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Friday, April 19, 2024

Blue Cross-backed bill would allow new flexibility, asset transfers

By Ray Gronberg

Bills filed in the House and Senate would allow Blue Cross and Blue Shield of North Carolina to transfer at least some assets to a new nonprofit holding company that could operate without many regulatory constraints imposed by state law.

The bill would exempt any transfer from the so-called “Conversion Act,” which could otherwise require the creation of a foundation to receive 100% of the nonprofit’s fair market value to “promote the health of the people of North Carolina.” The act passed in 1998 after a lengthy debate over Blue Cross’ potential to operate in a different financial structure.

Under the proposed bills, Blue Cross would gain flexibility “to invest in new opportunities with more speed and agility, to more efficiently deploy capital across the organization, so it’s available to make strategic investment without unnecessary regulatory lag, and also to partner with third parties when it makes sense to do that,” says David Lamb, the insurer’s managing counsel.

He adds that it’s “unique” for a regulated insurance company to have “every investment underneath” be subject to state regulatory oversight. Blue Cross has historically dominated the N.C. health insurance market, which has led to close state oversight. Now it is facing stronger competition from larger national rivals such as UnitedHealth Group and CVS Health.

The lead sponsor of the House version is Rep. John Bradford, R-Mecklenburg. Co-sponsors include the majority and minority leaders of the chamber, Reps. John Bell, R-Wayne, and Robert Reives, D-Chatham.

Reives says the bill is an attempt to “update some of the options they have to keep them competitive” with other insurers. He always sees bills as “a starting point,” and that he expects it would be “fully vetted in committee” if it moves forward.

The Senate version’s lead sponsors are Sens. Todd Johnson, David Craven and Dean Proctor, Republicans from Union, Randolph, Catawba counties, respectively. As on the House side, the proposal has bipartisan support, including from the two Democratic senators, Mike Woodard and Natalie Murdock, who represent Durham County, Blue Cross’ home.

The bill faces opposition from Martin Eakes, the longtime CEO of Durham-based Self Help Credit Union and an opponent of prior Blue Cross conversion efforts dating back more than 25 years.

“We will oppose vigorously anything that exempts Blue Cross from the guardrails of the conversion bill, which was established in 1998. They are saying we can transfer anything we want to outside of the public trust,” Eakes says. “This was meant to be a long-term value for the citizens of North Carolina.”

Blue Cross held cash and investments topping $4.5 billion, according to its 2021 financial statement. The company recently said it had net income of $36 million in fiscal 2022.

Blue Cross’s lobbying team includes former House Speaker Harold Brubaker, former Raleigh Mayor Tom Fetzer, UNC Board of Governors member David Powers and former John Locke Foundation Senior Vice President Becki Gray.

The insurer has argued that it needs more flexibility to make “meaningful new investments in subsidiaries” and affiliates, and to dump underperforming assets.

The solution is “allowing a nonprofit holding company that is not a regulated insurance company,” it said in a background briefing for legislators. It noted that the initial asset transfers would remain subject to Department of Insurance oversight. “It’s not a free-for-all,” says Darcie Dearth, a Blue Cross spokeswoman.

Existing holding-company law requires notice to the state insurance commissioner of any transfer that’s worth at least 3% of an insurer’s assets or 25% of its surplus, whichever is less. There’s also a notice requirement for “extraordinary dividends” that exceed 10% of its surplus or its net income, whichever is greater. The commissioner can veto such transfers.

“The ultimate gatekeeper is still the Department of Insurance,” Lamb says.

The result could eventually be a corporate structure replacing one that now subordinates Blue Cross and all its assets to the Department of Insurance and the Conversion Act to one where a new holding company would control Blue Cross. Any assets under the Blue Cross flag would remain subject to both the Conversion Act and the Department of Insurance. All others would not.

“There are a number of guardrails here to ensure that the regulated insurance company remains a strong and solvent piece of the organization,” Lamb says.

Other players are taking note.

“We support flexibilities, which this bill provides, that allow BCBS to make operational decisions and investments that will enable them to be better partners with their provider network and to better serve their subscribers,” says Cynthia Charles, spokeswoman for the N.C. Healthcare Association. “That being said, H346 should not grant BCBS the ability to invest in competing clinical services [that] would disadvantage their current provider network, including physicians and hospitals.”

State Treasurer Dale Folwell signaled skepticism. He oversees the State Health Plan, which has chosen Aetna as its insurance administrator starting in 2025, replacing Blue Cross, which had the account for more than 40 years.

“I never have understood, especially in the last six years, why [Blue Cross] can’t just focus on being the best at what they do,” Folwell says. “Any mental or financial drain or diversion away from anything that can make them the very best at what they do is not productive for anyone, their customers or their citizens.”

Founded in 1933 as Hospital Care Association, it became Blue Cross and Blue Shield in 1968, affiliating with similar not-for-profit health insurers across the nation. It had more than 4.2 million members and $10.7 billion in revenue in 2021.

Its most aggressive recent effort to expand came when it tentatively agreed to a March 2019 strategic affiliation with Cambria Health Solutions, a Blue Cross affiliate that operates in Oregon, Washington, Idaho and Utah. The deal collapsed after Blue Cross CEO Pat Conway resigned after he was charged with driving while intoxicated following a minor crash in June 2019.

 

 

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