Blue Cross neighbors file to merge Maryland and D.C. operations seek regulatory approval

April 01, 1997|By Mark Guidera | Mark Guidera,SUN STAFF

Blue Cross Blue Shield of Maryland and its District of Columbia counterpart formally filed yesterday for regulatory approval to combine operations and market health insurance plans regionally in Maryland, the district and Northern Virginia.

The filing sets in motion a promised in-depth review of the proposal by the Maryland Insurance Commission, the District of Columbia Insurance Administration and, eventually, consumer groups and the public.

Under the merger agreement, Blue Cross Blue Shield of the National Capital Area, based in the District of Columbia, and Blue Cross Blue Shield of Maryland, based in Owings Mills, would operate under a not-for-profit holding company. That entity has not yet been named.

The agreement calls for the holding company to have headquarters in Owings Mills. However, the present offices of the two Blues would continue to operate.

Also, staffing levels at each subsidiary are not expected to be affected by the merger, said Jeff Valentine, director for public relations at Blue Cross Blue Shield of Maryland. At a later date, he said, some of the combined company's 5,000 employees may be moved to different offices.

In a prepared statement, William L. Jews, chief executive officer of Maryland Blue Cross, said, "Our strategy is to implement this joint initiative in a manner that allows us to integrate in a first-class way, building on the strengths of each other."

Maryland Insurance Commissioner Dwight K. Bartlett III said yesterday that he has not seen the papers filed by the two Blues, but he wants an in-depth review of the proposal, first announced in January.

His office and the District of Columbia Insurance Administration must approve the merger. Approval by Maryland's General Assembly is not required.

Bartlett said he has conferred with the District of Columbia's insurance commissioner, Patrick Kelly, about the merger. The two agree, Bartlett said, that a financial consultant should be hired to review the proposal and prepare a report for the agencies before regulatory action is taken.

Bartlett, who is stepping down from the commissioner's post May 1, also expects that at least one public hearing in Baltimore and one public hearing in the district will be held after the consultant's report has been prepared. The dates and locations of those hearings have not yet been set.

Bartlett estimated that a decision by regulators on the proposal would not come until the end of this summer.

"These kinds of restructurings are going on all around the country," he said.

"There has been quite a bit of interest in this proposal, and we want to have time to review it carefully and give the public time to consider it and comment," Bartlett explained.

Industry experts say the merger proposal is driven, in part, by the changing nature of the health insurance business, which historically has been dominated by traditional indemnity plans, such as those Blue Cross Blue Shield outfits offer.

But the health care industry is fast shifting toward managed care, where the aim is to control costs and gain marketing clout by geographical reach and new products.

Blue Cross Blue Shield of Maryland and its district counterpart expect considerable cost savings to accrue by merging their operations and jointly marketing health insurance products.

Valentine said the two operations do not have a firm estimate of the potential cost savings, but the largest savings is expected to be seen from merging information networks.

That move alone, Valentine said, could save between $15 million and $20 million.

The insurers also expect the merger to result in the two subsidiaries offering an expanded range of options for their 2 million members and improved customer service.

Pub Date: 4/01/97

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