A New Jersey judge last week ruled that Blue Cross and Blue Shield of New Jersey is a charitable organization, dealing a major setback to the plan's proposed merger with for-profit Anthem of Indianpolis.
Anthem already operates Blues plans in Indiana, Kentucky and Ohio, and has a pending merger with Blue Cross and Blue Shield of Connecticut.
In a bench ruling, New Jersey Superior Court Judge Alvin Weiss affirmed an earlier legal opinion by the New Jersey attorney general's office that the New Jersey Blues plan was a public charity under state law (Jan. 6, p. 4). Weiss cited several state statutes supporting his opinion (See box).
The Blues plan challenged the attorney general's opinion in state court. The plan lost but vowed to keep fighting.
"We're confident we'll eventually prevail," said Fred Hillman, a Blues spokesman. "Both parties and companies are committed to seeing this through the court process."
The Blues plan said it will appeal Weiss' decision to a state appellate court shortly after Weiss issues his written opinion confirming his bench ruling, Hillman said.
As a charity, the New Jersey Blues likely would be required to set up a sizable charitable foundation as a condition of converting to a mutual insurance company owned by policyholders. Mutualization is a precursor to the merger with for-profit Anthem.
The New Jersey insurance and banking department has yet to determine the Blues' charitable obligation. A department spokesman said there was no timetable for the next steps.
Consumer groups, which have opposed the plan's conversion without compensation for past tax breaks, estimate the charity obligation could be as much as $1 billion.
"We're amused that they're expressing shock that they are a charity," said Anthony Wright, an organizer for New Jersey Citizen Action.
If the Blues are required to fund a charitable foundation, however, it could sink the Anthem deal.
The merger agreement between the plan and Anthem contains a termination clause that can be triggered if any state agency or court requires the establishment of a charitable trust as part of mutualization.
Even if Weiss' ruling stands, the Blues plan said there are other options to making a deal with Anthem.
The state Legislature could change the law covering the Blues to strike their historical charitable status, Hillman said. Weiss mentioned that option when he delivered his opinion, Hillman added.
Alternatively, the Blues and Anthem could restructure their agreement as an alliance to forgo an outright merger, and thus avoid the mutualization controversy.