Consumer groups are questioning last week's proposed merger of Blue Cross and Blue Shield of New Jersey and Anthem, a for-profit mutual insurer with more than 9 million covered lives and $1.5 billion in surplus.
The companies expect to complete the merger by year-end, creating a company with more than $9 billion in annual revenues and $6 billion in assets.
The agreement drew an immediate call for public hearings by the New Jersey affiliate of Citizen Action, a national consumer group. As with other recent Blues plan consolidations, consumers are concerned about the impact of out-of-state ownership by a for-profit company and the possible dilution of charitable assets.
"We are concerned that this merger is not in the public interest; what is good for the managed-care market is not necessarily good for the millions of patients enrolled in (the plan)," said Jeanne Otersen, co-chair of the New Jersey Citizen Action Campaign for Patient Rights, a statewide coalition representing unions, church groups, community organizations, healthcare providers and patients. The group demanded public hearings to allow citizens to air their concerns.
"The current pace of mergers is not a good sign for either patients or physicians," contended Anthony P. Caggiano Jr., M.D., president of the Medical Society of New Jersey. The resulting "super-companies" will have greater power to restrict choice and dictate the care that physicians provide, he said.
Under the proposed merger, Anthem and the New Jersey Blues will create a Newark, N.J.-based holding company called Anthem East. William Marino, president and chief executive officer of the New Jersey Blues, will become chairman and CEO of the holding company and also will serve as senior executive vice president of Anthem.
Anthem East will house Anthem's East Coast operations. Through its Cincinnati subsidiary, Anthem already covers more than 4 million Blues policyholders in Indiana, Kentucky and Ohio. The company's subsidiary operations include AdminaStar, a Medicare contractor, and Acordia, a brokerage firm.
L. Ben Lytle, Anthem's president and CEO, said the Indianapolis parent will invest more than $100 million in Anthem East. He said the capital infusion will finance the development of information systems and managed-care products. Anthem has enough cash to fund the New Jersey investment, but if more were needed the company would use bank debt, he said.
Each company's board has signed off on the merger, but the deal also requires approval by the insurance commissioners of Indiana and New Jersey and both companies' policyholders.
As part of the agreement, the New Jersey Blues said it would begin converting to a mutual insurance company, giving policyholders a stake in the company's ownership. Last year, the state Legislature passed a measure clearing the way for such a for-profit conversion.
Once the Blues' mutual conversion is completed, Anthem will merge with the plan and New Jersey policyholders will be given ownership rights in the parent company, Lytle said.
Consumers Union, which has monitored Blues conversions across the country, is keeping tabs on the New Jersey situation. "If it becomes a mutual, there should be questioning about whether they have fulfilled their charitable trust obligation," said Eleanor Hamburger of Consumers Union's San Francisco office.
But Lytle said consumer groups need to "stop long enough to look at the facts." Having served for many years as the state's insurer of last resort, the New Jersey plan is undercapitalized, with just $200 million in reserves, he said. "The so-called (charitable) assets were negative assets. They were in the hole until recently," he said.
The merger will boost reserves to $1.7 billion, enabling the plan to expand its employment base and managed-care offerings, Lytle added.