Blue Cross and Blue Shield of Missouri has sued the state's insurance director over his insistence that the insurer give up a sizable portion of its assets in exchange for moving most of its business into a for-profit subsidiary.
The suit arises out of the insurer's creation of a for-profit subsidiary, RightChoice Managed Care, in 1994. To obtain more capital to develop managed-care products, the Blues sold 20% of RightChoice on the New York Stock Exchange.
That transaction required the approval of the state insurance director, Jay Angoff, which was given. Subsequently, Angoff alleges, he learned that the Blues had moved the substantial majority of its business into RightChoice without seeking his approval.
"We know of over $100 million they transferred without informing us," said Tom Bixby, speaking for the Insurance Department. "It amounted to 75% of their annual profits."
The state Insurance Department contends that as a public benefit company for 60 years, the Blues received many advantages, among them freedom from paying premium tax. "We believe that any assets accumulated as a non-profit should remain as non-profit assets and be used for non-profit purposes," Bixby said.
The same argument was used by the California insurance commissioner when a Blue Cross of California subsidiary, WellPoint Health Networks, converted to for-profit status. To resolve that conflict, Blue Cross will donate $3 billion in assets to two new charitable foundations in exchange for changing its status.
Bixby said the Insurance Department and the Missouri Blues had been quietly negotiating a settlement ranging from $164 million to $187 million. Service of the lawsuit, filed in Cole County circuit court on May 13, caught the department by surprise.
Blues spokesman Jim Floyd said the company had been talking with state officials for several weeks but is frustrated by a lack of progress. "We told them Friday that unless there was resolution by noon Monday, we would file the suit. They should not have been surprised," he said.
RightChoice wanted to get the matter out of the way before its annual meeting, held the next day, May 14, Floyd said. "This is a parent company matter. At the annual meeting, they gave a very quick run-through of what's involved in the suit."
Floyd declined to comment on the numbers given out by the Insurance Department, saying the negotiations were supposed to be kept confidential. He added, though, that the Blues plan was never talking about "shoving $164 million across a table to somebody" but rather funding specific programs to care for low-income children and other noncommercial health projects.
The insurer has requested a declaratory judgment, in which the courts would say that it followed all applicable laws and regulations in its reorganization. Blues Chairman Roy R. Heimburger said Angoff was demanding "a $200 million to $500 million tax on our members unapproved by either the General Assembly or the voters.
"The premiums paid by our members were never charitable donations to be used for the public welfare. That's the United Way, not Blue Cross," Heimburger said.
Bixby said the department believes it has "an excellent case" and is willing to fight the Blues in court. The department has a variety of other means at its disposal "ranging from a cease-and-desist order, a corrective order, putting the company into receivership or revoking their certificate of authority, their license to do business."
The Blues plan is asking for a permanent injunction forbidding the insurance director from refusing to renew its license to pressure it into paying a "toll charge" or charitable assessment.
The Missouri Blues has more than 100,000 policies issued directly to its subscribers and expects to receive $90 million in premiums this year. It has 25 employees. It contracts out marketing, claims underwriting and administrative services to RightChoice.