Blue Cross reorganizations in N.C., N.J. prompt fears on premiums, service

North Carolina is closer to allowing its Blue Cross to change its structure to be more like its not-for-profit competitors, while New Jersey activists are fighting that state’s Blue Cross reorganization to a mutual not-for-profit holding company.

On Monday, North Carolina Insurance Commissioner Mike Causey warned against pending legislation that he said would allow Blue Cross to change its structure to have freer access to its billions of dollars in reserves. The change would allow the company to put more of its surplus in riskier investments. Causey, a Republican with 25 years of insurance industry experience, said the change would also allow the company to avoid regulation by the Department of Insurance, and would likely raise premiums.

Blue Cross NC’s “$7.7 billion in admitted assets and $4.6 billion surplus is, either directly or indirectly, North Carolina policyholder money,” Causey said in a news conference. “The investment of policyholder money should be for the benefit of North Carolina policyholders and citizens.”

Although the bill had 56 sponsors in the state House and 36 in the Senate, some legislators in both parties are speaking out against the move. Rep. Donny Lambeth, a Republican who co-chairs the House Health Committee, and a retired hospital president, said he told the carrier it was pushing boundaries, according to an article published by The Assembly.

“ ‘Look, guys, you’re big. You’ve done a lot of good things in North Carolina, but people are concerned with your size and what you’re up to,’ ” Lambeth said he told the company’s lobbyists. “You’ve got to be able to answer what is it that you’re up to. Because people don’t trust Blue Cross. I’m just laying it out flat.”

Activists sue in New Jersey

Meanwhile in New Jersey, a hearing is set for Monday on a lawsuit against that state’s approval of a similar move by Horizon Blue Cross, the state’s largest health insurer. The carrier said Blue Cross companies in 18 other states have a similar not-for-profit mutual structure.

A coalition filed suit to reverse the New Jersey insurance commissioner’s approval of Horizon’s plan, saying the state did not use proper due diligence to protect the company’s charitable assets and policyholders when it made the decision.

Maura Collinsgru, director of policy and advocacy for New Jersey Citizen Action, one of the plaintiffs, said the insurance department should have vetted Horizons’ claim that it would not raise rates as a result of the restructuring.

“We’re filing this suit to protect the insurer, to ensure the entity’s charitable assets are properly used and protected, and to protect millions of New Jersey health care policyholders,” Collinsgru said.

The carrier said the change will allow the company to invest more in technology and programs that it said would lead to better, more affordable care.

The company agreed to 11 conditions for the approval after a health impact study showed that the entity would continue with its charitable mission and provide comprehensive insurance plans statewide, according to the Asbury Park Press. The company committed to paying the state $1.25 billion over 25 years, $600 million up front, to compensate for lost tax revenue when the carrier is taxed at the same rate as its competitors.

Longstanding Blue Cross reorganization concerns

Red flags were raised over the Blue Cross reorganization trend decades ago. Two health systems researchers examined some of the concerns in a 2003 article. Mark A. Hall and Christopher J. Conover wrote that it was understandable to be wary of the change in Blue Cross structure because it is the lead insurer in almost all states. The motivations for the change still hold true today – carriers want access to investor capital and to clear the way to buy other companies.

Hall and Conover also did research for North Carolina in the early 2000s to see how the conversion went in California, Georgia, Missouri and Virginia, states that had freestanding Blue Cross companies that converted to not-for-profit entities.

The researchers did not find any major negative policy effects because of the conversions. But they stressed that did not necessarily mean that it was a net positive.

“The absence of definitive proof of major harm does not mean, however, that conversions are necessarily neutral or beneficial,” according to the study. “One clear effect of conversion is to increase profit incentives. Therefore, the areas of greatest potential concern can be mapped according to the main components of profitability: rates, administrative costs, and medical claims. Conversion may result in higher insurance rates in those market segments where BC plans hold considerable market power and are subject to less aggressive rate regulation.”

On the positive side, the conversion tended to lower medical loss ratios because of a greater ability to negotiate with providers, along with refining underwriting and risk selection practices.

“Conversion can also have offsetting positive effects, such as improved operational efficiency and customer service,” according to the report. “The largest potential benefit is to unlock considerable wealth that can be devoted explicitly to health-related charitable purposes.

However, the result of clarifying the business mission and social expectations of Blue Cross plans is to fundamentally alter the organizational form of the largest, and often dominant, nonprofit institution in health care finance and delivery. This is a sobering step, one that almost certainly will not be undone once it is taken; therefore, it should not be taken without carefully considering the competing health policy implications.”

Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at stevenamorelli@gmail.com.

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Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at steve@innemail.com.