THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, April 25, 1996 TAG: 9604250400
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
DATELINE: RICHMOND LENGTH: Medium: 81 lines
For Trigon Blue Cross Blue Shield to survive mounting competition from out-of-state insurers, the policyholder-owned insurer must convert to a public stock company, Trigon's chairman and chief executive officer said Wednesday.
``The status quo is not an option for Trigon or for the health care industry,'' CEO Norwood H. Davis Jr. told more than than 200 people attending Trigon's annual meeting in Richmond.
But skeptical policyholders peppered Davis with questions about the impact that the planned conversion would have on their coverage and premiums. Davis assured them these would not be affected by the change in Trigon's corporate structure.
Trigon, the largest health insurer in Virginia, also expects to remain the insurer of last resort for Virginians who cannot find coverage with other companies, Davis said.
Trigon provides health insurance for 1.8 million individuals, most of them in Virginia. It has 184,000 individual policyholders and 16,000 group policyholders, including city governments, small businesses and corporations.
During the hourlong meeting, some Trigon policyholders endorsed the conversion plan. A few, however, expressed suspicion about the management's motives for the change.
One person asked Davis whether any Trigon officers or employees had agreements with the company that would reward them for bringing about the conversion. Davis responded that there were no agreements of this sort.
The purpose of the conversion, he said, is to provide Trigon with greater access to financial resources, which the company will need for continued expansion. As a publicly traded company, Trigon could raise fresh capital by issuing additional shares. It also could acquire other companies by exchanging its stock.
The rapid consolidation among health care providers and insurers will put greater pressure on Trigon to hold down its rates and attract new customers, Davis told policyholders. But Trigon, he said, also will have to expand.
``The name of the game is that you are either a hunter or hunted,'' he said. ``We will be a hunter.''
Nationwide, there are more than 60 Blue Cross-Blue Shield companies, but the number has been falling. By 2000, there could be only 5 or 6, Davis said.
A sharp decline in Trigon's net income for 1995 reflected the competition for customers that the company is feeling in Virginia. Its net income plunged 50 percent last year to $46.99 million after declining 20 percent in 1994.
Trigon's revenues for 1995 rose 10 percent to $1.72 billion, due partly to an increase in the enrollment in its health maintenance organization, president and chief operating officer Phyllis Cothran said in a review of the company's financial results.
She attributed the decline in Trigon's 1995 earnings partly to the cost of refunding copayments to several thousand policyholders.
For years, Trigon secretly received a discount for the services of several health care providers but did not pass on those savings to policyholders.
Under pressure from the State Corporation Commission, Trigon agreed in 1994 to distribute refunds to policyholders and to pay a fine. Last fall, Trigon agreed to reopen its refund program.
Policyholders voted Wednesday to return five existing directors to Trigon's 17-member board.
But one irate policyholder asked Davis why directors who sat on the board during the company's secret discounting program should continue to serve. Davis replied that the five directors were valuable to the company.
Davis also told policyholders that Trigon expects to distribute a report explaining the conversion plan within 60 days. Trigon must get the approval of its policyholders and the SCC before converting to a stock company.
The SCC is expected to hold a public hearing on the conversion plan this summer.
Under its existing plan, Trigon policyholders who were with the company at year-end 1995 would be eligible to receive stock in the company. The number of shares they receive would be based on the type of coverage they have with Trigon and the length of time they have been with the insurer.
Davis said policyholders who receive stock would be allowed to sell as much as 50 percent of it six months after the conversion date. Policyholders could sell the remaining shares 12 months after the conversion. by CNB