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Blue Cross abandons efforts to secure for-profit bill in '95


Blue Cross and Blue Shield of Maryland still wants to turn for-profit and sell stock to the public, but yesterday the company and lawmakers threw in the towel for this year.

Legislative leaders and Blue Cross executives announced that with less than two weeks left in this session of the General Assembly, it's too late to consider the complicated plan that Maryland's largest health insurer said it needs to compete better in the future.

"We felt at the end of the session it was too much for the legislature to take up with a thorough discussion," said Del. Michael E. Busch, an Anne Arundel Democrat who chairs the House Economic Matters Committee. "We do want to visit this issue in depth during the interim," he said during a news conference to announce there would be no legislation this year.

Even if a bill could have been passed, the appearance of a rush job engineered to favor Blue Cross was a problem, according to Sen. Thomas L. Bromwell of Baltimore County, the chairman of the Senate Finance Committee. "We are also concerned about the perception," he said. "And the perception is that here we are in the 11th hour, coming in with a bill to make this a for-profit company."

Blue Cross said it will still do what it can to improve its competitiveness. It will ask the state for permission to set up a subsidiary that may do business outside Maryland, a right that's been forbidden to the parent company. It also will ask the insurance commissioner to consider lifting some of the regulations that the company says cost it tens of millions of dollars more each year than its private competitors.

After cutting $40 million in administrative expenses last year, Blue Cross expects a reduction in physicians' fees to save it an additional $13.5 million this year, unless those reductions are delayed.

But with the failure of the for-profit conversion plan, the company's president and chief executive officer, William L. Jews, said it was too soon to predict whether operating profits will be higher in 1995 than last year's $17.1 million.

"Blue Cross is currently financially strong and viable," Mr. Jews said. "My concern is that if we don't effect these remedies . . . over the long haul we're not going to be able to effectively compete."

Under the legislative plan, a version of which Blue Cross first presented to the insurance commissioner in October, the nonprofit insurer would have set up a for-profit subsidiary. The subsidiary would have held the company's health maintenance organizations, a new traditional indemnity insurer that could seek business out of state and a new marketing company.

The parent company would have sold 35 percent of the subsidiary's stock to the public and kept the rest. Those moves, Blue Cross has said, would allow it to expand its market share and raise as much as $50 million in capital that could be used to improve its operations.

Insurance Commissioner Dwight K. Bartlett III said he will consider appeals to ease some of Blue Cross' regulatory burden, "a good deal [of which] is unnecessary. But I do think that Blue Cross and Blue Shield, in whatever corporate form, will continue to fill a special role" as the state's health insurer of last resort and therefore will need more oversight than others, he said.

But several months of negotiations between the company and Mr. Bartlett had not resolved some major differences.

The commissioner was concerned that the proposed corporate structure -- a new type of company called a "non-stock health insurance corporation" -- would not have protected the interests of Blue Cross' 1.4 million subscribers. But Mr. Bartlett sounded a conciliatory note for next year.

"I think there are other ways in the non-stock, for-profit form . . . to appropriately compensate the plan subscribers for what they will be giving up," Mr. Bartlett said.

He endorsed changing Blue Cross to a mutual insurance company owned by the subscribers, who would benefit from lower rates if the for-profit subsidiary generated enough income.

Under the company's alternative, some of those profits could be used for rate reductions, but some would go into a charitable foundation devoted to health care.

"We think there's a way to balance the agenda between public policy and protecting the subscribers," Mr. Jews said. Now he has until next year to find that balance.

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