Blues outline merger plan to regulators Union seen letting Md., D.C. insurers compete nationally

Insurance

September 05, 1997|By M. William Salganik | M. William Salganik,SUN STAFF

The Maryland and District of Columbia Blue Cross plans need to combine operations because smaller local and regional health insurers "are too small to compete in the marketplace" against national managed-care companies, William L. Jews, chief executive officer of Blue Cross Blue Shield of Maryland, said yesterday.

"We are bass swimming in a sea of sharks," Jews testified at a Maryland Insurance Administration hearing yesterday. But by combining operations, he said, the two Blue Cross plans would grow larger and stronger while "maintaining local jobs and local access."

The Maryland plan and Blue Cross Blue Shield of the National Capital Area announced in January that they plan to operate under a new, as-yet-unnamed holding company. The affiliation would have to be approved by insurance regulators in Maryland and the District of Columbia.

Steven B. Larsen, Maryland's insurance commissioner, said he will hold another hearing in about two months -- after consultants have studied the deal -- to receive public comment. His D.C. counterpart, Patrick E. Kelly, also at yesterday's session, will conduct hearings of his own next week.

Yesterday's session consisted primarily of officials of the two plans putting on the record for regulators the things they have already announced. About three dozen people attended. Most were employees or consultants to the two companies.

Currently, the D.C. plan serves parts of Northern Virginia and Montgomery and Prince George's counties. The Maryland plan serves the rest of the state.

While the two would consolidate their sales forces, and a few employees would be assigned to the holding company, most of the 5,000 people working for the insurers would remain where they now are, officials said.

Under questioning from the regulators, Blue Cross officials said they are not sure what impact the consolidation would have on subscribers' premium rates. They also said they were not sure how the combined sales force would handle products developed by one of the plans but sold in the territory of the other. "Sitting up here, it's a little unclear how it would work," Larsen said.

John A. Picciotto, senior vice president and general counsel of the Maryland Blues, said the holding company would not itself be a health insurer, but would still be subject to review by insurance regulators. "The structure is clearly not intended to avoid any regulatory oversight," he said.

Because the two cannot currently compete with each other under the terms of their licenses from the national Blue Cross association, Picciotto said, "By definition, if they aren't competing today, their combining will not lessen competition."

Pub Date: 9/05/97

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