Health insurer converting to for-profit entity

Posted: Tuesday, October 01, 2002

ANCHORAGE (AP) -- The biggest private insurer in Alaska wants to become a for-profit company and give all its stock, at least at first, to a pair of foundations here and in Washington state. It's not clear so far how much those foundations might get or what they would do with it.

The Alaska Division of Insurance is planning two hearings on the matter, the first Oct. 29 and the second in November. Public forums in Washington state began this week.

Premera Blue Cross is currently a nonprofit corporation that covers about 65,000 Alaskans. It's also the largest health insurer in Washington, serving 1.2 million residents there.

Like many Blue Cross and Blue Shield organizations across the country Premera Blue Cross wants to convert to a publicly traded company that can issue stock.

Premera Blue Cross, based in Mountlake Terrace, Wash., announced in June that it would seek permission from both states to convert its status. According to the company, ''access to equity capital available to publicly held companies would enhance its flexibility and responsiveness in an increasingly demanding health-care marketplace.''

Its Oregon subsidiary, LifeWise, already operates as a for-profit company with 160,000 subscribers.

To win approval from state regulators, Premera has said it would donate 100 percent of its initial stock to new charitable foundations in Washington and Alaska. Those foundations would have the broad mandate to promote health initiatives.

But Premera would soon issue additional stock -- instantly shrinking the foundations' share of the company -- to raise between $100 million and $150 million to fund growth and improve service, the company said.

Just what each of the foundations would get or what they would do with the money isn't really clear at this point, according to Bob Lohr, head of the Alaska Division of Insurance.

Similar foundations have been set up in other states where the Blue Cross organizations have made a similar conversion, Lohr said.

In Wisconsin, for instance, ''the creation of the foundation led to funding the two medical schools in the state with the proceeds of the trust.''

Washington insurance regulators have hired four experts in law, banking, actuary and taxes to examine the complex proposal, which runs about a thousand pages. Their conclusions should be complete in November

Like Washington, Alaska's insurance regulators are hiring experts to determine the total value of the company, what share should be allocated to Alaska, and how the process might work, Lohr said.

The role of his division, Lohr said, ''is to make sure the company is adequately capitalized and able to continue providing service in Alaska.

Not everyone in the medical business thinks the conversion is a good idea.

Some fear that converting to a publicly traded company would mean higher rates for consumers and a weaker negotiating position for doctors on reimbursement costs.

The boards of the Washington State Medical Association and the Washington State Hospital Association both oppose the conversion.

Premera is hoping for approval from state regulators by the end of 2003, spokesman Scott Forslund said.

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