Selling out of the public: Nonprofit Blue Cross leaders plan sale of insurer to for-profit conglomerate in deal with big benefits for them and big risks for healthcare consumers

The board of directors of Blue Cross and Blue Shield of Louisiana announced in January that they had cut a deal to sell the nonprofit health plan to Elevance Health, the massive for-profit company that owns Blue Cross Blue Shield plans in 14 other states.

As soon as it was announced, the deal raised red flags. Because BCBSLA is a nonprofit that was established for the benefit of the public, its managers have a duty to operate it exclusively for public benefit. That means basing every decision they make, especially a decision to sell the health plan, on what would best serve the public. Yet in announcing the deal, BCBSLA’s leaders refused to disclose basic information about it, insisting that the public simply trust their assurances that it would benefit them. They also tried to prevent Louisiana regulators from releasing any information about the sale that BCBSLA had submitted in filings seeking approval of the deal.

Despite the efforts at secrecy, the regulators released the filings in response to public records requests. The documents raise serious doubts that BCBLA’s leadership is acting in the best interests of the public. Reasons for concern include:

—No assurance that the sale proceeds will benefit the public. Since BCBSLA is a nonprofit established for public benefit, the proceeds from its sale must be used to benefit the public. The normal practice when a nonprofit health plan or hospital is sold to a for-profit company is for the proceeds to be used to establish a public benefit foundation. What BCBSLA officials instead plan to do is transfer $3 billion from the sale to a nonprofit corporation that they have incorporated in Delaware and put under the exclusive control of four of their own board members. While BCBSLA refers to the entity as a “foundation” it is not established as an actual foundation, and so the board members controlling it would have far fewer restrictions on what they could do with those billions. They could, for example, use the money on political campaigns.

—Director and management conflicts of interest. One element of the deal is a provision guaranteeing each BCBSLA board member payment of at least $1 million for serving on an “advisory board” following the closing of the deal. It’s hard not to see this arrangement as anything other than what it looks like: a payoff intended assure the board’s approval of the deal.

—Risk of higher premiums. Converting BCBSLA from a nonprofit to a for-profit carries an obvious potential for higher prices. Yet BCBSLA officials casually dismiss the risk, asserting that for-profit insurers seek profit margins no higher than those of nonprofits. In fact, research on previous nonprofit-to-for-profit health insurer conversions has documented premium increases averaging 13 percent when the converting health plan held a market share of 13 percent or greater. In Louisiana, BCBSLA holds a market share of 70% or greater for all types of insurance.

For a more detailed discussion of the issues noted above, see my comment letter to the Louisiana Department of Insurance.

News Coverage

The potential sale of Blue Cross and Blue Shield of Louisiana is sparking fears across the state of future price increases
Baton Rouge Business Report, David Jacobs, October 10, 2023

Michael Johnson was an executive with Blue Shield of California for 12 years. At one point, he says, he realized the company was evading its duties as a nonprofit, but the CEO dismissed his concerns, so he resigned and began speaking out publicly.

Johnson is now a self-styled advocate for nonprofit accountability, and the pending sale of the currently nonprofit Blue Cross and Blue Shield of Louisiana to for-profit Elevance Health raises alarm bells for him. His objections played a prominent role in a recent legislative hearing on the subject and helped fuel public pushback to the deal.

While the potential sale of the state’s dominant health insurer—not to mention the Capital Region’s largest company by revenue—was big news in Baton Rouge business circles when it was announced in January, most didn’t really start to pay attention until this summer, and now a lot of them are worried. Public concerns about the sale, which two-thirds of policyholders and the state Department of Insurance would have to approve, have caused the companies to put their proposal on hold, though they plan to try again after making a concerted effort to answer the questions stakeholders are raising.

“The executives say, ‘We mean well, trust us,’” Johnson says. “The public deserves more than just the professions of good intentions of Blue Cross and Blue Shield’s executives.”

Blue Cross backs off plan for $2.5 billion sale to Elevance Health
Times-Picayune, Stephanie Riegel, September 25, 2023

Blue Cross and Blue Shield of Louisiana, the nonprofit that provides health insurance to more than 40% of the state's residents, is scrapping — for now — its plan to sell to Elevance Health, according to documents filed with regulators.

The Baton Rouge-based insurer notified the Louisiana Department of Insurance Monday it is withdrawing its application to reorganize into a for- profit company that would then be purchased by Elevance for $2.5 billion.

In a joint statement, the companies said they “remain committed to refiling the plan of reorganization and acquisition application.” No date was specified, and a Blue Cross spokesperson said the new filing won’t come until next year, which means after a new governor and new Insurance Commissioner have taken office.

The withdrawal of the applications comes in the wake of a meeting last week between Blue Cross officials and Louisiana Attorney General Jeff Landry, the Republican front-runner in the race to succeed Gov. John Bel Edwards.

Landry, who previously raised questions about the deal and has opened an investigation into it, made clear in the meeting he did not want the sale to go forward until more questions have been answered and a new governor and insurance commissioner have taken office.

Blue Cross plans for $3.2B foundation to face scrutiny in regulatory hearings
Times-Picayune, Stephanie Riegel, September 25, 2023

When Blue Cross and Blue Shield of Louisiana officials announced earlier this year they had agreed to be acquired by Elevance Health, the state’s philanthropic community cheered a plan to create a $3.2 billion foundation with the bulk of the proceeds. …

Some policyholders, who must vote to approve the sale, along with public policy advocates, are questioning how the money will be divided between the foundation and policyholders, who will also receive a share of proceeds from the transaction.

They’ve also raised questions about who will control the foundation once it is established and how it will be organized. …

Under the terms of the deal, seven Blue Cross board members will continue to serve on an advisory board to Elevance leadership, where they will be paid $105,000 a year for at least a decade, or about $1 million each.

Barfield and the three foundation board members will not be paid.

“The existence of this arrangement calls into question whether BCBSLA’s directors can be trusted to put the interests of BCBSLA’s intended beneficiaries ahead of their own,” said Michael Johnson, a former Blue Shield of California whistleblower who now runs a website dedicated to transparency in health care. …

Other questions have centered on the fact that the board chose to establish the foundation as a 501(c)(4) nonprofit, a type of partially tax-exempt organization that has greater latitude to engage in political activity than does a strictly tax-exempt 501(c)(3) nonprofit.

Jan Moller, executive director of the Louisiana Budget Project, a left-leaning public policy organization, said the foundation could lobby or contribute to political candidates to affect health care or insurance policy. …

Moller and Johnson also criticized the make up of the founding board and its lack of diversity in a state where nearly 50% of the population is Black or Brown and 20% lives at or below the federal poverty level.

“All of the directors are white men, who collectively do not reflect Louisiana’s diverse population,” Moeller wrote in a letter of opposition to the Department of Insurance.