Perhaps hearing the footsteps of state regulators and consumer advocates, Blue Cross and Blue Shield of North Carolina has created a $15 million healthcare foundation designed to "cement its commitment to corporate giving." But some consumer advocates see the gesture as an attempt by the health insurer to deflect further public scrutiny as it continues to lay the groundwork for an eventual for-profit conversion.
Executives of the Blues plan will control the new foundation's board.
Last week, the not-for-profit Blues plan, based in Durham, placed $15 million of common stock from its $750 million investment portfolio into a private foundation that will fund programs to aid the uninsured, provide health education and promote healthy lifestyles. Most of the grants will come from interest earned on the principal.
Establishing a separate foundation for all its charitable efforts will help the Blues plan reduce its administrative costs and maintain a more stable level of charitable spending, said spokeswoman Michelle Vanstory.
"We see it as a responsible way for us to sustain our corporate giving despite any ups and downs in our (financial) results," she said. In the past, the insurer had to scale back its charitable spending during leaner years.
The Blues plan, which covers 2.1 million members, or 25% of the state's health insurance market, is regaining its financial footing after posting operating losses of $13.3 million in 1999 and $52.2 million in 1998. For the first nine months of 2000, it reported an operating profit of $36.5 million on revenue of $1.5 billion.
Vanstory declined to estimate how much interest the foundation will generate and spend on charity care this year, saying only that it will equal the insurer's current levels of giving. Down the road, though, the foundation will be free to put assets into higher-yielding investments, which could lead to heftier donations.
"We have (up to) 1 million uninsured people in North Carolina, so any effort made to address the problem is a worthwhile endeavor," said Robert Seligson, chief executive officer of the 8,800-doctor North Carolina Medical Society.
Watchdog groups were more reserved.
Adam Searing, director of the North Carolina Health Access Coalition, said that giving back to the community is something the Blues plan--as a not-for-profit organization with a charitable mission--should have been doing all along. Its decision to establish a foundation at this point, he warned, may suggest the company still has aspirations of going for-profit. Blues officials deny any plans to convert.
A number of not-for-profit health insurers have been forced by state regulators to set up charitable foundations as a condition of the plans converting to for-profit status. The foundations are designed to compensate the public for the millions of dollars in tax breaks the insurers amassed over past decades as not-for-profit organizations.
The North Carolina Blues first raised public concern in 1998 when its former CEO, Ken Otis, tried to push a proposal through the state Legislature that would have allowed the company to retain its $500 million in corporate reserves if it were ever to convert to for-profit. Although Otis billed it as a just-in-case measure, lawmakers balked and determined that the Blues plan would have to return all assets to the public--in the form of a charitable foundation--should it ever change its status (Nov. 6, p. 40).
State law requires such a foundation to be run by the public, not the insurer. But in other states with similar laws, there often has been considerable wrangling over who can sit on the governing board.
"Our main concern is that, by creating a charitable foundation before actually converting, (the insurer) may be attempting to short-circuit the public process and gain a controlling hand in the foundation early on," Searing said. "It's a lot easier to stay on a board than it is to get on a board."
Bob Greczyn, who became the Blues' president and CEO in April, will serve as the foundation's president and chairman. The six-member board will consist mostly of other Blues officials and at least one outsider.
"They'll tell you up and down that they don't plan to convert," Searing said. "But they spent hundreds of thousands of dollars trying to defeat legislation that made it harder for them to do just that. I think they'd like to be able to raise capital in the market and have more flexibility in merging with other insurers."