When not-for-profit Blue Cross and Blue Shield plans convert to for-profit companies, state regulators often require them to fund new charitable foundations to repay communities for the years of tax breaks the insurers received.
These foundations typically become grantmaking organizations that dole out millions of dollars each year to help the uninsured, improve public health and influence health policy.
But when Blue Cross and Blue Shield United of Wisconsin completes its planned conversion to a for-profit insurance company-maybe as soon as the end of this month-the big winners will be Wisconsin's only two medical schools.
In this case, a new foundation created as part of the conversion plan will split 100% of the proceeds-estimated to be as much as $250 million-between the University of Wisconsin Medical School in Madison and the Medical College of Wisconsin, a private school in Milwaukee. But the schools are under order from Wisconsin's insurance commissioner to spend slightly more than one-third of that money working with community groups on public health initiatives.
An uncommon approach
Observers say it's unusual for the proceeds of a Blues conversion to be earmarked solely for medical schools. In fact, it's believed to be the first time it has happened.
"Most conversion assets, if they're preserved for community benefits, are preserved in a way where a foundation uses the money to make grants," says Malcolm Williams, a program associate at Grantmakers in Health, a Washington-based educational resource group that works with foundations and corporate-giving programs. The idea behind that is to ensure that the assets of a former not-for-profit continue to serve the community as originally intended.
In Wisconsin, Blues officials expect the conversion to be complete by March 28, pending final approval from the state's insurance commissioner. The commissioner's office won't say when a final ruling is expected, although it did give an initial OK to the deal last year (April 3, 2000, p. 26).
The conversion will result from a merger of the Blues and its for-profit holding company, United Wisconsin Services, to create Cobalt Corp., a new publicly traded insurance company covering 1.9 million people. As part of the conversion, 31.3 million shares of Cobalt stock will be given to the new Wisconsin United for Health Foundation, which will sell the stock over five years and split the money between the medical schools.
Harry Snyder, a senior advocate for the advocacy group Consumers Union- which tracks conversions nationally-says he hasn't heard of another case in which conversion proceeds were transferred to medical schools.
The Blues designated the two medical schools as the recipients of its money when the insurer first unveiled its plans to convert in June 1999 (June 7, 1999, p. 4). Choosing to give the money to the schools was a natural decision, says Bill Zaferos, a Blues spokesman.
"This is Wisconsin, and we've always relied on academic institutions for public policy issues," he says.
Criticism from the community
The decision to give the money to the schools sparked criticism from some community groups, which wanted to see all of the foundation's money fund public health initiatives in the state. Consequently, when Wisconsin Insurance Commissioner Connie O'Connell initially approved the proposed conversion in March 2000, she required the medical schools to dedicate 35% of the money to working with community groups. The schools will spend the remaining 65% on medical research and education.
But giving the medical schools the money with the understanding that some of it must be used to work with community groups "doesn't mean that one dollar goes out of the schools," says Bobby Peterson, executive director of ABC for Health, a not-for-profit public interest law firm in Madison.
His firm is one of two community organizations that have gone to court to try to force O'Connell to require all conversion proceeds to be set aside for public health initiatives. The groups have an appeal pending before a state appeals court.
Peterson, who says "the public is owed a payback," would like to see the conversion foundation focus on increasing people's access to healthcare, much like the original mission of the Blues.
For their part, the schools plan to put the conversion proceeds into endowment funds and spend the annual investment income, estimated at $5 million to $7 million.
"As far as we're concerned, this is all public health," says Linda Brei, director of public affairs for the University of Wisconsin Medical School.
Both schools say they have long traditions of working with groups and in communities to tackle health problems. School officials say the Blues money will enhance that.
"It's a wonderful opportunity for the two schools to work collaboratively with organizations throughout the state to have a long-term approach to improve health," says Donna Gissen, assistant vice president of planning and government affairs at the Medical College of Wisconsin.