Health insurance

Florida Blue plans to reorganize

Executives for Florida Blue, the state’s oldest and largest health insurance provider, vowed at a public hearing in Miami on Thursday that the company’s plan to reorganize as a stock insurer under a mutual holding company would not affect executive compensation or negatively impact services to the approximately 4.2 million Floridians who hold policies.

Instead, Florida Blue Chief Executive Pat Geraghty said the reorganization would position the company to respond to the changes coming with the Affordable Care Act and give it the ability to offer products other than insurance.

But critics questioned whether the reorganization, if approved by Florida’s Office of Insurance Regulation, would allow new stockholders to benefit from Florida Blue’s significant surpluses generated from the rates paid by policyholders over the years — if that stock were sold to third-party investors. State officials have not announced a date when they will rule on the proposal.

Indeed, the company’s application for reorganization says Florida Blue could sell stock to third parties and that the company’s mission will change from acting in the best interests of its members to acting in the interests of its shareholders.

Geraghty acknowledged the possibility that stock would be sold to third parties but assured a panel of state officials, including Florida Insurance Commissioner Kevin McCarty, that would not happen.

“There’s a potential that there could be some sale of stock in the future,’’ he said, adding that it isn’t “anticipated that it will happen.’’

Geraghty vowed that Florida Blue executives and directors would not own shares or sell them to third-party investors.

“We have no intentions of being a publicly traded entity,’’ he said. “One hundred percent of stock in Florida Blue will be owned by the not-for-profit mutual holding company.’’ He stressed that “executive compensation will not change.’’

Geraghty earned $6.8 million in 2012, according to state filings. On Thursday, The Palm Beach Post reported that at least 14 executives of Florida Blue and its subsidiaries earn at least $1 million a year.

Florida Blue executives emphasized the company’s need to diversify and position itself for healthcare reform. Florida Blue operates 11 retail stores in the state. A reorganized structure under a mutual holding company would allow Florida Blue to sell non-insurance products, such as vitamins and exercise equipment, without the regulatory process required for insurance.

Florida Blue had nearly $9 billion in revenue last year, Geraghty said, and the company pays about $125 billion in claims a year. Despite its nonprofit status, Geraghty said, Florida Blue paid $100 million in taxes last year.

Critics of the reorganization say the state should ensure that the public benefits from the change since Florida Blue has been tax-exempt for nearly 70 years.

Jay Angoff, a Washington, D.C., attorney and former insurance commissioner for Missouri, said the restructuring is fundamentally unfair. Over the years, he said, Blue Cross has set its rates at a level that has enabled it to consistently increase its surplus. According to the company’s annual reports, Florida Blue’s surplus has risen from $1.8 billion in 2008 to $2.8 billion in 2012.

Industry standards and state regulations require insurance companies to hold a surplus of up to 200 percent above the amount needed to pay projected claims. In a for-profit company, any amount above that surplus is considered profit, and benefits the shareholders.

Nonprofit companies have no shareholders. They act in the best interest of the public, or policy holders in Florida Blue’s case.

If Florida Blue becomes accountable to shareholders instead of policy holders, critics say, the company could feel pressure to raise its rates.

Officials with the Health Foundation of South Florida, a nonprofit funder of healthcare groups, also expressed “concern.’’

“The implications for policyholders and the people of Florida receiving no value in return for a new stock company controlling the finances, surpluses and operations needs to be more thoroughly examined,’’ said Steven Marcus, foundation president.

Health-insurance experts say the reorganization may allow the company to become more nimble in the new marketplace. But they caution that increased mergers and reorganizations could allow some players to dominate the industry, raising concerns about violations of anti-trust laws.

Steven Ullmann, a University of Miami professor and health-insurance expert, said, “Healthcare organizations of all types are really trying to establish an ability to be flexible ... given what’s going on in the healthcare industry. ... That’s a reflection of this very rapidly changing industry.’’

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