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Consumer Groups call on Idaho officials to protect public’s investment in Blue Cross

September 6, 2000
West Coast Office

Millions of Healthcare Dollars Potentially At Stake

Two national consumer groups warned today that Idaho could be at risk of losing millions of healthcare dollars if Insurance Commissioner Mary Hartung and Attorney General Alan Lance don’t take action to protect the public’s investment in the state’s Blue Cross and Blue Shield plan.
In a letter sent to Hartung and Lance today, Consumers Union and Community Catalyst urged the state officials to carefully scrutinize the proposed plan by Regence Blue Cross Blue Shield of Idaho to establish a formal affiliation with Blue Cross plans in Illinois and Texas. The groups warned that similar transactions in other states have made it difficult for regulators to protect the charitable assets of nonprofit Blue Cross insurers when the health plans later converted to for-profit corporations. These assets are built up in the nonprofit as a result of its tax exempt status, and are supposed to remain dedicated to serving the public if the nonprofit converts to a for-profit company.
“Unless the state takes precautions, this transaction could move millions of dollars of charitable assets from Idaho out of the state,” said Scott Benbow, Health Policy Analyst with Consumers Union’s West Coast Regional Office . “State officials should work diligently to make sure these valuable assets continue to serve the healthcare needs of Idaho.”
Under this proposal, the Regence Blue Cross plans in Idaho, Oregon, Utah, and Washington would affiliate with Blue Cross plans in Illinois and Texas. BCBS Illinois/Texas is a division of Chicago-based Healthcare Service Corporation (HCSC), which is a mutual insurance corporation. Under Illinois law, a mutual insurance corporation can convert to a for-profit corporation at any time by a simple vote of its board of directors. If HCSC were to convert after capturing charitable assets built in Idaho and the other states, those assets could be forever lost to the benefit of mutual policyholders in Illinois.
The danger of such an outcome is very real. Nevada regulators lost control over such assets three years ago. In 1997, a merger was approved between the nonprofit Nevada BCBS plan and the mutual Colorado BCBS. Two weeks later, the Colorado mutual corporation submitted a proposal to convert to a for-profit entity. Normally, 100 percent of the assets of a nonprofit corporation must remain dedicated to the nonprofit’s historic mission when it becomes a for-profit. Usually these funds are turned over to a new healthcare foundation.
But Nevada regulators had little power to protect the assets that had been built up in their state once they had been captured by the Colorado mutual corporation. At the Colorado conversion proceedings, the Nevada Attorney General was not given party status to defend the rights of the Idaho BCBS, page two people of her state. While the merger and eventual sale resulted in a set-aside of $1.5 million for a healthcare foundation in Nevada, it resulted in a set-aside of $155 million for a foundation in Colorado.
“Regulators that have actively monitored these transactions in other states have been able to preserve billions of dollars for community healthcare needs,” said Renee Markus Hodin, Staff Attorney with Community Catalyst in Boston. “But without strong regulatory oversight, these public funds could end up in the private hands of corporate insiders and investors.”
The proposed affiliation has raised additional concerns because of HCSC’s recent history of Medicare fraud. In 1998, HCSC pleaded guilty to eight felony counts of Medicare fraud and agreed to pay $144 million in criminal and civil penalties, the largest such fine ever assessed against a Medicare claims processor.
In their letter to the Insurance Commissioner and Attorney General, Consumers Union and Community Catalyst called on the state to take a number of steps to prevent the potential loss of Idaho’s charitable assets, including:

  • Provide full public access to all of the documents related to Regence BCBS of Washington’s proposed affiliation
    Hold public hearings and allow the public to intervene as parties

  • Require independent professional oversight of the entire transaction, including a valuation of Regence BCBS of Washington’s charitable assets
  • Require that the remaining nonprofit or any new entity created by the affiliation articulate a clear mission statement and a plan reflecting its charitable obligations
  • Require Regence BCBS Washington to hire a healthcare analyst to monitor its charitable activities to ensure that Washington’s community benefits are maintained or expanded
  • Protect the rights of current and future policyholders of Regence BCBS of Washington in the event that the affiliation leads to a conversion to for-profit status
  • Protect the right of Regence BCBS of Washington to vote in the national BCBS Association
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    Since 1996, the Community Health Assets Project, a collaborative effort between Consumers Union and Community Catalyst, has provided technical assistance, and legal and public policy analysis to insurance commissioners, attorneys general, courts, legislatures, and community groups in more than 35 states.
    Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information organization, serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.