Welcome to Consumer Reports Advocacy

For 85 years CR has worked for laws and policies that put consumers first. Learn more about CR’s work with policymakers, companies, and consumers to help build a fair and just marketplace at TrustCR.org

Groups Blast NY Insurance Department’s Approval Of Empire Blue Cross Plan To Become For-Profit

Wednesday, October 8, 2002


Consumer advocates today decried a decision by the New York State Insurance Department to approve Empire Blue Cross Blue Shield’s application to become a for-profit company. The decision, which was announced on Tuesday, could be the final regulatory approval that Empire needs in order to convert to for-profit operation after 64 years of nonprofit status.
In January of this year, Governor George Pataki pushed a proposal through the New York Legislature to seize 95 percent of Empire BCBS’s assets, generated from the sale of the nonprofit insurer for a state fund, using most of the money to subsidize private hospitals’ labor contracts. The proposal was negotiated in secret, and was passed by the legislature in the middle of the night without a single public hearing. The legislation directs the New York State Department of Insurance to review Empire’s conversion plan to ensure that it is fair and equitable to policyholders, and does not negatively impact healthcare benefits and services.
“We’re terribly disappointed that the New York State Insurance Department has approved Empire’s plan, because it clearly is not in the public interest,” said Charles Bell, Programs Director for Consumers Union. “The State of New York is attempting to seize $1 billion or more of Empire’s charitable assets to plug holes in the state budget, rather than making sure that Empire’s funds are protected in a nonprofit foundation dedicated to expanding access to health coverage.”
In August, Consumers Union, Disabled in Action, Housing Works, the New York Chapter of the National Multiple Sclerosis Society, the New York StateWide Senior Action Council, and several individual policyholders filed suit against New York State and Empire Blue Cross to block the conversion, on the grounds that the state legislation that authorizes it is unconstitutional. The suit is still pending.
“The net effect of this decision is to ratify the gravely flawed legislation passed by New York State Legislature in January, instead of protecting Empire’s charitable assets so they will continue to serve the nonprofit insurer’s original goal of expanding access to healthcare,” said Mark Scherzer, attorney for Consumers Union and the other plaintiffs.
“There is a small victory here, in that the Superintendent of Insurance has extended some limited additional protections against rate increases for certain policyholder groups,” Scherzer said. “In doing so, he is implicitly recognizing that consumers would be harmed by Empire’s plan. But the rate increase protections are only temporary, and there is no clear rationale stated for why some groups would be protected, and others would not.”
“The Insurance Department’s decision also does nothing to guarantee that the full value of Empire’s stock will be protected for the public ‘s benefit,” Scherzer said. “The decision does not specify how shareholder voting rights will be protected to maximize investment value for the public. This is a major omission, given that hundreds of millions of dollars may be at risk.”
“We believe that regulators should negotiate strong agreements on behalf of the shareholders that would receive Empire’s charitable assets, and perform an independent financial valuation, to ensure the public gets the full fair market value of the company if the conversion goes forward,” Scherzer said.
More information about the healthcare conversions can be found at Consumers Union’s web site
under “Healthcare: Conversions of Nonprofit Healthcare into For-Profit Corporations.

Charles Bell, Consumers Union
(914) 378-2000
Mark Scherzer, Attorney for Plaintiffs
(212) 406-9606
The Community Health Assets Project (CHAP) is a national effort that seeks to preserve community health assets at risk in health sector restructuring, with a particular focus on the conversion of nonprofit healthcare institutions to for-profit status. CHAP is a joint effort of Community Catalyst and Consumers Union. Since 1996, the project has provided technical assistance to community groups, philanthropic leaders, regulators, and legislators in 35 states and has helped to preserve billions of dollars in community health assets including at least 130 healthcare foundations.
Community Catalyst is a Boston-based national advocacy organization that builds consumer and community participation in the shaping of our health system to ensure quality affordable healthcare for all. Consumers Union is the nonprofit publisher of Consumer Reports magazine that was founded in 1936 to test products, inform the public, and protect consumers.