Blue Cross restructuring is stalled Plan to make parts of firm for-profit is on hold for a year

CEO Jews cites troubles

Insurer now will seek regulatory relief

November 16, 1995|By John Fairhall | John Fairhall,SUN STAFF

Acknowledging serious obstacles to his controversial corporate restructuring plan, the president of Blue Cross and Blue Shield of Maryland said yesterday it most likely will be delayed a year.

But the company will ask the General Assembly in January for relief from some insurance regulations and pursue in a piecemeal fashion other restructuring goals intended to make the company stronger, said William L. Jews, president and chief executive officer.

He also said the company is exploring "partnerships, alliances, relationships" with other companies. Although no deals appear imminent, "We're having discussions with a number of people," he said, declining to elaborate.

Underscoring his view that the company needs help, Blue Cross reported yesterday that it earned just $7.7 million in the third quarter of 1995, less than half the company's profits for the same period last year.

Mr. Jews, in a wide-ranging interview at his Owings Mills headquarters, emphasized that he remains committed to the restructuring plan. It would carve nonprofit Blue Cross into new nonprofit and for-profit businesses, enabling the company to raise investment capital through the sale of stock and other means.

He added that the goals of restructuring remain the same: access to capital, expansion into new markets and "fair and equitable regulation."

But he said the company can't move forward quickly on its overall restructuring plan. Market conditions for selling stock are poor, he said, Blue Cross must wait for a state consultant to analyze the plan, and the plan faces political obstacles.

Mr. Jews said articles in The Sun -- raising questions about the plan's impact on the public -- have made it difficult to act. The Legislature and the state insurance commissioner must approve the plan before the company can enact it.

As a result, he said, it's "unlikely" that the company will present its plan to the General Assembly in time for action during the three-month session that begins in January. The company will have to wait until the General Assembly meets again in January 1997.

Blue Cross must take other steps in the meantime. "Time is of the essence," Mr. Jews said.

"As we delay this process it hurts Blue Cross competitively," he said. Competitors "see us as wounded."

Blue Cross took what it called a "big step" Friday, announcing it is requesting approval to sell insurance in the Washington area, the domain of another Blue Cross plan, Blue Cross and Blue Shield of the National Capital Area.

Maryland Blue Cross will investigate expansion into neighboring states, but Mr. Jews said that the company needs more capital to effectively compete in new areas. With the restructuring plan in limbo, it's unclear where Blue Cross will obtain funds.

Blue Cross also will push for legislation putting it on a more equal regulatory footing with for-profit insurers.

As a nonprofit, tax-exempt business, the company is subject to more regulation than its competitors.

Citing an example of what he believes is an unfair regulation, Mr. Jews said the state requires only his company to obtain approval for changes in the rates it pays hospitals and doctors. Although the commissioner approved the company's last request for a change, the process took months, costing Blue Cross $5 million, said.

That hurt Blue Cross' financial performance in July, August and September, according to Mr. Jews. The company also blamed declining profits on investments in new technology, the cost of "aggressive" advertising and promotions and an inability to restructure.

The insurance commissioner rejected a similar restructuring plan last January.

If not for that, the company would be better off today, Mr. Jews said yesterday.

Blue Cross' five HMOs reported third-quarter profits of $4.9 million on revenue of $127 million. The company's traditional "indemnity" business earned $2.8 million on revenue of $334 million.

Total revenue for the period fell slightly from $463 million to $458 million. Profits for the first nine months were $35 million, $12 million less than for the same period last year.

Subscribers totaled 1.34 million, including 321,000 in health maintenance organizations and 1,018,000 indemnity policyholders.

In a bit of good news, the company reported that its surplus stood at $189 million, $42 million more than at the end of the third quarter in 1994.

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