Two Blues plans serving Maryland and northern Virginia have affiliated under one parent company, but only after they agreed to conditions protecting their charitable assets.
The affiliation was formalized a year after its announcement by Blue Cross and Blue Shield of the National Capital Area and Blue Cross and Blue Shield of Maryland. The National Capital Area Blues covers the District of Columbia, part of Virginia and two adjacent counties in Maryland; the Maryland Blues covers the rest of that state.
Under the new holding company, CareFirst, the plans combine for more than $3 billion in annual revenues, a work force of 5,000 and nearly 2.3 million enrollees.
The two plans inked their agreement several weeks after insurance commissioners in both jurisdictions published separate orders of approval Dec. 23 following four months of hearings on the structure and the impact of the deal.
The hearings took place against a backdrop of national debate over Blues plans' efforts to merge or convert to for-profit status in response to market pressures. Consumer groups have mobilized to prevent Blues plans from cashing in on value created partly by years of tax breaks.
In the Maryland proposal, groups such as the Fair Care Foundation and the Consumer Federation of America contended the creation of a holding company governed by a majority from the Maryland plan would change control of the D.C. plan's charitable assets and shortchange policyholders (Sept. 15, 1997, p. 24).
The groups also charged that once the holding company gained control, nothing prevented it from converting to for-profit status.
In response, regulators made changes in governance and came up with a contingency plan to value the company assets and retain their charitable purpose in case of a future for-profit conversion (See chart).
Those conditions are not sufficient to satisfy Fair Care, which said its arguments on behalf of consumers weren't taken seriously enough. Fair Care's chairman, A.G. Newmyer III, is continuing the opposition in court, "where the lobbyists have no sway." Late last week Newmyer filed an appeal of the D.C. regulatory approval of the deal in District of Columbia Court of Appeals.
Newmyer said modifications to the deal made "some baby steps forward for consumer groups," including a "fairly strong statement that assets are charitable." Regulators, however, were not convinced the combination of the plans is contrary to the public interest.
Consolidation proponents "persuasively argued that the health insurance industry is intensively competitive and that the two plans operated separately are simply not large enough to compete in the long term," Maryland Insurance Commissioner Steven Larsen said in his approval order.