Blue Cross plans for $3.2B foundation to face scrutiny in regulatory hearings

When Blue Cross and Blue Shield of Louisiana officials announced earlier this year they had agreed to be acquired by Elevance Health, the state's philanthropic community cheered a plan to create a $3.2 billion foundation with the bulk of the proceeds.

The Accelerate Louisiana Initiative, leaders of the Baton Rouge-based health insurer said, will have a mission to improve the lives and health of the people of Louisiana and could potentially transform a state with some of the worst health outcomes in the U.S.

The plans for the foundation are expected to be featured in a series of public hearings scrutinizing the deal, which will begin Wednesday in Baton Rouge.

Some policyholders, who must vote to approve the sale, along with public policy advocates, are questioning how the money will be divided between the foundation and policyholders, who will also receive a share of proceeds from the transaction.

They've also raised questions about who will control the foundation once it is established and how it will be organized.

The chair of the Blue Cross board, Baton Rouge businessman and attorney Tim Barfield, acknowledged there are many unanswered questions that remain about the foundation and how it will operate. But as he and others prepare to appear before a state legislative committee and state insurance regulators, he asked for patience.

"We have a lot to do and it's going to take a couple of years to ramp up," Barfield said. "But we want to do it right. We need to choose a board, put a strategic plan in place, identify priorities. We also want to have the right level of community partners and engagement to help us design and execute.

"Getting it right will take time," he said.

Potential to transform

Accelerate Louisiana will be what's known as a conversion foundation, which is formed when a nonprofit organization like Blue Cross sells to a for-profit company.

Because nonprofits don't have shareholders, creating a foundation is a way they can continue their mission even after the organization has changed hands. A prominent local example is Baptist Community Ministries, which was established in the late 1990s with proceeds from the sale of Southern Baptist Hospital.

In the years since, Baptist Community Ministries has granted nearly $250 million to community organizations in the New Orleans area.

Accelerate Louisiana would dwarf Baptist Community Ministries and other community foundations in the state. Because of its size, its potential to make a difference in Louisiana would be huge, said Barfield, who has stepped down from the 11-member Blue Cross board to lead the separate, four-person Accelerate Louisiana board along with Baton Rouge dentist Dr. Richard Atkins, Lafayette businessman Jerome Greig and Baton Rouge advertising executive Charles Brent McCoy.

In the months since the sale to Elevance was announced, Barfield and the founding board have been conducting research and meeting with community leaders, faith leaders, other nonprofit executives and consultants to determine how best to set up an organization that will be solely focused on Louisiana and its unique needs.

Questions and concerns

While no one doubts the potential of a massive foundation to address need, some policyholders are concerned about how Blue Cross determined that most of the sale proceeds would go to the new foundation, which also will be funded with about $1 billion from Blue Cross reserves.

According to Blue Cross, about $307 million from the sale will go to some 90,000 policyholders. That comes to about $3,000 each.

While policyholders are not equivalent to shareholders in a for-profit company, they get to vote to approve the deal, and there is a value attached to their policies. Moreover, longtime policyholders, who have spent tens of thousands of dollars paying Blue Cross premiums over the years, believe the board could have paid policyholders more or established a fund to help offset future rate increases.

"It is dishonorable and it is a usurpation of the property that rightfully belongs to the policyholders," said Baton Rouge attorney Henry Kinney, a longtime policyholder, who has studied the deal.

Blue Cross CEO Steve Udvarhelyi defends the way the company determined the value of a policy and cites an expert opinion from the insurer's investment banker on the deal, Chaffe & Associates, which determined it was fair, documents show.

"The process was determined through consulting with an investment banker on what policyholder rights should be and we have had an actuarial firm do that," Udvarhelyi said.

Others have questioned whether Blue Cross board members have a potential conflict of interest.

Under the terms of the deal, seven Blue Cross board members will continue to serve on an advisory board to Elevance leadership, where they will be paid $105,000 a year for at least a decade, or about $1 million each.

Barfield and the three foundation board members will not be paid.

"The existence of this arrangement calls into question whether BCBSLA's directors can be trusted to put the interests of BCBSLA's intended beneficiaries ahead of their own," said Michael Johnson, a former Blue Shield of California whistleblower who now runs a website dedicated to transparency in health care.

Though Barfield is not getting paid in his new role, he defended the decision of the board, noting that the compensation they will receive to serve on the advisory board is comparable to what they are paid now to serve on the current Blue Cross board.

Tax codes and diversity

Other questions have centered on the fact that the board chose to establish the foundation as a 501(c)(4) nonprofit, a type of partially tax-exempt organization that has greater latitude to engage in political activity than does a strictly tax-exempt 501(c)(3) nonprofit.

Jan Moller, executive director of the Louisiana Budget Project, a left-leaning public policy organization, said the foundation could lobby or contribute to political candidates to affect health care or insurance policy.

While Barfield concedes that is possible, he said Accelerate Louisiana's articles of incorporation prohibit political activity and the choice was made so that the board had time to ramp up. As a 501(c)(3), the foundation would need to give away 5% of its assets annually.

"Starting a $3.2 billion foundation from scratch isn't easy," he said. "We're not prepared to give away $160 million next year."

Moller and Johnson also criticized the make up of the founding board and its lack of diversity in a state where nearly 50% of the population is Black or Brown and 20% lives at or below the federal poverty level.

"All of the directors are white men, who collectively do not reflect Louisiana's diverse population," Moeller wrote in a letter of opposition to the Department of Insurance.

Barfield said the board as it currently exists is a small start-up board but will identify additional members who represent the state's racial, gender and geographic interests, and well as different areas of expertise and experience.

"The goal is to have a board that represents Louisiana," he said.