Kan. rejects Blues' bid to convert, sell company

Deal is similar to that proposed by insurer in Maryland

February 12, 2002|By M. William Salganik | M. William Salganik,SUN STAFF

In a case closely watched in Maryland, the insurance commissioner of Kansas rejected an application by Blue Cross and Blue Shield of Kansas yesterday to convert to a stock company and sell itself to Anthem Inc.

The deal is similar to that proposed by Maryland's largest insurer, CareFirst Blue- Cross BlueShield, which wants to sell itself to Well- Point Health Networks Inc. for $1.3 billion. CareFirst's application will be reviewed by insurance regulators in a process expected to take a year or more.

Steven B. Larsen, Maryland's insurance commissioner, said the Kansas ruling was significant because "this is the first time an insurance commission has turned down a conversion application."

The Kansas insurance commissioner, Kathleen Sebelius, said yesterday in a prepared statement, "I am denying this takeover because it would have cost Kansas businesses, small employers and families millions of dollars in additional health insurance premiums."

In a 53-page ruling, Sebelius also said the Kansas Blues would be "weaker financially" if the deal moved ahead, because it calls for paying $131 million of the insurer's surplus to subscribers. As a mutual plan, Kansas Blue Cross is owned by its members, who would receive part of the proceeds if it were sold.

The Kansas case attracted attention in Maryland this month when a critic of the CareFirst deal, Del. Michael E. Busch, chairman of the House Economic Matters Committee, distributed copies of a consultants' report from Kansas to Maryland legislators. That report focused on premium increases it said would result as the would-be acquirer, Anthem Inc. of Indiana, tried to improve the profit margin of the Kansas Blues.

However, a CareFirst spokesman, James P. Day, said, "There are too many differences in the two situations to compare" the Kansas and Maryland deals. Day said that while the Kansas Blues are a mutual company, CareFirst is a nonprofit that is, in effect, owned by the public. That means the purchase price for the CareFirst, $1.3 billion, would be given to a foundation for health or a similar public purpose.

Dawn Touzin, a staff member with Community Catalyst, a Boston-based advocacy group, said: "I think pointing to the possibility of a conversion foundation is a distraction. In Kansas, they said, `First go to Question One: Should there be a conversion in the first place?'" Touzin appeared as a witness in Kansas hearings opposing the deal. Her organization is working with consumer groups in Maryland.

Busch said yesterday of the Kansas-Maryland comparison, "There are some differences, no doubt about it, but there are some basic issues that are exactly the same."

Among those issues, he said, was whether the state wanted to see a "locally based company" that had been its "health care partner" pass to out-of-state control. WellPoint is based in Thousand Oaks, Calif.

Larsen said, "To the extent that a similar rationale was offered" in Kansas, he would be interested in reading the analysis by his Kansas counterpart.

"As a general matter," Larsen said, "we're going to be looking at what has happened in all the other states, including Kansas." About a dozen states have Blue Cross plans that have converted to for-profit operation.

Bob Hanson, public affairs coordinator for the Kansas Blues, said the company had not decided whether to appeal the decision. "Everything at this point is at an evaluative stage," he said.

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