New York’s Empire Blue Cross Offers to Create $1B Charitable Foundation in For-Profit Conversion Bid

Hoping to "win support" for its plan to become a publicly traded for-profit company, Empire Blue Cross and Blue Shield announced yesterday a proposal to establish a $1 billion charitable foundation that could provide health coverage for 100,000 uninsured children through New York's Child Health Plus program or prescription drugs for 50,000 low-income seniors through the Elderly Pharmaceutical Insurance Coverage program, the New York Times reports. The announcement, which "more than doubled" the previously estimated size of the foundation, came after Credit Suisse First Boston upgraded Empire's projected value from $1 billion to $1.2 billion.

Recipe for 'Havoc'
Empire CEO Dr. Michael Stocker said that preventing the insurer from restructuring as a for-profit company would "jeopardiz[e]" the firm's "continued viability" and "potential for public health service." However, the conversion, which requires approval by the New York Legislature, has faced opposition led by the Greater New York Hospital Association and Dennis Rivera, head of the "politically influential" Service Employees International Union. Opponents repeated arguments yesterday that as a for-profit insurer, Empire would "act on behalf of stockholders at the expense of policyholders, patients and providers of care." Kenneth Raske, president of the Greater New York Hospital Association, said, "The benefits of the foundation pale in comparison to the havoc wreaked on the provider community by an investor-owned entity that does not care about providers but instead cares about stock prices on Wall Street" (Freudenheim, New York Times, 4/3). According to Stocker, however, the move would lower costs for policyholders, and Empire would be "able to take on more business and spread the cost of administration and other overhead." He added that failing to approve the conversion would likely result in "another company buy[ing] Empire," which would "threate[n]" the insurer's 6,500 jobs.

On the Move?
Last year, the conversion proposal "failed to move" in the state Legislature, but lawmakers in both the state House and Senate have proposed similar legislation this year (AP/Wall Street Journal, 4/3). State Senate Insurance Committee Chair James Seward (R) said that he would add "at least part" of Empire's proposals to legislation that would allow the company to convert to for-profit status (New York Times, 4/3). "I believe the planned conversion is in the best interests of Empire policyholders and the health care system of New York," he said (Wall Street Journal, 4/3). He added that Empire's proposal to establish a $1 billion foundation "is something that should not be dismissed lightly" (New York Times, 4/3). The Albany Times Union reports that the conversion has "received the go-ahead" from the state Insurance Department and, if approved by the Legislature, would "advance for court approval" (Aaron, Albany Times Union, 4/3).