Two Blues plans in the Northeast are throwing in the towel on a proposed consolidation, but each tells a different story about the deal's collapse.
In a joint statement issued last week, the New Jersey and Delaware Blues plans said they will allow their agreement to create a regional health services company to expire on May 20. The companies said "it is apparent" they will not close the deal by that date, a deadline established nearly a year ago, because of "legal and regulatory issues in both states."
Robert C. Cole Jr., president and chief executive officer of Blue Cross and Blue Shield of Delaware, told MODERN HEALTHCARE*"there are a ton of reasons" why the deal is not going forward; one is the New Jersey plan's ongoing litigation over its charitable status.
In March, a New Jersey judge ruled that Newark-based Blue Cross and Blue Shield of New Jersey is a charitable organization, upholding an earlier legal opinion by the state attorney general (March 31, p. 3). As a charity, the company would be required to set up a foundation as a condition of converting to a mutual insurance company. Such a conversion had been a condition of the plan's proposed merger with Anthem, a for-profit insurer based in Indianapolis.
Anthem operates other Blues plans in Indiana, Kentucky and Ohio.
The New Jersey Blues announced its intention to merge with Anthem just eight days after unveiling its agreement with the Delaware plan, which would then become part of Anthem by virtue of its merger with the New Jersey plan.
The Anthem deal with the New Jersey plan was to be completed by the end of 1996, but that timetable was derailed by the litigation in New Jersey. An appeal in the case is pending.
Cole said the legal snag over the New Jersey Blues' charitable status is one factor in the breakup of the deal with Delaware. He said he doubted his board or the state insurance department would "want to go forward with a deal with New Jersey as long as that litigation*.*.*.*is sitting out there."
But Fred Hillmann, a spokesman for the New Jersey plan, vigorously denied that interpretation.
"What's happening with Anthem and the courts has nothing to do with the Delaware transaction," he said.
Hillmann said the plans encountered numerous legal and regulatory obstacles to closing the Delaware deal by May 20. One of them, he said, was the licensing of All Nation Life Insurance Co., the Delaware Blues' insurance subsidiary. The New Jersey plan was to acquire that subsidiary. But insurance regulators in both states had to approve the sale.
That, indeed, was a critical element and one of the reasons for the deal's demise, Cole agreed. He said the Delaware insurance department could not approve the consolidation plan until New Jersey's insurance department had licensed All Nation Life. Approval from New Jersey is pending.
The plans' joint statement strikes an amicable note: "During the year that our two companies were preparing to affiliate, we learned a great deal about each other and have gained great respect for each other's strengths." They said they still believe in creating a regional Blues company.