Hopes and fears fill in Blues deal

Sale: If the insurer goes from nonprofit to for-profit, what happens when obligations switch from people being served to shareholders?

February 03, 2002|By Michael Hill | Michael Hill,SUN STAFF

IT WAS SO SIMPLE in 1937 when Blue Cross started in Maryland: pay a monthly fee of 75 cents -- $2 for a family -- and receive the guarantee that, should you get sick, 21 days of hospitalization would be paid.

It was a win-win situation -- individuals were freed from the fear of backbreaking debt from an illness, and hospitals were assured the bills would be paid, a distinct uncertainty in the Depression.

Those modest beginnings gave rise to the much-maligned monster that is the health insurance industry, to payroll deductions and co-payments, to HMOs and PPOs, to HCFA and COBRA, to Medicare and managed care.

FOR THE RECORD - An article in Sunday's Perspective section gave the wrong date for a hearing on the proposed sale of CareFirst to be held at Chesapeake College in Wye Mills. It will be on Thursday. The Sun regrets the error.

Within that morass of profit-making companies and government-funded programs, Blue Cross and its partner Blue Shield remained somewhere in the middle as nonprofit entities that were given tax breaks in return for a bit of public service, participating in money-losing programs aimed at the uninsured and underinsured.

But 65 years later, many think that model has reached retirement age. CareFirst, the company that runs the Blue Cross Blue Shield plans of Maryland, Delaware and Washington, wants to follow a dozen of its fellow Blues and convert to for-profit status. It has arranged a sale to WellPoint, a California health insurance outfit that owes its existence to a similar for-profit conversion of that state's Blues plans.

The agreed-on price of $1.3 billion would go to the three-state partnership to pay for all the tax breaks and other support the Blues have received.

To Blues executives and others who support the conversion, it is again a win-win situation -- the region gets a healthy health insurance company and $1.3 billion to pay for a foundation that could help the uninsured more than Blue Cross Blue Shield can with tax breaks.

But opponents fear that the state would lose something special if Blue Cross Blue Shield ceases being a company whose obligation is to the community, not to its shareholders.

The process that will decide whether or not to allow this conversion should take at least a year, beginning this week with public sessions tomorrow at Harford Community College and Wednesday at Chesapeake College in Wye Mills.

The essential question is this: Is Blue Cross Blue Shield still that a special community institution, or is it just another insurance company?

The irony is that it is the executives at Blue Cross Blue Shield who are arguing that it is just another insurance company, even as they recognize that the Blues name is one of their most valuable assets because of its history as a community-oriented nonprofit.

Consider this quote from a CareFirst-funded report supporting the conversion by the Accenture research group. "In practice, nearly all Blue Cross Blue Shield plans today operate like for-profit health plans," it says. "As a result, most Blue Cross Blue Shield plans, including CareFirst, do not play a central role today as an instrument of government or local community health policy."

Many opponents of the conversion say that if the Blues are no longer special, they should be. Among the numerous bills introduced in the state legislature to block the sale, one by House Speaker Casper R. Taylor Jr. specifically says that the Blues should return to the "mission" of providing the state's residents affordable health care regardless of their medical risk.

But William Jews, Blue Cross Blue Shield's chief executive officer, offers a different view from the corporate headquarters that take up several buildings in an Owings Mills office complex.

Jews, who is credited with taking over a troubled system a decade ago and turning it into a healthy, thriving enterprise, says the Blues' traditional role of "insurer of last resort" went by the wayside when the federal government passed Medicare and Medicaid programs to take care of the elderly and poor.

Since then, he says, the Blues have been like any other insurance company though with certain public obligations that have been more than met.

As he tells the story, even with the merger of Maryland, Delaware and District of Columbia plans to form CareFirst, the local Blues are small fish swimming in waters filled with huge health insurance sharks ready to gobble up most of the desirable customers in Maryland. The WellPoint sale would give CareFirst access to capital markets and an economy of scale that would allow it to compete.

Now is the time to act, Jews says, while the company is healthy, able to negotiate a good price and concessions from WellPoint that ensure continued local management -- and employment -- in Maryland.

"If we don't do this now, who knows what we will be worth down the road," he says.

Still, some see the proposed conversion as another example of a local company taken over by a faceless national corporation.

"This outfit has headquarters three time zones away," says Hal Wallach who heads the Coalition for Health Care Accountability. "If WellPoint gets control, it can take Maryland premium dollars and spend them on out-of-state ventures."

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