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Consumer groups denounce approval of Wisconsin Blue Cross conversion plan


Tuesday, March 28, 2000
Consumers Union, 415-431-6747
Bobby Peterson, ABC for Health – 608-264-6950
Jeff Spitzer-Resnick, WI Coalition for Advocacy: 608-267-0214
Plan Fails to Distribute Charitable Assets Fairly and Sets Bad Precedent for Future Nonprofit Conversion Transactions

Madison, WI – Consumer advocates denounced Insurance Commissioner Connie O’Connell’s decision today to approve the plan by nonprofit Blue Cross Blue Shield United of Wisconsin (BCBSUW) to convert to a for-profit company. In her decision, O’Connell maintained that BCBSUW has no charitable trust obligation, but approved a plan that will turn over the proceeds from the conversion to a foundation established to give the funds exclusively to the Medical College of Wisconsin and the University of Wisconsin Medical School. The consumer groups opposed the plan because it fails to distribute all of the insurer’s assets for public health initiatives in Wisconsin and sets a terrible precedent for future nonprofit conversion transactions.
“We are disappointed that Commissioner O’Connell has approved this Blue Cross double cross,” said Attorney Bobby Peterson, Director of ABC for Health. “This plan might sound like a good deal for the medical schools, but it’s not in the best interests of Wisconsin’s most vulnerable citizens.”
“This decision ignores established law governing healthcare conversions and sets a terrible precedent that could undermine future efforts to preserve assets from nonprofits that abandon their charitable missions,” said Jeff Spitzer-Resnick, Managing Attorney for the Wisconsin Coalition for Advocacy. “We will continue to press for a more equitable resolution to this issue, including challenging this decision in court if necessary.”
The new foundation established by the conversion will be controlled by a board of directors selected by the Insurance Commissioner. However, the board will function as a simple transfer mechanism for exchanging stock and conveying the proceeds to the schools. While each of the two medical schools will be required to establish a Public and Community Health Oversight and Advisory Committee (PCHOAC), it appears that the oversight of these two PCHOACs will be limited to the public health portion of the fund. The plan stands in stark contrast to how similar transactions have been resolved in other states, where charitable nonprofits that convert to for-profit companies have been required by law to turn over 100 percent of the assets received to independent foundations dedicated to their historical mission.
BCBSUW was established in 1939 to provide affordable healthcare coverage to Wisconsin’s citizens. Consumer groups had urged Commissioner O’Connell to make sure that BCBSUW’s charitable assets were turned over to an independent, publicly accountable foundation empowered to determine the best use of the funds in keeping with the nonprofit insurer’s historical mission. In her decision, O’Connell endorses the idea that the funds should go to support public health initiatives, but only requires the schools in collaboration with community organizations to devote 35 percent of the funds for such purposes.
“While the work of the medical schools is clearly laudable, these institutions have a very different mission from Blue Cross’ historical role as the insurer of last resort,” said Ellen Rabenhorst, Chair of the State Legislative Committee of Wisconsin AARP. “These charitable assets should go to a truly independent foundation set up to fund pressing public health needs, not to a foundation with no decisionmaking power.”
There is ample evidence in Wisconsin statutes and the national Blue Cross and Blue Shield membership rules to prove that BCBSUW is a charitable trust that was established to provide affordable healthcare coverage to Wisconsin’s citizens. Despite this record, BCBSUW denies that it is a charitable trust and insists that it is giving the proceeds from the conversion to the medical schools simply because it is a good corporate citizen, not because it has any obligations to turn over its assets. However, every time this issue has been litigated in other states, the final court decision has found that BCBS has charitable trust obligations.
In her written decision approving the conversion plan, Commissioner O’Connell offers a very confusing and contradictory analysis of this issue. On the one hand, she maintains that, under statutes unique to Wisconsin, BCBSUW has no charitable trust obligations, but then she indicates that the funds are “best viewed as public capital charged with a particular purpose.”
“In the more than fifteen years that Consumers Union has monitored healthcare conversion plans across the country, this is one of the most troubling outcomes we have witnessed,” said Harry Snyder, Community Health Assets Project (CHAP) Director at Consumers Union. “We are concerned that this decision will give the green light to other nonprofits like Blue Cross to claim that they have no charitable obligations when they convert to for-profit companies. This decision contradicts every other Blue Cross conversion where 100 percent of the assets received were devoted to public health needs because the assets were nonprofit charitable funds.”