Blue Cross Agrees to Pay $100 Million to Charity : Health care: Deal repays California for the insurer’s tax-exempt status now that much of its business goes to a for-profit subsidiary.

Blue Cross of California agreed Tuesday to pay $100 million to charity to settle a dispute with state lawmakers over last February’s public stock offering in a big Blue Cross subsidiary.

Under the agreement, to be presented Thursday to the Blue Cross board of directors for approval, the state’s largest health insurer will contribute $5 million a year over the next 20 years to health promotion programs, including ones that provide coverage for the uninsured.

The deal heads off legislation sponsored by Assemblyman Phillip Isenberg (D-Sacramento) that would have forced Blue Cross to make the contributions.

The payments are meant to compensate Californians for the tax-exempt status that nonprofit Blue Cross enjoyed before it shifted most of its private health coverage operations into the for-profit subsidiary, Wellpoint Health Networks.

Under state law, when a nonprofit organization converts to for-profit status, it must, over time, make charitable donations equal to the value of the company. About 25 California companies, including such large managed care firms as Foundation Health Corp. and Health Net, have undergone conversion and used the proceeds to create charitable foundations. When Health Net converted last year, it agreed to contribute $300 million over the next 15 years to create the California Wellness Foundation, which concentrates on health issues.

But when Blue Cross raised $517 million in February in its highly successful public offering of Wellpoint stock, the law did not apply because it was not a full conversion. Blue Cross sold only 18% of Wellpoint and kept the remainder.

Blue Cross “wanted the best of both worlds,” Isenberg aide Gene Erbin said. “They wanted access to the capital markets and they wanted to retain their nonprofit status.”

Added Sen. Frank Hill (R-Whittier), who helped negotiate the agreement: “What Blue Cross did clearly was legal and was done in the full light of day. It just wasn’t right.”

Patrick Garner, a Blue Cross senior vice president, said it had been the company’s intention all along to increase its level of “public benefit activity.” He said he is pleased with the agreement.

The contributions will help finance various programs, including those covering individuals who are poor health risks and are unable to obtain conventional health insurance. Other beneficiaries might include infants and mothers who aren’t poor enough to qualify for government-subsidized coverage but are unable to afford private insurance.

Isenberg may still move ahead with his legislation, which is intended to prevent other companies from avoiding the state law on conversions from nonprofit to for-profit status. But under the agreement struck Tuesday, the portions that apply retroactively to Blue Cross will be eliminated.

Wellpoint, which had 1992 revenue of $2.2 billion, contains the bulk of Blue Cross’ managed care, dental, pharmaceutical, mental health and workers’ compensation businesses. The nonprofit Blue Cross side continues to operate the government-sponsored Medicare Part A (hospital care) coverage.

Wellpoint’s stock closed Tuesday at $27.875, unchanged, in trading on the New York Stock Exchange.