As threatened, Connecticut sued Anthem Insurance Cos. last week, hoping to recover some $550 million in charitable assets that the state says Anthem improperly inherited when it acquired Blue Cross and Blue Shield of Connecticut earlier this year.
The suit is the latest legal attack on Anthem's acquisitions of licensed Blues plans in several states. In addition to Connecticut, Indianapolis-based Anthem operates Blues in Indiana, Kentucky and Ohio.
In October, for example, Kentucky sued Anthem to recover $230 million in charitable assets the state says Anthem illegally pocketed when it acquired the Kentucky Blues in 1993 (Oct. 27, p. 14). Ohio's attorney general is looking into a similar action (Oct. 13, p. 8).
After obtaining approvals from Anthem and Blues policyholders and Connecticut's insurance commissioner, Anthem took control of the 865,000-enrollee Connecticut Blues in July by merging it into Anthem.
But in a 24-page complaint, a state-appointed special attorney general charged Anthem, two Anthem subsidiaries and the Blues with seven violations of state law. It says the companies breached their fiduciary duty by refusing to maintain the assets of the Blues for charitable purposes.
The state filed its suit Dec. 2 in Hartford (Conn.) Superior Court. Special counsel to state Attorney General Richard Blumenthal last month said his firm expected to file action against the insurer (Nov. 10, p. 34).
The suit does not seek to block the acquisition. Instead, it asks the court to order all the Blues' assets to be set aside in a charitable trust. It aims to bar Anthem and its Connecticut plan from using the assets for private purposes. And it seeks to keep Anthem from transferring those assets out of state.
"The attorney general's position is that Blue Cross has historically operated as a nonprofit, charitable organization, and as such it has amassed large assets, which belong in a charitable trust," said Bob Shields, a managing partner with Hartford-based law firm Horton, Shields & Comier.
Shields' firm brought suit on Blumenthal's behalf. The state's top law officer has not been directly involved because his office previously accepted money from the Blues to fight U.S. tobacco companies.
Anthem last week rejected the premise of the suit, saying the Blues is not a charity. It said the assets issue was resolved 13 years ago when the Blues became a mutual insurer. In addition, under terms of the Blues deal, Anthem is blocked from transferring plan assets for at least two years.
The lawsuit delighted consumer groups that urged the state to recognize a charitable-trust obligation may exist. "It's what we've been saying all along," said Natalie Seto, conversion project director at Boston-based Community Catalyst.
Anthem also faces a second suit in Connecticut. On Nov. 10, also in Hartford Superior Court, State Comptroller Nancy Wyman filed a class-action suit against Anthem on behalf of Blues policyholders.
Wyman wants the court to retroactively block the sale, undoing the state insurance department's approval. The suit alleges Blues and Anthem officials conspired to hide key financial data before policyholders voted this summer to approve the sale.