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Appeal Considered

September 09, 1996
By: Andy Kravetz
State Capital Bureau

JEFFERSON CITY - One day after a judge's decision to allow Blue Cross to continue operating its for-profit subsidiary, Missouri's Insurance Department had not yet decided whether to appeal the ruling.

The ruling could have a lasting impact on the way nonprofit companies operate in the state and in the country.

On Monday, Blue Cross and Blue Shield of Missouri won a year-long battle against the Insurance Department over its reorganization and formation of a for-profit subsidiary, RightChoice.

"This was a precedent-setting case and we are very disappointed," said Randy McConnell, communications director for the Insurance Department.

He said Insurance Director Jay Angoff would meet with lawyers this week to discuss the department's options and that he expected a decision later this week.

Angoff was unavailible for comment Tuesday.

Basically, Blue Cross, which is nonprofit, isn't allowed to make a profit. Any money it makes has to go back into the corporation. So, the company created RightChoice and funneled assets and profits into it.

Both the Insurance Department and Blue Cross both agree that nearly 80 percent of Blue Cross's assets are under RightChoice.

The state felt it should have the right to tax RightChoice or at least, insure that the profits were going back into the company. Blue Cross disagreed and the legal battle began.

Other than Missouri, only California has dealt with this situation and McConnell said the Missouri decision was the first one to be decided in court.

Other states closely watched the case and last week, the National Association of Insurance Commissioners sided with Angoff and urged the court to support the state's attempt to regulate Blue Cross.

Nationwide, one of three Blue Cross and Blue Shields are considering a similar type of reorganization, McConnell said. Reorganization efforts are underway in Colorado and New York.

Angoff had claimed that the company, which offers low cost insurance, didn't disclose all relevant information when Blue Cross decided to form RightChoice in 1994.

If the state had gotten its way, Blue Cross would've had to pay up to $500 million into a trust fund that would go towards providing insurance to the lower income people, McConnell said.

All this comes in amid the backdrop of the Missouri General Assembly's efforts to unravel the managed care industry. For the past six weeks, a joint committee has heard statements from patients, doctors, state officials and industry spokesmen about the state of managed care in Missouri.

Peter DeSimone, executive director of Missouri Association for Social Welfare, said the court decision was a bad one for Missourians.

"The public trust once invested in nonprofit health care corporations has been undermined by this decision," he said. "People have a reason to believe that a nonprofit corporation was created to provide a public service, not to make a profit for its owners."

Not surprisingly, Blue Cross executives see it differently.

"The real winners are our 1.8 million members whose assets the court has now protected with the full force of Missouri law," said Roy R. Heimburger, president and CEO of Blue Cross.

In deciding for Blue Cross, Cole County Circuit Court Judge Thomas Brown said Angoff had no authority to rescind his department's approval of the 1994 reorganization. Brown also said the department couldn't force Blue Cross to pay a premium tax or any type of fee for the reorganization.

However, the two sides aren't done in Brown's courtroom. There is still a claim by Attorney General Jay Nixon and Angoff that the reorganization wasn't consistent with state regulations. That hearing is scheduled for Oct. 25.