DOVER, Del. (AP) — Representatives of Blue Cross Blue Shield of Delaware urged state lawmakers on Wednesday to change a 2004 law that Blue Cross claims could endanger its proposed affiliation with Pennsylvania-based Highmark Inc.
Blue Cross pressed for the law to be revised after Attorney General Beau Biden determined that it requires that the affiliation with Highmark be considered a not-for-profit conversion under Delaware law. That determination means a foundation must be created to ensure that a portion of the $175 million in reserves that Blue Cross has accumulated over several years because of its favorable tax-exempt status is protected and used for the benefit of Delawareans.
But Blue Cross says Highmark has reserved the right to walk away from the affiliation if it is deemed a conversion, even though Blue Cross has ensured that the reserves would stay in Delaware.
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Biden said Wednesday that he doesn't understand why Blue Cross is insisting that the law be changed while at the same time pledging that the reserves would remain in Delaware, which is what the law requires.
"I haven't got an answer to the question," he said after a bill revising the law was discussed at a Senate insurance committee hearing.
Lacking a quorum, the committee took no immediate action on the bill, which declares that the conversion law does not apply when a Delaware not-for-profit healthcare entity affiliates with another not-for-profit entity.
Blue Cross of Delaware has said the affiliation with Highmark, which runs Blue Cross Blue Shield plans in Pennsylvania and West Virginia, will give it the resources it needs to compete with larger insurers.
"We are competing against national giants," said William Kirk III, vice president and general counsel for BCBSD, warning committee members that unless the law is changed, the Highmark deal may not go through.
"This is a great concern to the board and senior management," Kirk said, reiterating that the company intends for the reserves to stay in Delaware with Blue Cross.
But Kirk said after the hearing that he assumes that Highmark, as guarantor of Blue Cross liability claims under the affiliation agreement, is counting on the reserves to pay such claims if necessary.
David Swayze, a lobbyist for Blue Cross of Delaware, argued that the intent of the 2004 law was to prevent a for-profit, out-of-state company from dissolving a not-for-profit health care entity in Delaware and taking control of its reserves.
"You're looking at an affiliation between two not-for-profit health care entities," he said.
Swayze also assured lawmakers that Blue Cross would not transfer its reserves to Highmark, and said the Delaware Department of Insurance could impose conditions to ensure that the reserves are preserved.
But Biden argued that language in the bill would leave little protection for Delaware taxpayers who have subsidized Blue Cross through its tax breaks.
"I think you got it right the first time around in 2004," Biden said, adding that if the law is changed, the directors of Highmark would control decisions regarding the Blue Cross reserves.
Mitch Crane, a former regulatory specialist with the Delaware Department of Insurance, also urged lawmakers not to change the law.
Crane said one reason Highmark is interested in affiliating with Blue Cross of Delaware is because of the reserves it holds.
"It is in their best interest to have access to this money," Crane said, adding that Blue Cross, which is Delaware's largest health insurance carrier, with almost 320,000 members in the state, faces little competitive threat from other insurers in Delaware.
"It is not in any danger of anything," he said.
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