Sparking mixed reactions from analysts, providers and consumer advocates, Anthem, one of the nation's largest operators of Blue Cross and Blue Shield health plans, has taken the first step toward becoming a publicly traded company.
The giant Indianapolis-based insurer's board of directors last week approved plans to convert from a mutual insurance company owned by policyholders to one owned by shareholders. Once that conversion is complete, Anthem said it likely will launch an initial public offering by year-end-an IPO destined to be one of the largest ever in the health insurance industry.
The reorganization will make it easier for Anthem to raise funds for future acquisitions and capital needs, such as information systems. Executives would be eligible for stock options as part of their compensation.
The conversion plan caps an eight-year acquisition run in which Anthem, formerly Blue Cross and Blue Shield of Indiana, gobbled up Blues plans in Colorado, Connecticut, Kentucky, Maine, Nevada and New Hampshire. The company now covers 7 million people in eight states and has $5.7 billion in assets. It posted revenue of $8.8 billion last year.
A company spokeswoman said management would not get any IPO shares.
Industry reactions to Anthem's plans ranged from cheers and outrage to the proverbial yawn.
Douglas Sherlock, president of Philadelphia-based Sherlock Co., which specializes in healthcare analysis, said the move would create "a better corporate structure" and that shareholders would "keep management on its toes."
Meanwhile, several state hospital groups shrugged at the news, saying they believed an IPO by Anthem would not affect providers much.
"Our biggest battle was when Anthem converted the state's Blues plan to for-profit" in 1999, said Peg O'Keefe, spokeswoman for the Colorado Health and Hospital Association. "The fact that they're now also going public shouldn't make that much of a difference."
The Nevada Association of Hospitals and Health Systems echoed that sentiment. "What matters most to us is that insurers pay claims correctly and on time," said Bill Welch, president and chief executive officer of the association. He added that Anthem had done a better job of this than many of its for-profit peers. "How they raise capital isn't our biggest concern," he said.
Physicians and consumer advocates, however, fear the conversion could compromise healthcare by pushing Anthem's Blues plans further from their not-for-profit roots.
"Satisfying shareholder expectations places emphasis on maximizing profits and dominating markets rather than on patient care," said D. Ted Lewers, M.D., chairman of the American Medical Association's board of trustees.
Another concern is that Anthem plans to use its increased capital to acquire more Blues plans, in addition to buying small non-Blues insurers or pieces of business from larger competitors.
"Anthem's announcement is part of a growing trend in the current marketplace that looks to bolster profits and emphasize consolidation, all at the expense of America's patients and physicians," Lewers said. "The move toward an insurance marketplace controlled by a few conglomerates does not bode well for the future of healthcare in this country."
Chuck Bell, a healthcare specialist with Consumers Union in Washington, agrees. "We're not happy to see (Anthem) become larger because we don't believe they've behaved fairly in many of the states where they've taken over plans," he said. Anthem "did not always properly compensate" consumers for the tax breaks its Blues plans enjoyed as not-for-profits, he said.
During the past decade, Anthem has poured more than $430 million into creating charitable foundations in six of the states where it has acquired Blues plans. That includes an $81 million foundation it launched last year when it bought Blue Cross and Blue Shield of Maine.
To demutualize, Anthem would transfer the entire value of the company in the form of common stock to about 1 million policyholders in Connecticut, Indiana, Kentucky and Ohio. Policyholders in Colorado, Maine, Nevada and New Hampshire are not eligible to receive shares under Indiana law, analysts said.
The demutualization still requires approval from Anthem members who have voting rights and the Indiana Department of Insurance.
An IPO would put Anthem among the nation's five largest publicly traded healthcare insurers. The $476 million public offering by WellPoint Health Networks in 1993 was the largest health insurance IPO in the U.S. WellPoint, which covers 7.7 million members, including 5 million in its Blue Cross of California unit, has since achieved a market value of $6 billion.
