Byline: Michele Conklin Rocky Mountain News Staff Writer
Blue Cross Blue Shield of Colorado will undergo a historic restructuring by handing over its ownership to two new health charities to become a for-profit company.
The not-for-profit health plan, established in 1938 as the insurer of last resort for the poor, submitted its conversion plan Tuesday to the Colorado Division of Insurance. The company is seeking approval to convert to a for-profit company so it can sell stock to raise capital for investment in growth and information systems.
At the same time officials announced a merger with Blue Cross Blue Shield of Nevada.
Although the merger adds just 44,000 subscribers to the plan, it offers a growing market, said David Kikumoto, president of the Colorado Blues. That's exactly the type of opportunity the company seeks by converting to a for-profit company, he said.
``Some experts predict there will be only a dozen Blue Cross and Blue Shield plans left in the country in the future and it's our vision to be one of those dozen,'' Kikumoto said. ``We're well poised to be the dominant Blue Cross in the West.''
The conversion is not expected to affect current subscribers. In fact, the company expects to offer better services because it will be able to raise money to buy new computer systems that will help deliver more efficient care and better information about the quality of care, Kikumoto said.
In the company's submitted plan, rates are expected to increase just 0.7% due to the conversion. The average cost of the Blue Cross point-of-service plan for large companies would increase to $120.29 a month, from $119.44 without the conversion.
Colorado's legislature passed a law last year governing the conversion of Blue Cross Blue Shield and other not-for-profit health plans. That law, Senate Bill 100, dictates that the company must submit a plan to the insurance department and have it approved by the insurance commissioner. It also mandates that 100% of the assets of the company be given to a charitable foundation in return for the non-taxable status it held until 1986.
The company is recommending the establishment of two foundations, Caring for Colorado and Caring for Kids, that will focus on health care projects.
The foundations would receive 100% of the stock of a newly formed holding company, Rocky Mountain Health Care Co., which would own Blue Cross Blue Shield of Colorado and its subsidiaries, including HMO Colorado.
The foundations could start selling their stock as soon as the first offering - which is expected to be within a year after the conversion is approved - and they would be required to sell most of it within seven years.
The foundations would be independent of Blue Cross and the Blue Cross Foundation. Their directors would be nominated by a board of the heads of several Colorado foundations and other community members and ultimately appointed by Gov. Roy Romer.
``This company has recognized the benefit it received from the public and it is transferring that to these foundations,'' said Michael Huotari, general counsel. ``This company chose to take the high road on this issue.''
The value of the foundations is still unknown because Blue Cross declined to estimate its value. Company officials said a value estimate was not necessary because they are giving 100% of the stock to the foundations. The true value will be set by the market when the company sells its stock, likely within a year, Huotari said.
The consumers group monitoring the conversion plan has not yet seen the plan, but it already has problems with what it is hearing, said Mary Boland, chairman of the Colorado Health Care Conversions Project and vice president of Catholic Charities.
The group is pressing for the foundations to be established through a combination of liquid assets, such as cash, and stock so that they can become operational quickly. The group also wants the value of the company established up front rather than when it sells stock.
``We have a lot of concerns over cash not being part of the deal,'' Boland said. ``The foundations can't get started until they sell the stock, which could be several years. We believe Blue Cross Blue Shield has enough cash to give some of it to the foundations to let them begin their work right away.''
Blues officials will meet with Insurance Commissioner Jack Ehnes next week to set the timing for the conversion. Ehnes will have public hearings throughout the state within 90 days and make a decision within 60 days after those hearings.
The state has hired Bear Stearns & Co., Coopers and Lybrand, two law firms and a Harvard professor who specializes in the organization of charitable foundations to review the plan.
INFOBOX
ROCKY MOUNTAIN HEALTH CARE CORP.
Subsidiaries: Blue Cross Blue Shield of Colorado, HMO Colorado, Rocky Mountain Life Insurance Co., Rocky Mountain Administrative Services.
Headquarters: Denver.
States of operation: Colorado, Nevada.
Insured Lives: 384,000.
1996 earnings: $375 million.
Employees: 1,200.
Type of company: 100% of stock held by two non-profit Colorado foundations; company will be able to sell additional stock in public stock offering.
CAPTION(S):
Color Photo
David Kikumoto, Blue Cross Blue Shield of Colorado president, will steer the 59-year-old health plan toward its first stock sale as a profit-making company and into merger with Blues of Nevada. By Glenn Asakawa / Rocky Mountain News.
