Having emerged from "near death," the nation's largest health insurer finds itself at the center of controversy once again.
Empire Blue Cross and Blue Shield's recent creation of two for-profit subsidiaries worries consumer advocates, who fear that the not-for-profit parent will be "cherry picked" of its profitable lines of business.
Over time, Empire could fully convert to for-profit status or be acquired by a giant for-profit HMO, consumer watchdogs said. Before that happens, there must be mechanisms in place for preserving the insurer's charitable assets, they argued.
Consumer groups aired their concerns at a May 17 meeting in New York City convened by the Special Advisory Review Panel, which was created in January 1993 to advise the governor, legislative leaders and the superintendent of insurance on issues involving the nation's largest Blues plan.
While Empire is among the last Blues plans in the country to create for-profit offspring, it is the subject of intense public scrutiny. Consumer advocates worry that a "trickle out" of assets from the subsidiaries would dilute the value of the not-for-profit parent.
"This may be some sort of de facto conversion going on," said Mark Scherzer, counsel to New Yorkers for Accessible Health Coverage, a consumer health coalition.
The New York state attorney general's office is currently discussing the issue of when to determine the value of a not-for-profit's charitable assets in a for-profit conversion, said Sean Delany, chief of the charities bureau. State law calls for a valuation at the time of the transaction, he said. However, he acknowledged the possibility of the for-profit subsidiary slowly diluting the not-for-profit over time.
In Missouri, for example, state officials are seeking payment from Blue Cross and Blue Shield of Missouri for charitable assets moved into a for-profit subsidiary created in 1994 (May 20, p. 20).
"What was a not-for-profit asset has become a for-profit asset," Delany said. Failing to establish the value of the charitable assets early on "makes it difficult to look back," he said.
Paul Rulison, executive director of the Hospital Trustees of New York State, said state officials should conduct a baseline valuation of Empire's charitable assets prior to any full conversion to for-profit status.
But Michael A. Stocker, M.D., president and chief executive officer of the 4.8 million-enrollee plan, said any determination of Empire's value prior to a for-profit conversion may preclude interested capital partners from coming forward "because the pressure would be to value it upward."
Stocker said he believes there are sufficient regulatory protections in place to prevent the charitable assets from eroding.
Advisory panel members will reconvene within the next few weeks to discuss issues raised at the public meeting and determine the next steps, said James J. Barba, the panel's chairman. "I want to make sure that we in New York avoid the mistakes that have been made in other states that are going through this process."