How do you “convert” a company that isn’t changing its purpose?

Andrew Hetzel

| 4 min read

Recent media reports and a public statement by the Michigan Attorney General have focused on this word – “conversion” – in describing what would happen to Blue Cross Blue Shield of Michigan under a proposal by Gov. Rick Snyder to modernize Michigan health insurance regulations and have all insurers regulated under the state’s Insurance Code. Fact is, “conversion” is the wrong word. As the Governor mentioned several times in his remarks unveiling the proposal, BCBSM would be authorized to “transition” its corporate structure from a “nonprofit healthcare corporation” under its existing regulatory law, Public Act 350, to a “nonprofit mutual insurance company.” A mutual structure is necessary in order to accommodate the Blues within the state’s Insurance Code, where other mutual companies are regulated alongside HMOs and commercial insurance companies. A nonprofit mutual structure was proposed by the Governor because the Blue Cross board, which has voting rights over whatever plan emerges from Lansing, has publicly committed to maintaining the company’s nonprofit status and mission – which is focused on returning a broader community benefit. The Blues, simply put, aren’t interested in being a company where profits are the purpose. This nonprofit-to-nonprofit transition is worlds apart from a traditional “conversion” – where a nonprofit organization that serves the community changes its purpose for doing business to become a profit generator for stockholder owners. The best local example in Michigan is the Detroit Medical Center, which was acquired by Nashville, Tenn.-based Vanguard Health Systems in 2010. That for profit conversion ultimately was approved by the Michigan Attorney General. The Attorney General, by nature of his mission, is, and always should be, concerned about these sorts of things. We stand ready to help him and others understand that this, however, is different. In “conversions” such as DMC, it is traditional to do a “valuation” of the assets of the nonprofit organization before those assets become property of a company, rather than the community. A valuation does not apply in the case of the BCBSM transition because, under the Governor’s proposal, the nonprofit status and mission of BCBSM would continue. The Governor proposes that BCBSM contribute up to $1.5 billion over 18 years to a new nonprofit fund with an independent board. These funds would not be “transferred out of surplus,” but rather would be considered an ongoing concern for the Blues to meet annually. The Blues’ $1.5 billion in contributions would fund programs to promote the health of the broader Michigan population – a continuation of BCBSM’s nonprofit mission administered not by the static requirements of an antiquated law, but by a broad-based board and advisory council focused on the needs of Michigan today and into the future. These contributions are in addition to the Blues’ commitment to continue its subsidization of Medigap coverage for seniors through 2016 – at a contribution of approximately $800 million in subsidy over that time. Finally, BCBSM would pay taxes to state and local governments. These taxes – averaging $100 million a year over the 18-year period and continuing on in perpetuity – would represent new income for the state, possibly to leverage in promoting better access to health care for its people. With the nonprofit mission of the Blues sustaining in such ways, and with the company remaining focused on contributing in meaningful ways to promote public interests beyond its own insurance business, the discussion of “conversion” is way off base. The case for asset “valuation” is misapplied. We at the Blues are proud of the contributions we have made to Michigan over the years. The Governor’s proposal allows those contributions to continue for nearly two more decades at significant expense to our organization. We are pleased that his modernization plan gives Michigan a functional regulatory system where all carriers play by the same rules and contribute their fair share. Beyond that, however, it preserves a unique nonprofit mission for Blue Cross where people – not profits – remain the focus of what we do. Photo by The Toad
MI Blues Perspectives is sponsored by Blue Cross Blue Shield of Michigan, a nonprofit, independent licensee of the Blue Cross Blue Shield Association