Rejecting criticism from some consumers and doctors, Blue Cross and Blue Shield of Maryland President William L. Jews emphatically told the state insurance commissioner yesterday that a proposed for-profit subsidiary would benefit subscribers and the state.
"I would defy anyone to show in any way that our intentions are in any way contrary to that," Mr. Jews said at the close of a six-hour public hearing dominated by criticism and skepticism of the company's proposal.
Insurance Commissioner Dwight K. Bartlett III would not say when or how he might rule on the proposal to create the subsidiary as part of a company reorganization plan. Asking numerous questions about how the plan would affect subscribers and the public in general, Mr. Bartlett directed company officials to supply more details in writing.
Nonprofit Blue Cross proposes to create a new for-profit subsidiary that would sell stock to investors, a drastic change in direction for the company, which has 1.4 million subscribers and is the largest insurer in the state. Only four of the 68 Blue Cross plans nationwide have established investor-owned businesses, although others are considering doing so.
Led by Mr. Jews, officials of Blue Cross testified that the company needs fresh capital to compete against aggressive competitors that raise money by selling stock. They said added funds would underwrite expansion into neighboring states, help Blue Cross withstand price competition and put the company in a stronger position to negotiate mergers that Mr. Jews said might be desirable and necessary in the future.
The proposed for-profit company would acquire Blue Cross' five health maintenance organizations, leaving the nonprofit parent company with "indemnity" insurance business, the traditional policies that for decades have permitted subscribers to choose their own doctors and hospitals.
Company officials hope to sell $40 million in stock in April and more stock in the future.
"We need to grow regionally in order to serve more of Maryland and to increase our market share in this increasingly competitive marketplace," said Mr. Jews, making his first public comments on the reorganization plan. "We need to raise capital to compete, and that money will directly benefit the citizens of Maryland and the parent company. A sound Blue Cross and Blue Shield is ultimately beneficial to all of the subscribers of Maryland."
But company officials could not allay the suspicions of many of the people who spoke later. Several witnesses, representing physicians and consumers, urged the commissioner to "go slow" on the plan, to seek more information, hold more hearings and delay action.
Several members of a group called the Universal Health Care Action Network demonstrated outside the insurance commissioner's offices at 501 St. Paul Place in Baltimore. Richard Bruning, president of the group, which advocates creation of a Canadian-style insurance system in the United States, warned of a potential conflict of interest between the for-profit and nonprofit companies. He questioned how an executive team led by Mr. Jews, which would run both companies, "sort out their fiduciary responsibility to shareholders vs. their charter obligation to policyholders."
The president of the state medical society, Dr. Donald H. Dembo, said he fears the reorganization "will divert many assets, including large sums of money," from the nonprofit company, "to support the development and operation of multiple for-profit entities."
But Mr. Jews said repeatedly that the parent nonprofit company would remain in control of the for-profit company and continue Blue Cross' long-standing practice of offering insurance to all Marylanders, regardless of their health.
"We will continue to be the insurer of last resort, and accept all Marylanders as we have traditionally done," Mr. Jews said.