Jul. 7, 2003
Blue Politics
By J. Barlow Herget
RALEIGH - Except in basketball, barbecue and beach flying, North Carolina isn’t famous for trend setting. It certainly has been late to take up converting its nonprofit Blue Cross Blue Shield health insurance plan to a for-profit corporation. And that may be a good thing.
There are sound reasons to be skeptical of such a conversion, judging from the track record elsewhere. The trend started in California, which alone is cause to raise an eyebrow.
The conversion train gathered momentum in the 1990s, not exactly a high moment for American corporate ethical standards or civic minded motives. North Carolina’s own conversion law was adopted in 1998.
The delay here, moreover, has given citizens time to ask questions and examine the record of conversions in other states. That record shows that the biggest beneficiaries in BCBS conversions appear not to be insurance customers but lawyers because lawsuits have accompanied the trend like chiggers on blackberry bushes.
BCBS of North Carolina insures 2.8 million citizens and employs 3,300 people. It also manages state employees’ own giant self-insured health plan. So, BCBS’ conversion -- if approved -- likely will affect someone you know.
The conversion law sets out the procedure for the state to follow, and it is an improvement over recent plans in other states. Consider:
Maryland’s conversion secretly lined the pockets of its BCBS executives with millions of dollars and blew up in scandal.
One of New York’s BCBS conversions became a cynical political scheme between Gov. George Pataki and health care union leaders. The governor used conversion money to balance his budget and give health care workers a raise.
There also have been accusations that the converted BCBS companies have paid too little to the public for the exchange from nonprofit to for-profit status. The idea is that the new, for-profit company should reimburse the public for taxes not paid over the years that the company was growing and earning value.
Typically, these payments have gone to establish nonprofit, health care foundations that serve the public. But the payments almost always have been low by market value of the new for-profit corporations. Virginia, for example, sold its BCBS nonprofit birthright for about $174 million when the for-profit company later sold for over a billion dollars.
North Carolina’s law has safeguards to protect against such shenanigans. Current BCBS executives should not get any sweetheart bonuses or payments for the conversion.
More importantly, a nonprofit health care foundation will be established by any conversion to a for-profit corporation. The foundation will own 100 percent of the stock in the new company.
Also, the state Attorney General will select an 11-member board for the foundation from a list of 22 candidates that cannot include any political or BCBS appointees.
As shares are purchased by private investors, the foundation will receive fair market value and will thus build its endowment. Current estimates have North Carolina BCBS worth between $1 billion and $2 billion.
The final decision on whether the conversion should proceed will be made by an elected official, state Insurance Commissioner Jim Long. He is in the process of making that decision and, wisely, has held public hearings. He also ordered three detailed studies, paid for by BCBS, to answer questions about the conversion’s impact on rates, access and executive pay.
The two studies that have been released by Long’s office find no clear benefits for BCBS customers or the state’s health care systems. BCBS executives essentially say, “Trust us.” That’s not a persuasive argument in the aftermath of Enron and WorldCom.
There is also the small matter of campaign contributions. What, you are not surprised?
Commissioner Long campaigns for office and he needs campaign money. Like other Council of State candidates, he holds what journalists call a “low profile” office. That means the media rarely publicize Insurance Commissioner activities, and candidates for such offices have trouble raising campaign money.
Thus, campaign contributors tend to be people directly affected by the rules, regulations and actions of the respective Council of State offices. Long, for example, receives money from the insurance industry. BCBS’ PAC contributed $250 to Long in the 2000 election, and BCBS executives contributed another $3,960. (The company’s PAC gave a total of $212,000 to state candidates in the 2000 and 2002 election cycle. That is not peanuts.)
Given Long’s record of fighting insurance rate increases and his thorough examination of the conversion’s impact, BCBS’ contributions appear to be more a part of doing business than buying favors.
Such disclosure, however, is part of the conversion process as much as the details about the differences between nonprofit and for-profit health care plans.
Barlow Herget is a BCBS cardholder and former member of the Raleigh City Council.
743 W. Johnson St.
Suite E
Raleigh, NC 27603
919.839.1200