Momentum has shifted in a hot area of insurance regulation. State approval of the conversion of Blue Cross and Blue Shield health plans to for-profit status is no longer a foregone conclusion. Although a dozen or so states have approved such sales since 1995, regulators in two states recently said no.
In March, Maryland Insurance Commissioner Steven Larsen rejected the sale of CareFirst, the holding company for Blues plans in the region, to California-based WellPoint. Larsen's action followed by a year the Kansas insurance commissioner's decision to block the sale of a Blues plan there. The Kansas action is under appeal to the state Supreme Court, but the CareFirst deal is dead and appears to have already had a negative effect on planned Blues conversions in other states, including North Carolina and New Jersey.
In part, the shift in momentum reflects a change in circumstances. In earlier years, Blues were in bad shape and argued that survival depended on access to the capital markets. Most Blues are now healthier.
Under conversion rules, charitable organizations that change their function or tax status must turn over their assets to the state to be used for a purpose as close as possible to its original mission. States where the earliest Blues conversions took place used those assets to underwrite new health foundations or fatten their treasuries--even as critics complained that the Blues understated the value of their charitable assets.
Despite budget pressures to find additional revenues, the environment today is more focused on corporate governance, and future conversions are likely to receive greater public scrutiny.