Bill to Help Blue Cross Shed HMO Reaches Governor’s Office

The state Senate, following the lead of the Assembly, last Thursday overwhelmingly passed a special bill intended to help struggling Blue Cross of California sell one of its affiliates and raise much-needed cash.

The bill now awaits the signature of Gov. George Deukmejian, who has not announced whether he supports the legislation, said Donna Lucas, his deputy press secretary. If Deukmejian does not sign or veto the bill, it will become law after 12 days.

Blue Cross, based in Woodland Hills, is in a hurry to sell TakeCare, its 10-year-old health maintenance organization, to help offset major insurance underwriting losses in recent years.

Stung by soaring health-care costs and increased competition, Blue Cross, the state’s largest health insurer, has suffered net losses in the last two years of $150 million. Blue Cross insures nearly 3 million people and collects nearly $2 billion a year in premiums.

Blue Cross already has announced a tentative plan to sell TakeCare, based in Oakland, to an investor group led by Jack Anderson and Richard Burdge. Blue Cross has not disclosed the proposed purchase price for TakeCare, which has about 155,000 members. But press reports and Consumers Union, the nonprofit publisher of Consumers Reports, have placed the price at $40 million to $45 million.

Anderson was an executive of Hospital Affiliates International and Republic Health Corp. Burdge was an executive at CIGNA, a large publicly held insurer, and was president of the American Stock Exchange from 1972 to 1977.

In order for the TakeCare sale to go through, however, the HMO, which is a nonprofit organization like Blue Cross, must be converted to a for-profit concern. The process can take months because there is no provision in state insurance regulations for such a conversion. So the special bill, introduced by Senate Majority Leader Barry Keene (D-Benicia), was needed to let TakeCare make the switch immediately.

Keene introduced the bill because he was concerned about “the potential insolvency of Blue Cross,” said Chuck Cole, Keene’s chief of staff. “You have 2.5 million to 3 million enrollees who would be in great jeopardy should Blue Cross become insolvent.”

The Senate approved the bill 32 to 1; the Assembly, 62 to 11.

Ron Williams, Blue Cross’ vice president for corporate services, said the company was “quite pleased with the legislation,” which he termed “an important milestone” in the financial restructuring of Blue Cross.

Consumers Union opposed the bill. It argued that any special law allowing the sale should include guidelines on how the money is used.

For instance, if the money helps Blue Cross regain its financial footing, Blue Cross should then be required to make health insurance available to employees of small businesses “at affordable rates,” Consumers Union said in a recent statement.

Small employers usually are not eligible for the discounted rates given large large corporations, the publisher said.