Blue Cross and Blue Shield plans of Illinois and Texas can resume the regulatory approval process on their long-stalled merger thanks to a deal the Texas plan cut last week with state Attorney General Dan Morales.
Morales filed suit to block the merger shortly after the deal was announced in 1996.
The merged company would have combined annual revenues of $7.6 billion and 4.8 million enrollees. It would be among the nation's biggest Blues plans, according to the Chicago-based Blue Cross and Blue Shield Association.
Morales' suit claimed that the not-for-profit Texas plan is a charity and must leave behind its Texas assets if it merges with its Illinois counterpart. State District Court Judge Joseph Hart of Travis County ruled in February that the Texas plan was not a charity, clearing the way for the merger (Feb. 23, p. 14).
In the deal cut last week, Morales agreed to withdraw objections to the merger but will appeal the ruling that the plan is not a charitable organization.
The deal requires the Texas plan to donate $10 million to Austin-based Texas Healthy Kids Corp. The not-for-profit corporation, established by the Texas Legislature to provide health insurance to children in low-income families, will receive the money whether or not the merger is completed.
The deal is a boon to the estimated 1.3 million uninsured children in Texas. "This ($10 million) settlement could be a tremendous jump-start for our fund-raising campaign," said Tyrette Hamilton, executive director of Texas Healthy Kids .
If Morales wins on appeal, the merged company will pay $560 million over 20 years to a trust fund to be designated by the state. The appeal will be filed in Austin's Third Court of Appeals after Hart's final settlement ruling, expected this week.
Lisa McGiffert, senior policy analyst at the Southwest regional office of the watchdog group Consumers Union, said the Texas plan should pay more.
"We believe there is a long history of evidence that it is a charitable trust," she said. If the plan is indeed a charity, all its assets belong to the state of Texas under a long-established common law known as the `'charitable trust doctrine," she added.
McGiffert said Consumers Union is troubled by the Illinois Blues' "company culture," which allowed Medicare fraud to continue. The company in July pleaded guilty to fraud and was to pay a $144 million fine (July 20, p. 3). She also cited the merger's impact on the Texas plan's 1.9 million enrollees. The group has registered its concerns with the Texas Commissioner of Insurance.
Meanwhile, both plans have resumed the state approval process. "We're pleased with the attorney general's decision to permit our merger to go ahead," a spokesman for the Illinois plan said.
Rogers Coleman, M.D., president and chief executive officer of the Texas plan, agreed. "(The agreement) puts us one step closer to competing on a more equal basis with the large for-profit companies in the industry while maintaining our not-for-profit philosophy."