Blue Cross Plans to Use $2 Billion for Foundation : Health care: The proposal would create one of the nation’s 10 largest foundations. But consumer groups have doubts.

Under pressure from the state and consumer advocates, Blue Cross of California announced plans Thursday to create a new public charity with assets of more than $2 billion to fund health programs throughout the state.

The proposed California HealthCare Foundation would be the largest health foundation in California and one of the 10 largest foundations of any kind in the United States.

The plan, which must be approved by state regulators, would initially focus on funding primary and preventive care for children of uninsured families, mobile health screening clinics and poison control centers.

Woodland Hills-based Blue Cross has been under considerable pressure to disclose its charitable plan since last year, when it spun off most of its nonprofit health insurance programs into a new for-profit subsidiary, WellPoint Health Networks. Blue Cross retained an 80% ownership stake in WellPoint, one of the nation’s largest publicly traded health insurers.

That move set off a flurry of criticism from state regulators, legislators and consumer advocates who said nonprofit Blue Cross was obligated to compensate the public for the tax-exempt status it had enjoyed while it built its health insurance business.

Blue Cross initially proposed to contribute $100 million to charity over 20 years, but state regulators said the amount was far too low.

Consumer advocates on Thursday said they approve of some aspects of the new Blue Cross plan, but they expressed concern about certain details.

“We are very skeptical,” said Maryann O’Sullivan, project attorney for Consumers Union in San Francisco.

Under the plan, Blue Cross said, it will transfer all of its assets and public benefit activities to the new charitable foundation, separating it from the for-profit WellPoint unit. The Blue Cross name and trademark would go over to WellPoint, whose health plans cover about 2.5 million Californians.

Blue Cross’ main asset is 80 million shares of WellPoint stock--valued at $2.2 billion, based on Thursday’s closing price of $27.625, which was unchanged in New York Stock Exchange trading.

The move means that Blue Cross, one of the oldest nonprofit insurance organizations in the nation, would cease to exist as a nonprofit company under the Blue Cross name. If the national Blue Cross and Blue Shield Assn. approves the transfer of the name to a for-profit entity, the California organization would be the first of the association’s nearly 70 members to make such a switch.

“We believe establishing and endowing this foundation is the best way for Blue Cross to fulfill its mission to improve the quality of health care and improve access for everyone,” said Leonard D. Schaeffer, Blue Cross chairman and chief executive.

Department of Corporations Commissioner Gary Mendoza said his agency will review the Blue Cross plan. “This is a significant issue for the state of California, and it’s important that we treat it with appropriate deliberation,” he said.

Mendoza said he is concerned about one aspect of the plan, noting that the same 19-member board of Blue Cross would become the new directors of the California HealthCare Foundation. The new board would be chaired by Schaeffer, who also sits on the board of WellPoint.

He said that could create a conflict of interest between what Blue Cross is calling an independent charitable foundation and WellPoint. “We have previously raised the issue with Blue Cross,” he said, “and it remains an issue.”

Consumer Union’s Sullivan put it more strongly: “Leonard Schaeffer will be influential, and it’s inappropriate for him to be there” on the foundation board.

J. Patrick Garner, a Blue Cross senior vice president, said he sees no potential conflicts with the foundation’s board. “I think there’s almost no person you could put on a board that wouldn’t have an ax to grind,” he said.

The consumer group also said Blue Cross should not be responsible for deciding which organizations are worthy of receiving charity funds, as set out in its proposal. “This is the public’s money, not Blue Cross’,” O’Sullivan said.