July 18, 2000
Blue Cross Should Turn Over Assets to Independent Foundation For New Mexico If Merger Gets OK
Consumers Union called on New Mexico officials today to protect the taxpayer’s investment in Blue Cross Blue Shield (BCBS) of New Mexico if the nonprofit insurer wins approval to merge with Blue Cross Blue Shield (BCBS) of Illinois, a mutual insurer company. The group has urged the New Mexico Insurance Superintendent and Attorney General to hold public hearings on the proposed merger to ensure that all of Blue Cross’ charitable assets are turned over to a foundation dedicated to serving the state’s unmet healthcare needs.
“For years, New Mexico residents have supported Blue Cross with tax breaks and other special treatment,” said Laurie Sobel, staff attorney at Consumers Union. “If New Mexico officials approve this merger, they must make sure that the public gets a fair return on its investment. ”
Under state law, if BCBS of New Mexico is purchased by an entity that is not a nonprofit, then it must turn over its charitable assets to an independent foundation dedicated to fulfilling its original mission. Since BCBS of Illinois is not a nonprofit, the full fair market value of BCBS of New Mexico must go to a foundation that will support state efforts to provide healthcare to those most in need.
Other states have lost charitable assets when their nonprofit health insurer merged with an out of state nonprofit or mutual health insurer. Blue Cross Blue Shield (BCBS) of Nevada, for example, merged with Blue Cross Blue Shield (BCBS) of Colorado in December 1996. The regulators in Nevada approved the merger without conducting a valuation of the charitable assets built up in Nevada. A few months later, BCBS of Colorado announced that it was converting to a for-profit company. In November 1999, the Insurance Commissioner of Colorado approved the sale of BCBS of Colorado to Anthem Insurance Companies, Inc. While $155 million from the sale was set aside in a foundation to benefit Colorado citizens, only $1.5 million went to a Nevada foundation.
To prevent a similar outcome in New Mexico, Consumers Union called on the Insurance Superintendent and Attorney General to provide full public access to documents related to the proposed merger, hold public hearings to gather community input on the proposal, and require an independent professional valuation of Blue Cross’ assets, which includes the value of the service mark and the market share. And Consumers Union is urging state officials to ensure that the new foundation created as a result of the merger is independent of the two companies and empowered to help fund New Mexico’s pressing public health needs.
“New Mexico officials should work diligently to make sure that these valuable assets don’t leave the state as a result of this merger,” said Sobel. “These assets belong to the people OF New Mexico and could go to help fund important public programs like local community health clinics, child immunizations, or prenatal care for low income mothers.
“Because these charitable assets belong to all New Mexicans, the Attorney General should hold public hearings around the state to identify the state’s most pressing public health needs and determine how best to establish an independent foundation to meet these needs,” said Sobel.
BCBS of New Mexico’s recommendation that the money be given to the University of New Mexico is not consistent with BCBS of New Mexico’s historical mission. The law requires that the full fair market value of BCBS of New Mexico be dedicated to continue its original nonprofit mission.
Proceeds from transactions similar to the one proposed in New Mexico have been used to create 122 new health foundations in 35 states across the country. The sum of money at stake in these transactions is enormous. By the end of 1999, the amount of nonprofit assets set aside in new conversion foundations had reached more than $15 billion. The Community Health Assets Project, a partnership between Consumers Union and Community Catalyst, works to help community groups, state regulators, and the public understand how to protect these essential health resources.
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.
Laurie Sobel – 415-431-6747
West Coast Office