New Jersey Attorney General Peter Verniero has ruled that Blue Cross and Blue Shield of New Jersey is a charity, throwing a potentially costly twist into its merger with Indianapolis-based Anthem, the former Blues plan serving Indiana and parts of Ohio.
It's the second major legal snag to hit a Blues plan in less than two weeks, both dealing with a Blues plan's charitable status under state law (See related story, p. 2).
In a letter to New Jersey Blues Chief Executive Officer William Marino late last week, Verniero acknowledged that the plan is no longer the insurer of last resort in New Jersey under state law, but he said it still has obligations.
"Blue Cross/Blue Shield continues to operate as a health services corporation and thus is obligated under law to use its assets for `charitable and benevolent' purposes," Verniero wrote.
If the Blues continues to pursue a conversion to a mutual insurance company as a preliminary step toward merging with for-profit Anthem, the decision could force the plan to establish a foundation to compensate for past tax breaks as a public charity.
"We think the (attorney general's) interpretation is inaccurate," said Blues spokesman Fred Hillman. "It doesn't recognize our current status, corporate history and what we're trying to do in this two-part merger."
The plan filed a quick rebuttal to Verniero's ruling, Hillman said, but he predicted the issue would eventually wind up in court.
Critics of the Anthem merger have estimated the Blues' charitable assets at $1 billion. However, the Blues said that figure fails to account for $800 million in liabilities and $200 million in required reserves.
New Jersey's insurance commissioner would ultimately determine the Blues' charitable obligations. The department is currently reviewing the matter as part of the plan's application to become a mutual insurance company.