As the proposed for-profit conversion of Empire Blue Cross and Blue Shield drags into its third year, the 3.3 million-member plan is hitting new snags.
New York provider and consumer groups are raising concerns about the structure and governance of the not-for-profit foundation that Empire has said it would create. Their concerns are like those expressed about other conversions across the country.
Empire's biggest obstacle involves discussions with state Attorney General Eliot Spitzer. At insurance department hearings earlier this month, Spitzer said he believes the conversion is illegal because insurance law prohibits for-profit conversions of not-for-profits like Empire. He said he doesn't oppose conversion but the law must be changed before a conversion can proceed.
State Assemblyman Alexander "Pete" Grannis has introduced a bill permitting and setting standards for conversions. But Spitzer, a Democrat who took office in January, argued that the foundation should control the resulting for-profit plan, a controversial point in ongoing discussions with Empire.
Mark Smith, president and chief executive officer of the California HealthCare Foundation, said foundation independence from insurance company operations is key. Smith's organization was created in May 1996 when not-for-profit Blue Cross of California became for-profit WellPoint Health Networks.
"Given the broad public health purposes the (California HealthCare) Foundation has assumed, it could compromise the ability of the foundation to achieve its own mission if it were viewed as being too interested in the business success of Blue Cross of California," Smith said at a hearing this month.
Under Empire's conversion plan, any shareholder, including the foundation, could control no more than 5% of the stock in the for-profit company. Empire says the cap enables the plan to retain its right to use Blue Cross and Blue Shield trademarks. But Spitzer worries that it would prevent the foundation from receiving fair value for its stock in the new company.