Having received a green light from New York's Insurance Commissioner, Empire Blue Cross and Blue Shield will create two new for-profit subsidiaries, paving the way for the not-for-profit health insurer's future conversion to for-profit status.
Empire's move is the latest in a trend among Blues plans toward such conversions.
The New York State Insurance Department announced its approval of Empire's plan just days after slapping the company with a whopping $1.1 million fine for insurance law violations, such as denying claims for certain treatments and charging unapproved rates. Most of the violations occurred from 1991 to 1995, with some problems dating back to 1988, the insurance department said.
In a statement on Empire's agreement to pay the fine, Phil Briggs, the company's board chairman, noted changes that have been made at the plan since the bulk of the violations occurred. They include the installation of a new board, a new management team and a new strategy for the future.
In obtaining insurance department approval for the for-profit companies, the 4.8 million-enrollee plan can claim a small victory. The company plans to invest $39 million from cash on hand in a new for-profit holding company called Choice Holdings. That company will consist of a new accident and health insurance company named Family Health Assurance Company and a new HMO called Family HealthChoice.
However, Empire is still waiting for approval from the state health department to launch the for-profit HMO.
The Blues plan filed a request for the for-profit subsidiaries last October as a vehicle for raising capital, said Peter Kerr, a plan spokesman. "We're facing some for-profit companies that*.*.*.*have deep pockets of their own, and when you're building a managed-care network in the nation's largest marketplace, you're at a strategic disadvantage."
The subsidiaries create an opportunity for Empire to raise capital and possibly convert to for-profit status in the future, Kerr said, adding that the insurer is in no fiscal condition to make such a change in the immediate future. "When (bankers) see our numbers, they do not see an (initial public offering)," he said.
In a recent report to the insurance department, Empire said it increased reserves by $71.8 million in 1995, compared with a loss of $22.6 million the previous year, for total reserves of $280.4 million.