartlett, who studied the proposal, held a public hearing and rejected it without giving the company a private opportunity to correct the problems. This time Blue Cross officials are trying to "get my reaction as they go along," Mr. Bartlett said.

He said that since April he's "personally been involved in perhaps four meetings" with Blue Cross representatives, including William L. Jews, president and chief executive.

He said that "there have been other meetings" on legal and technical issues, some at Blue Cross offices, involving his attorney. Blue Cross' team includes investment bankers at Alex. Brown & Sons Inc. and Legg Mason Wood Walker Inc.

An early meeting, around June, was also attended by a representative of the governor's legislative affairs office, Steven Larsen, and two legislators with authority over insurance matters: Senate Finance Committee Chairman Thomas L. Bromwell and House Economic Matters Committee Chairman Michael E. Busch.

The high level of interest of the governor and legislative leaders is a major reason the process is different this time. Blue Cross has persuaded them and Mr. Bartlett that the company needs access to outside capital and other help to remain competitive and financially healthy.

Blue Cross is a "unique animal," Mr. Busch noted, because of its historic, nonprofit mission as the major source of health insurance for Marylanders and its role as the insurer of last resort for people who can't buy policies elsewhere. Recognizing this, the legislature has uniquely exempted the company from tens of millions of dollars of taxes that other, commercial companies must pay.

House Speaker Casper R. Taylor Jr. said the procedure Mr. Bartlett is using now with Blue Cross is appropriate. "I think he's acting in the public interest by sharing his regulatory expertise," he said.