Reorganization push would allow NC’s largest health insurance provider to avoid regulation

Bill introduced at the behest of Blue Cross Blue Shield will be heard in a state House committee Tuesday

The state’s largest health insurer, Blue Cross Blue Shield of North Carolina, wants the legislature to allow it to reorganize its business structure so that it can sidestep a 25-year-old law requiring it to compensate the state for decades of tax breaks.

House Bill 346 and Senate Bill 296 would allow Blue Cross to create a “holding corporation” into which it could transfer assets, property and ownership of subsidiaries. The holding corporation would not be subject to insurance company regulations.

If either bill becomes law, it would affect millions of North Carolinians, although it’s still unclear if premiums or out-of-pocket costs would increase. Blue Cross says on its website that it has 4.3 million members.

Insurance Commissioner Mike Causey met with Blue Cross to discuss the bill. Causey said in a statement that he opposes the measure.

Causey said in his statement that he supports Blue Cross in its mission to provide accessible and affordable insurance coverage. “However, I do not support this bill in its current form because I believe it will harm consumers and has the potential to raise health insurance premiums in the future,” he said.

“I further believe this is a backdoor route to get around the conversion statutes the General Assembly passed in the 1990s and undermines the ability of the Department of Insurance to regulate for the public interest. The Department of Insurance must maintain adequate oversight to protect consumers.”

Conversion statutes refer to a 1998 law that requires Blue Cross to place 100% of its fair market value into a charitable foundation “for the promotion of social welfare” if it should decide to become a for-profit company.

That law requires Blue Cross to compensate for the tax breaks the company received over the decades as a nonprofit operation. The bills specify that the reorganization and the creation of the holding corporation would not be considered a conversion under that law.

In its 2022 financial filing, Blue Cross reported $10.9 billion in revenue and $36.2 million in net income. It paid $9 billion in claims and expenses and had 5.3 months of reserves.

Rather than the legislature passing the bill this year, Causey wants to send it to a study committee. That would give legislators months to dig into the details and make changes, and if they wanted, to gather public comment.

Blue Cross spokeswoman Sara Lang said in emails that neither company President and CEO Dr. Tunde Sotunde nor company counsel David Lamb were available for interviews last week.

Lang emailed a statement saying that the bill would allow the company to modernize its structure.

“The health care and business environment has changed dramatically in recent years,” the statement said.  “We support legislative proposals that would allow any hospital service corporation, including Blue Cross NC, to modernize its structure for greater flexibility and responsiveness to meet the critical needs of customers and communities.”

Legislators backing the bill were reluctant to talk about it last week. Sen. David Craven, a primary sponsor of the Senate version of the bill, said he would leave questions to House supporters because the House was going to be the first to debate the bill.

Rep. John Bell, the House Republican majority leader and one of the bill’s primary sponsors, was likewise hesitant to talk about it. He did say that he had heard the criticism and had spoken to Causey about his concerns.

Bell said he also heard about the bill’s positives, though he did not want to give details.

“It’s going through the process,” Bell said of the bill.

The public process officially begins this week. The House Health Committee is scheduled to hold a hearing on the bill Tuesday morning.

Blue Cross enters the public debate on its bill having already secured bipartisan support from 30 members of the 50-member Senate and from nearly 60 of members of the 120-member House. In addition to House Republican leader Bell, House Democratic leader Robert Reives has signed on as one of the four primary House sponsors.

Along with its team of in-house lobbyists, Blue Cross has a “Who’s Who” of lobbyists under contract, including former House Speaker Harold Brubaker, former state Republican Party chairman Tom Fetzer, and L.T. McCrimmon, former legislative director for Gov. Roy Cooper.

The existing law spelling out how Blue Cross could become a for-profit company was the result of a hard-fought compromise. In 1997, influential Democratic Sen. Tony Rand, a friend to Blue Cross, filed a two-paragraph bill allowing for for-profit conversion that sailed through the Senate in nine days. There was no mention of a health foundation or compensation for 65 years of tax breaks.

When people realized what the bill would do, a public campaign developed in opposition and legislators hit pause. Then-Blue Cross CEO Kenneth Otis, in a July 1997 News & Record commentary, argued that the company needed the flexibility the bill would allow to compete with bigger companies.

Blue Cross agreed in 1998 to the conversion law that included the provision for a charity trust should it become a for-profit company. Martin Eakes, co-founder of the Self-Help Credit Union and the Center for Responsible Lending helped negotiate the 1998 law. He opposes the new bill.

“This bill is a betrayal of the public trust,” Eakes said.

Blue Cross started to go for-profit more than 20 years ago, making the announcement in December 2001. The company said that becoming a for-profit would allow it to sell stock and improve its competitiveness. It ended its for-profit conversion effort in July 2003.

Nicole Dozier, director of the Health Advocacy Project at the North Carolina Justice Center, said the company’s millions of policy holders should know the consequences of the proposed restructuring.

“Their insurer is attempting to put forth two potentially harmful bills,” she said. “It would be helpful for folks to know what that could mean for them. We definitely want to know if this will mean more out of pocket costs and higher premiums for North Carolinians.”