Many of the private, not-for-profit health plans sponsored by the Blue Cross and Blue Shield Association soon may set a course for public ownership to cope with their critical need for capital to compete under healthcare reform.
Chief executives of the 69 Blues plans may vote as early as February on whether the trade group should amend its licensing agreements to allow the health plans to become publicly owned companies. The issue, which has been simmering for years, was narrowly defeated late last year at the group's annual meeting.
If the executive approve the motion, as many as 30 Blues plans may choose public ownership, some before the end of the year, said Norwood H. Davis Jr., chairman and chief executive officer of Blue Cross and Blue Shield of Virginia, Richmond.
Some analysts believe the move also may set the stage for "merger mania," which could lead to as few as 15 Blues systems by the end of the decade.
"This is a strategic business decision that the Blues have to make," Mr. Davis said. "If we don't operate as a business, our future is not a very bright one. Access to capital is going to be critically important."
The national trade group doesn't have regulatory authority over member plans but through licenses allows them to use the names and service marks. The licensing agreement, which was last amended in 1990, allows Blues subsidiaries to operate as public companies, but it restricts plans from selling themselves entirely to the public.
So far three Blues plans-in Wisconsin, Indiana and California-have sponsored public offerings of subsidiar-ies. The success of those offerings magnified the Blues' problem of maintaining uniform standards of licensure and membership while remaining competitive with often larger and better-financed insurance competitors (Dec. 14, 1992, p. 33).
"This is not a knee-jerk reaction. By any analysis, our industry is going to change tremendously," Mr. Davis said.
The Blues plans are well on their way to a fifth consecutive year of posting surplus revenues. For the first three quarters of 1993, the Blues had a net surplus of $2.2 billion on revenues of $53.4 billion. For the full year of 1992, the system had a net surplus of $1.9 billion on revenues of $70.9 billion.
Even so, the gap between the system's strong and weak plans seems to be widening, not narrowing. For example, last July, 37 Blues plans were needed to rescue the insolvent Blue Cross and Blue Shield of National Capital Area, Washington, by pulling together a cash infusion of $60 million.
Such bailouts, along with greater capital expenditures to overhaul and replace outmoded claims-paying systems, will speed consolidation, some analysts believe. A merger is the only way to unite the plans' individual capital bases.
"We believe that, by the year 2000, there could be as few as 15 Blue Cross and Shield systems in the U.S. and that the majority of these will be publicly traded companies," said investment analyst David H. Shove in a recent report for Fox-Pitt, Kelton, a New York-based securities firm.
Mr. Davis said the move to public ownership would speed the Blues' evolution from a provider of prepaid medical and hospital programs to managed healthcare insurance plans. That transition began a decade ago and accelerated when Congress yanked the group's federal tax exemption in 1986, he said.-Paul J. Kenkel
Blue Cross/Blue Shield
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