THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, September 1, 1996 TAG: 9608310688
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: 130 lines
The elderly woman sounds worried.
``Will Trigon still insure anyone? Or just healthy people who won't hurt their profits?'' she asks.
A man recommends that the woman make her concerns known to Virginia regulators.
``Their decision might not just decide Trigon's fate, but your health care as well,'' he tells her.
That dialogue is part of a 60-second announcement distributed to radio stations last week by the Virginia Citizens Consumer Council. It hits on the uncertainties surrounding a restructuring effort by the state's largest health insurer.
Trigon Blue Cross Blue Shield, a Richmond-based company that provides health insurance for one in four Virginians, wants to become a for-profit company with shares that trade on the New York Stock Exchange. In its present form, Trigon is a nonprofit organization owned by its policyholders.
But a consumer advocacy group, the Virginia Citizens Consumer Council, has questioned whether health-insurance coverage will be as available for some Virginia residents if Trigon's structure changes. The consumer group also has questioned the fairness of Trigon's plan for distributing stock to its policyholders.
Trigon's conversion plan still must be approved by its policyholders, whose votes will be tallied at a special meeting Friday. In addition, the plan must be approved by the State Corporation Commission, which regulates insurance companies in Virginia. The commission is scheduled to begin its hearings on the plan Monday, Sept. 9.
Trigon says it has to expand geographically if it hopes to survive in this era of health care consolidations. That means having publicly traded shares and access to the stock market for money to buy other companies, Trigon says.
Under pressure to hold down their costs and gain access to new markets, some health insurers already have embarked on a race to merge.
For example, Aetna Life & Casualty Co. shed its property-and-casualty insurance operations earlier this year and agreed to buy a major operator of health-maintenance organizations. Aetna's transaction with HMO operator U.S. Healthcare Inc. will be worth more than $8 billion.
Several Blue Cross Blue Shield companies already have succumbed to competitive pressures and merged with other Blues organizations. During the past decade, the number has dropped by more than a quarter, from 86 to 62.
At least eight more combinations, involving Blue Cross Blue Shield groups in New Jersey, Delaware, Texas and a handful of other states, are pending.
Some of the Blue Cross Blue Shield companies that merged during the past decade were financially weak and had to be rescued. One, Blue Cross Blue Shield of West Virginia, was taken over by the Ohio Blues five years ago after collapsing with $50 million of unpaid medical bills.
Trigon, the marketing name for Blue Cross and Blue Shield of Virginia, is financially healthy, with $1.65 billion in assets and a $723 million surplus.
But Trigon's board has decided the company must be able to tap the stock market to carry out an aggressive expansion strategy. That strategy involves buying insurers and health care providers in the middle Atlantic and southeastern states.
``Without access to capital, Trigon will not be able to compete in the health care marketplace of the future and therefore risks being acquired by an out-of-state company,'' J. Carson Quarles, chairman of Trigon's executive committee, told state regulators earlier this year.
As part of its conversion plan, Trigon reached an agreement with the General Assembly earlier this year to refund $175 million to the state for certain tax breaks the company once enjoyed.
But Trigon's conversion effort has come under attack from the consumer advocacy group Virginia Citizens Consumer Council partly because of the company's past practices, including its secretly negotiated discounts. For years, Trigon received substantial discounts on the services it purchased from hospitals and other health care providers.
The insurer, however, failed to pass along these savings or even make the discounts known to its policyholders. When the practice came to light in 1993, Virginia's insurance commissioner required Trigon to refund the excessive co-payments to its policyholders. The refunds have totaled more than $70 million.
Like many Blue Cross Blue Shield companies, Trigon has not been timid about cultivating state legislators. Acting on Trigon's behalf, the General Assembly passed a measure earlier this year that narrows the scope of the State Corporation Commission when it examines the Trigon conversion plan. The commission's focus will be restricted to determining whether the plan is fair and equitable for policyholders.
The bargain struck with the General Assembly doesn't sit well with the Virginia Citizens Consumer Council. Trigon's plan for distributing its shares fails to reward those customers who contributed to the company's financial success but were not policyholders, the consumer advocacy group said in a report last week.
In addition, state regulators should address the future availability of health insurance in Virginia, especially for individuals who cannot get coverage from any provider other than Trigon, said Jean Ann Fox, president of the consumer group. Trigon currently offers this coverage and in return receives a tax break from the state.
But given the company's need for added capital to expand, Trigon may have few choices other than become a publicly traded company, said George E. Morgan, a finance professor at Virginia Tech University.
``The only alternative might be to charge their customers higher prices,'' something that could be tough to carry off, Morgan said.
``The notion of not-for-profit companies being altruistic isn't an accurate depiction of their operations,'' the Tech professor said. ``They've got to generate a sufficiently high level of revenues to cover their costs and to generate additional capital.''
And for nonprofit companies in an intensely competitive field, that's become much more difficult to accomplish, he said. ILLUSTRATION: Graphic
PUBLIC COMMENT:
The State Corporation Commission's hearings on the Trigon
conversion plan will begin Monday, Sept. 9, at 10 a.m. They are
scheduled to run through Friday, Sept. 13 and then on Sept. 16, 17,
19 and 20. The hearings will be held on the second floor of the
Tyler Building, 1300 East Main St., Richmond.
Anyone planning to speak must check with the commission bailiff
at least 15 minutes before the hearing begins to fill out a public
witness card. The SCC suggests that anyone expecting to speak at the
Trigon hearings check with the bailiff as early as possible.
Individuals also can make their views known to the commission by
sending them to the Office of the Clerk of the Commission, c/o
Document Control Center, P.O. Box 2118, Richmond, 23218. Anyone
writing to the commission should identify the Trigon case by its
number: INS 950103.
SOURCES OF INFORMATION:
Trigon Blue Cross Blue Shield has set up a conversion information
center to answer policyholders' questions about its plan. The number
for the center is 1-800-619-1697.
Policyholders will vote on the conversion at a special meeting on
Friday, Sept. 6 at 9 a.m. The meeting will be held at Trigon's
headquarters, 2015 Staples Mills Road, Richmond.
The Virginia Citizens Consumer Council is offering its own
information about the Trigon conversion plan through its hotline in
Richmond. The number is 804-344-4321. by CNB