Blue Cross/Blue Shield Seeks for-Profit Status

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(Host) The state’s largest health insurance company plans a fundamental shift in the way it operates. The non-profit Blue Cross/Blue Shield of Vermont wants to create a for-profit subsidiary that can sell stock.

Before it can make the change, the company needs new legislation that would allow it to reorganize. The proposal has triggered a debate about whether Blue Cross/Blue Shield will abandon its longtime role as a health insurance safety net for all Vermonters.

VPR’s John Dillon reports.

(Dillon) Blue Cross/Blue Shield of Vermont insures more than 200,000 people in the state. The company is a key part of the state’s health care network.

But by its own admission, the non-profit health insurer is in precarious financial shape. For years, it’s had low reserves. These funds provide the financial cushion that all insurance companies must maintain in order to cover claims.

Blue Cross spokesman Leigh Tofferi says the company is vulnerable to a sudden jump in claims or a rapid rise in health care utilization. He says the insurer needs to sell stock so it can pump money into its reserve funds:

(Tofferi) “When a company like ours can’t maintain the level of reserves, we would no longer be able to function as a separate company¿. We’d be forced to merge with another company. So the whole goal of this is to bolster our reserves and our capital position so we can maintain our independence.”

(Dillon) Tofferi is in the Legislature a lot these days, lobbying for a bill that would allow Blue Cross to set up the for-profit company. This new subsidiary would run the day-to-day insurance operations. The for-profit entity also could sell stock.

Tofferi says the stock wouldn’t be sold to ordinary investors. The potential buyers could be other health insurance companies, or perhaps hospitals.

(Tofferi) “We’re looking at institutional type investors who share our vision of what a health care system in Vermont should be. So it’s not going to have the vagaries of the New York Stock Exchange or anything like that.”

(Dillon) Blue Cross says the reorganization will stabilize the company. And officials say a stable company is in a better shape to hold the line on rate increases. But by transforming a big part of its operation to for-profit status, the Blues would also move away from its traditional social mission in Vermont.

As a non-profit, the company is exempt from paying about $2 million in premium taxes. In exchange for that tax break, the Blues provide a safety net program for Vermonters.

Under this plan, the company must sell insurance to those who otherwise wouldn’t qualify for coverage. The safety net program also has caps on premium rate increases. The Blues want to phase out the safety net program over three years. But some legislators and health care experts question how much Vermonters really will gain if the company gives up its social mission.

(Sutton Fay) “My overarching concern is, Will Blue Cross Blue Shield remain truly a non-profit if it’s allowed to reorganize?”

(Dillon) Donna Sutton Fay is the state’s health care ombudsman, who serves as an advocate for Vermonters on health insurance issues. She says that a profit-driven company may chose the bottom line over covering expensive but needed care.

(Sutton Fay) “I think that plays out not just in rate increases, but also in approvals for care. If the insurance company is concerned about the bottom line¿ my guess is there’s a lot more scrutiny that goes into coverage decisions than perhaps there might be under a non-profit where the mission is not ‘How much money are we making?'”

(Dillon) Blue Cross/Blue Shield officials say the best way for the company to keep serving all Vermonters is to remain locally based and independent. They say the reorganization is needed to do that. The company says the time for the Legislature to act is now, before the Blues face a severe financial crisis.

But the state isn’t convinced of the urgency. Jackie Hughes, the general counsel for the Department of Banking, Insurance and Health Care Administration, says the Department doesn’t have a position on the bill:

(Hughes) “We haven’t been shown that this is the best method for them to raise capital. We would like to see that demonstrated before we came out with a position of support.”

(Dillon) The attorney general’s office has also proposed an amendment to the bill that says buyers of stock in Blue Cross must be non-profit organizations.

For Vermont Public Radio, I’m John Dillon.

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