Plan to split Blue Cross to get airing Legislature seeks answers on proposed for-profit company

Millions of dollars at stake

State insurance commissioner also to attend hearing

October 01, 1995|By JOHN FAIRHALL | JOHN FAIRHALL,SUN STAFF

Concerned about the state's handling of Blue Cross plans to create a for-profit business, Senate leaders have directed company officials and Maryland's insurance commissioner to appear at a hearing in Annapolis Tuesday tothe state is dealing with the plans, which Blue Cross and Blue Shield of Maryland expects to unveil this month.

Hundreds of millions of dollars are at stake as the company prepares to split the historically nonprofit company into new for-profit and nonprofit businesses and sell part ownership to investors.

Although many experts believe the public should receive the proceeds from this sale in exchange for decades of tax exemptions granted to Blue Cross, the people may not get a dime, according to positions taken by Insurance Commissioner Dwight K. Bartlett III and the company.

"This deal is not going to happen without the legislature taking an active role in the process," asserted Sen. Thomas L. Bromwell, a Baltimore County Democrat and the powerful chairman of the Senate Finance Committee. "It ain't going to happen without a bill [legislation]."

"I've got all the confidence in the world in Mr. Bartlett. But understand something, too: He is the regulator, we are the ones that legislate," Mr. Bromwell said. "I don't want to see a regulator setting policy and precedent for what this company is going to do."

For months, legislators and Gov. Parris N. Glendening have been content to let Mr. Bartlett and the company hold private discussions, with the hope that a plan could be developed that wouldn't require major legislation.

But now, responding to articles in The Sun raising questions about that process, Mr. Bromwell says the legislature will have the final say, not Mr. Bartlett. This change could pose a political problem for the speaker of the House of Delegates and the governor, who have supported Mr. Bartlett and not urged the larger legislative role now being staked out by the Senate.

A Blue Cross spokesman said yesterday that the company will send John A. Picciotto, senior vice president and general counsel, to the meeting in Annapolis. But it's not clear whether President and Chief Executive William L. Jews' schedule will permit him to attend, the spokesman said.

Consumer representatives yesterday praised Mr. Bromwell's actions, which are supported by Senate President Thomas V. Mike Miller Jr.

"I am pleased," said Albert P. Cohen of the Health Care for All Coalition, which comprises groups dedicated to improving health care for Marylanders. "When things are being done in light of day it's a lot more difficult for mischief to take place."

Mr. Bromwell said he decided to bring Blue Cross officials and Mr. Bartlett before his committee because of what he has "read )) in the news and [from] what I hear." He referred to news articles raising questions about the talks Blue Cross and Mr. Bartlett have had.

These talks began at the end of last winter with the blessing of Mr. Glendening and legislative leaders, all of whom agree that Blue Cross -- Maryland's most important insurer, with 1.3 million subscribers -- needs more capital and more ability to compete against aggressive, for-profit insurers.

While few disagree that the company needs help, a growing number of people say that the private nature of the talks is working against the best interest of the public, which has not been kept informed. Critics list several issues, among them:

* Mr. Bartlett appears to have made up his mind on the critical issue of who should benefit from a restructuring of Blue Cross, a company created in 1937 exclusively to serve the public.

The commissioner rejects the example set last month by regulators in California, where the Blue Cross company there was required to deposit $3.2 billion in two charitable health foundations as the price of selling off the nonprofit company to investors.

Mr. Bartlett asserts that subscribers should benefit, not the general public. But it's unclear from what is known about the company's plans whether subscribers would in fact receive the lower premiums Mr. Bartlett believes they could get after the restructuring.

* Mr. Bartlett, his staff and Blue Cross officials and consultants have met and spoken on the telephone numerous times about key restructuring issues. But the general public and other interested parties have been excluded from commenting on the evolving plans of Blue Cross.

The Sun, using the Maryland Public Information Act, has obtained documents from Mr. Bartlett's office revealing that these discussions have covered some of the most sensitive points: the structure of the new companies and the value of assets that would be handed over to the new for-profit business.

* Blue Cross has hired two Baltimore investment firms -- Legg Mason Wood Walker Inc. and Alex. Brown Inc. -- and Arthur Andersen & Co., a national consulting firm. Mr. Bartlett has relied on his own staff, although he said this past week that he will hire experts. Critics of the process say that he should defer decisions until he has experts.

"I would have thought from the beginning he would have hired experts to evaluate what restructuring is because that's the only way you know enough to make sure the public is protected," said Charles Culbertson, president of Health Care for All.

This question might arise when the Finance Committee meets Tuesday.

No one from the governor's office is expected to speak. Mr. Glendening has refused to comment on the issue until he is briefed by aides, a spokesman said.

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