The
New York State Insurance Department has announced that it has no
objection to a conversion proposal by Empire Blue Cross and Blue
Shield. I continue to believe, however, that this proposal -- which
requires approval by the New York State Supreme Court -- would
violate state law and deprive New Yorkers of millions of dollars in
charitable assets.
I do not oppose in principle Empire’s wish to convert, but I am
legally bound to protect the public interest when an organization
that has enjoyed millions in state subsidies seeks to change its
mission to earning profits for private owners.
These are some of my reasons for continuing to oppose Empire’s
present proposal:
- The conversion is prohibited by statute. Sections
4301(j) and 7301 of the Insurance Law, buttressed by decades of
legislative history, forbid the conversion of companies like
Empire. The Insurance Department’s announcement does not affect
the existing bar to this transaction that our Legislature has
enacted. It should be noted, however, that just as the Legislature
can bar conversions, it can change the law to allow them. In this
regard, Assemblyman Grannis has introduced a bill that would
permit and set standards for health plan conversions, and I
support that bill.
- The charitable Foundation proposed by Empire would not
receive fair value. Under Empire’s proposal, the people who
now run the existing “Old Empire” would have unilateral control
over the voting and transfer of the Foundation’s “New Empire”
stock. For five or more years, the Foundation would be a major
shareholder of New Empire but would have no voice in management,
and would thus be unable to protect the value of its primary
asset. The Foundation would be barred from making any block sales
of its New Empire stock, and would thus be unable to obtain any
“control premium” for its shares.
- This is not an “arm’s length” transaction. Except for
the change to for-profit status, New Empire will be virtually
identical to Old Empire: same facilities, same employees, same
operations, same products and lines of business, and -- most
tellingly -- the same board of directors and management. New
Empire’s board and management will, for years to come, have
unilateral control of the company -- without having paid a penny
of their own money for it. Under these circumstances, this
transaction cannot be deemed fair to the public unless there is an
orderly and objective process under which the valuation implied by
Empire’s proposal can be compared to what an arm’s length buyer
would pay.
As I have said many times before, I strongly support quality
health insurance and health care for all New Yorkers. In its present
form, Empire’s proposal is not one I can support as being consistent
with applicable law. I still believe, however, that with cooperation
from all participants, an appropriate transaction can be achieved
that will be lawful in all respects and will serve the health and
well-being of the people of New York State.
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