State ramps up review of proposed Blue Cross merger with health insurance giant [The Montana Standard, Butte]

Jan. 13--HELENA -- State officials are gearing up for an extensive review of Blue Cross and Blue Shield of Montana's proposed merger with an Illinois-based health insurance giant, including the hiring of consultants to examine the merger's impacts on Montana.

State Auditor Monica Lindeen, who regulates insurance in Montana, also wants to expand the review process, giving the 270,000 Montana customers of Blue Cross some say in the matter.

Lindeen's office is arguing that an additional law should apply to the proposed merger, requiring customer approval of the merger. Blue Cross does not want the law to apply.

"From a consumer standpoint, you get the (customers) involved in this process," says Jesse Laslovich, chief counsel for Lindeen. "If this transaction is consummated, then the (customers) are going to become insureds of Health Care Service Corp., and won't have a choice until their (policy) is up for renewal."

Blue Cross, the largest private health insurer in Montana, announced last year it plans to merge with Health Care Service Corp. (HCSC), headquartered in Chicago. HCSC, a coalition of Blue Cross plans in Illinois, Texas, New Mexico and Oklahoma, is the fourth-largest health insurer in the nation, with 13 million customers.

Blue Cross officials have said the merger brings new financial and technological resources to the Montana company, to help it deal with the changing world of health care reform.

Under state law, Lindeen and Attorney General Tim Fox must decide whether the merger is in the public interest before approving it. The same law also dictates that Blue Cross -- currently a nonprofit company -- must sell many of its assets and use the proceeds to finance a nonprofit foundation in Montana. Blue Cross has estimated the proceeds will top $100 million.

If the merger is approved, Blue Cross will be merged with HCSC and regulated as a for-profit company, but still retain its Montana Blue Cross name and state focus.

Blue Cross and HCSC officials have said the merger won't mean job losses at Blue Cross Montana, and that mergers in other states with HCSC have generally led to expanded business and more jobs.

In fact, Blue Cross Montana spokesman Frank Cote said last week that the two companies are considering opening a new call center in Great Falls, employing up to 100 additional people.

A public hearing on the merger is scheduled Feb. 12 in Helena. Lindeen and Fox have hired former state Supreme Court Justice Bill Leaphart as the case's hearings examiner.

After Leaphart conducts the hearing, where he'll listen to testimony on the deal and whether it benefits the public, he'll forward his findings to Lindeen and Fox, who have up to four months to decide on approval.

Leaphart also will decide by month's end whether to apply the additional law that would require Blue Cross customers to approve of the deal -- a decision that would add another layer of review and perhaps prolong the process.

The state has hired MDS Consulting of Irvine, Calif., to examine the "fair market value" of property that Blue Cross will transfer to the foundation, and Advanced Analytical Consulting Group of Boston to analyze the merger's impact on Montana insurance markets, health care and insurance customers.

Blue Cross is paying about $275,000 for the consultants, who will submit reports to Leaphart by Jan. 29.

"We wanted to make sure we did our due diligence on the initial question of whether this is good for Montana," Laslovich said.

Under state law, Lindeen's office looks at whether the merger would have a significant adverse effect on health coverage and the availability of health care services in Montana. The attorney general makes sure the property transferred to the foundation is fairly valued and doesn't benefit any company officers.

The review by the Attorney General's Office started last year under then-Attorney General Steve Bullock, a Democrat who is now governor. His successor, Republican Tim Fox, says the Justice Department staff working on the case hasn't missed a beat.

"We will work closely and hand in hand with Commissioner Lindeen to make sure the law is followed and make sure the public's interest is protected," he said last week.

While Fox's office will examine the value of assets that go to the foundation, the distribution of the money has no bearing on whether the merger should be approved, Laslovich said.

He said state officials will later examine the foundation, its governance and how it plans to spend the money, which will be more than $100 million.

State law says that if Blue Cross converts to something other than a nonprofit company, its public assets must be distributed to a foundation. Those assets include some of Blue Cross's property in Helena and its for-profit subsidiaries.

Shortly before Blue Cross announced the merger, it agreed to sell its insurance agency, Western States Insurance, to Payne Financial Group for $64 million. A consultant hired by the state already has determined that the pricing was "fair and reasonable," and that the proceeds should go to the foundation, Laslovich said.

HCSC is paying Blue Cross about $17 million, which also goes to the foundation. The attorney general will look at other assets whose value should end up with the foundation.

"It's the first time that the statute (on conversion) has been used," Laslovich says. "We're all kind of blazing a new trail here, figuring out how we make this work practically."

___

(c)2013 The Montana Standard (Butte, Mont.)

Visit The Montana Standard (Butte, Mont.) at www.mtstandard.com

Distributed by MCT Information Services