A plan to keep Blue Cross and Blue Shield of Maine as a nonprofit has been given short shrift, say opponents of the proposed sale of the company to a large Indiana insurance corporation. They urge a closer look at a proposal by Blue Cross and Blue Shield of Massachusetts to form a partnership with the Maine company.
The Massachusetts plan lays out a strategy for both companies to continue to operate as independent subsidiaries of a new entity, Blue Cross Blue Shield of New England, while lowering administrative costs and increasing revenues.
“We can dramatically strengthen the Blue Cross Blue Shield plans of Maine and Massachusetts and preserve our historically strong ties to the communities we serve by combining into a new, stronger, regional health insurer,” the Massachusetts proposal states.
Maine Blue Cross Blue Shield’s board of directors has already accepted an offer by Anthem Insurance Cos. of Indiana to buy the financially ailing health insurance company. The deal is now being considered by Maine’s superintendent of insurance.
Officials of the Maine and Massachusetts Blues disagree, however, on whether Massachusetts officials have withdrawn their proposal, which was first put on the table for negotiations in April 1999.
A Maine Blue Cross spokeswoman said Massachusetts withdrew its plan, leaving only a $20 million loan offer for discussion. A spokesman for the Massachusetts company said all its proposals are still good.
The Maine Blues’ characterization of the Massachusetts proposal has angered Mark L. Gray, executive director of the Maine Education Association. The 60,000-member union is the Maine company’s biggest customer. Gray agreed to release a copy of most of the original Massachusetts plan Thursday.
Based on a recent meeting with Massachusetts Blue Cross executives in Boston, he said the plan is not as “vague” or as dead as had been portrayed by the Maine Blues.
“Now that I’ve seen the plan I think it’s an absolutely serious offer,” Gray said. “We were somewhat surprised that it’s still an offer that is on the table.”
Maine Blue Cross directors decided to sell the company last year as financial losses mounted and reserves dwindled. They chose an offer from Anthem, which operates Blues plans in seven states.
The original deal called for about $100 million to be placed in a charitable trust for the uninsured and underinsured as required by Maine law. That amount was recently dropped to $82 million because of Maine Blues’ poor financial performance.
Unlike Anthem’s offer, the Massachusetts Blues’ affiliation proposal is designed to maintain the company’s not-for-profit status. Blue Cross Blue Shield of New England holding company would serve as parent to the two existing Blues’ plans. Each would be represented on the parent’s board of directors.
The proposal says joining forces would result in a 15 percent savings in administrative costs, allow creation of new products to win new members from competitors, and allow additional savings through medical and pharmaceutical payment negotiation.
As to the reserve problems created by the Maine Blues’ losses in recent years, the Massachusetts company said it had “more than adequate reserves for this purpose.”
On the other hand, the Massachusetts Blues don’t keep as high reserves as some insurers.
The plan says, “Unlike for-profit plans, our plans do not accumulate large reserves as `war chests’ or pay dividends to shareholders.”
Last year the Massachusetts company posted profits of more than $61 million. It has only had one loss in the last 10 years and is considered a strong company.
Weiss Ratings Inc. of Palm Beach, Fla., gives the company a C financial rating — which is about average today, said Donna O’Rourke, a Weiss analyst. Anthem ranks slightly better with a B minus, she said.
Elizabeth Schorr, a spokeswoman for Maine Blues, said that Massachusetts’ $20 million loan offer did not satisfy Maine directors worried about the company’s dwindling reserves, she said.
“It’s just a loan. It doesn’t ensure the plans’ strength and viability for the future,” Schorr said. “It was simply not as responsive to what our financial and business needs would be.”
Massachusetts Blues spokesman John Schoenbaum disagreed with Schorr’s interpretation of his company’s stance.
“It is my understanding that we would hear something from Maine [about his company’s offers]. We would propose a solution. We would hear more information was needed and we would revise the solution,” he said.
That’s how the proposal evolved, he said. The Massachusetts company remains committed to throwing its financial strength behind Maine in a partnership if the parties in Maine are interested, he said.
Dr. Thomas D. Hayward, president of the Maine Medical Association, an opponent of the sale to Anthem, said he believes the Maine Blues executives weren’t interested in working further with Blue Cross of Massachusetts because a deal wouldn’t provide them with personal compensation.
Such compensation is often included under “change of control agreements” in executive contracts. The agreements often include so-called “golden parachutes” that compensate some executives after the sale of their company.
“The change and control agreements are key,” Hayward said.
A group of 55 legislators petitioned Superintendent of Insurance Alessandro Iuppa to release details of any existing agreements. The petition was submitted at the end of the public comment period on the proposed acquisition of the Maine Blues by Anthem.
Iuppa ruled the agreements confidential, and Maine Blue Cross has declined to release them.
“These are agreements that are between employees of the company and our board of directors and it is our policy not to make them public,” Schorr said.
Hayward said he would prefer the Maine Blues to remain completely independent. But allying with Massachusetts Blues would retain nonprofit status and would not give away as much control as selling to Anthem, he said.
Anthem officials have repeatedly said the insurer would retain local decision making in Maine.
The Massachusetts Blues’ plan says that the strategy of health insurers to grow through acquisition nationally has not been as successful as expected because “health care is essentially a local business.”
“Strong regional players with sufficient scale and the financial resources necessary to maintain state-of-the-art information systems and customer service platforms will continue to be leaders in their respective marketplaces,” the plan states.
O’Rourke, the analyst with Weiss Ratings, said regional players with strong relationships and understanding of local medical providers, have been able to compete even as some national companies have grown.
After some acquisitions, insurers haven’t been able to integrate information systems fast enough to keep track of incoming claims and other expenses, she said.
That was what blinded Massachusetts-based HMO Harvard Pilgrim to unexpected losses announced in January.
The Massachusetts Blues proposal notes that New England has faced challenges from cutthroat pricing practices of other HMOs and from rapidly growing costs.
“We have managed our way through these difficult times,” the document states. “In our effort to address some of these major industry issues, BCMSMA has achieved a significant financial turnaround. Now, together, we have a great opportunity to do even better.”
Schoenbaum said the Massachusetts company believes the decision on the sale to Anthem rests with the Maine community and the Maine Blues’ directors.