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Florida Blue on Hotseat

Leon County Judge John Cooper on June 30, 2022, in a screen grab from The Florida Channel.
Palm Beach Post
The Florida Channel
Leon County Judge John Cooper on June 30, 2022, in a screen grab from The Florida Channel.

Reprinted with permission from the Palm Beach Post

More on Florida Blue from The Post:

Non-profit executives could cash in on future stock deals under a reorganization proposed by the state’s largest health insurer, Florida Blue.
Company filings acknowledge the changes could pose a new conflict with its mission of providing low-cost insurance to more than 4 million policyholders: the duty to do what’s best for shareholders

The plan has received scant public attention ahead of a hearing before state insurance officials Thursday in Miami. If approved by regulators and policyholders, it would set in motion fundamental changes as soon as Jan. 1 at Blue Cross and Blue Shield of Florida, doing business since last year as Florida Blue. With roots that go back to 1944, it is the state’s oldest health insurer.

In state filings, the company says it would create a stock insurance company under a not-for-profit mutual holding company. The structure would ensure the company maintains its mission “to offer affordable health care products and services to its members,” a spokesman said, insisting premiums and coverage won’t change as a result of the reorganization. The move would also enable it to engage in mergers and acquisitions while keeping certain tax breaks and other advantages of a not-for-profit enterprise.

Not everyone sees the wisdom. One analyst who reviewed the application at the request of The Palm Beach Post called the proposal “Nirvana for management” but one that raises serious questions about whether it is good for policyholders and the public.

“This is a very bizarre structure,” said Brendan Bridgeland, director of the Center for Insurance Research, a Cambridge, Mass., nonprofit group that says it doesn’t take money from insurers. “You can’t just start running a stock company at a non-profit mutual holding company and start giving money to executives because charitable assets are going to vanish. It’s a huge problem.”

Bridgeland serves as consumer liaison for the National Association of Insurance Commissioners and sits on a consumer advisory committee to the Interstate Insurance Product Regulation Commission. He questions whether the plan takes proper account of the public and taxpayer interest in Florida Blue. As a non-profit venture, he said, it has enjoyed tax breaks and other advantages associated with that status.

Florida Blue is not planning to sell any stock, spokesman Paul Kluding said. Applications like the one it filed with the state “require the disclosure of risks even if there is a remote chance of it occurring and despite the fact that the company has made it clear that it will not engage in that activity,” he said.

Still, the company’s own documents make plain the reorganization could eventually pit the interests of policyholders against shareholders.

“Prior to the reorganization, the board has a duty to act in the best interests of Florida Blue and its members,” the company’s filing says. Afterward, “the board of directors of Florida Blue will have a duty to act in the best interests of Florida Blue and its shareholders, including any third parties that may acquire shares in the future.”

A lot of money is at stake at a company with revenues of $8.8 billion in 2012 that could grow to $12.7 billion by 2016, its filings project. Even without the new structure, at least 14 officers and directors received $1 million or more in total compensation from Florida Blue last year, documents obtained in a records request by The Post show. More than half saw their compensation grow by at least half a million dollars from 2011.

“We will not create a stock incentive program for executives or employees as a result of this transaction,” Kluding said.

State law allows officers and directors to take a 5 percent stake in certain stock holdings that can be created under the new structure.

Even if they don’t do it with this transaction, executives may well have incentives to do so in the future, cautioned Palm Beach accountant Richard Rampell.

One such incentive: to build up the value of shares and cash in, Rampell said.

A minority of Florida Blue’s shares could be sold or bartered for cash value, the disclosures state, and policyholders won’t have any say in that.

“Initially, members as a group will own 100 percent of Florida Blue through the 100 percent ownership of Florida Blue by Mutual Holdings,” the company’s filing says. “However, in the future, Florida Blue may issue its shares to other outside investors.”

The company’s disclosure goes on: “The members of Mutual Holdings shall have no right to vote upon the issuance of additional shares of capital stock of Florida Blue or any intermediate holding company in connection with an offering of such stock.”

It’s not clear how many groups or politicians in Florida are likely to ask a lot of questions about the plan. Florida Blue ranks as the leading single most generous corporate donor to state political officials generally ($4.8 million in the 2012 election cycle) and to Gov. Rick Scott’s Let’s Get to Work political committee in particular ($937,500). That doesn’t include about $2 million spent on lobbying since 2007, according to state records.

Scott takes no position on the reorganization, a spokesman said.

“As the process continues, the Office of Insurance Regulation must do its due diligence in working with the public and many stakeholders in fully vetting this proposal and protect the interests of Floridians,” said deputy communications director Frank Collins.

Florida CHAIN, a statewide advocacy group based in Jupiter that has spoken out for greater access to health care, has no plans to attend Thursday’s public hearing, representatives said.

“We are are not working on this particular issue at this time,” said spokeswoman Leah Barber-Heinz. “We will pass on commenting and will not be attending the hearing.”

Florida Blue is identified as a corporate donor and sponsor on Florida CHAIN’s website, and a company employee sits on the organization’s board, group officials acknowledged. A Florida CHAIN officer noted the group has publicly disagreed with the company’s position on some issues. She said it is inappropriate to infer her group is not taking an interest in Blue’s reorganization for any reason other than it is working exhaustively on such other issues as the upcoming open enrollment phase of the Affordable Care Act.

In its state filings, Florida Blue acknowledged that its board had discussed a number of concerns at its May 28 meeting, though it ultimately approved the plan.

Florida Blue received an outside “fairness opinion,” which declared the new corporate structure acceptably fair for policyholders. J.P. Morgan Securities Inc. provided the opinion — paid for by Florida Blue.

The state’s Office of Insurance Regulation said it will obtain its own fairness opinion, but it will be issued after the Thursday hearing.

Across the country, various Blue Cross companies have changed their structures or merged over the years, but states have not always rubber-stamped a change when they didn’t see it as being in the public interest.

Take Kansas, which blocked a Blue Cross merger with a for-profit company more than a decade ago. The state’s insurance commissioner at the time dug into the facts of the case, decided the move would raise premiums for many customers and was not worthwhile. The commissioner was Kathleen Sebelius, now the U.S. Health and Human Services secretary.

Florida Insurance Consumer Advocate Robin Westcott is scheduled to speak for 15 minutes at Thursday’s hearing.

“My questions for Blue Cross will be directed toward reviewing any advantages that the company and its executives may be able to leverage in the future as a result of the transaction that are not consistent with good public policy,” Westcott said. “I would like to see full explanations regarding any depletion of surplus for the new stock insurance company and the effect of this transaction in complying with the new Federal Health Care Law.”

Insurers have to give money back to consumers when they spent too much on administrative costs, pay or profits as opposed to medical care, according to the Affordable Care Act. The law says they must spend at least 85 percent on medical care in big group plans and 80 percent in smaller plans

A Florida Blue spokesman denied the restructuring represented any kind of attempt to shift administrative costs or executive compensation within the new corporate structure to avoid having to give money back.

“No, this reorganization will not change the rebates we are required to pay customers under the Affordable Care Act,” Kluding said.

In Florida, more than 1.2 million customers received $123 million in total rebates averaging $168 per family in 2012, according to federal officials. Another $54 million in rebates has come to Florida customers this year.

Consumer groups say there’s plenty here that deserves scrutiny.

“It’s a shame it hasn’t gotten more public attention,” said Susan Sherry, deputy director of Community Analyst, a national nonprofit consumer advocacy organization based in Boston. “The public needs an independent analysis. Without that, it’s hard for people to have a voice.”

Read the company’s application:

How to get involved

What: Public hearing by the state’s Office of Insurance Regulation on Florida Blue’s reorganization plan

When: 5:30 p.m. Thursday

Where: Miami-Dade College (Wolfson Campus), Auditorium Room 1261, 300 N.E. 2nd Avenue, Miami


What next: Must be approved by regulators and policyholders

More information:

How Palm Beach Post got the story

When Florida’s oldest insurer, and one of its largest employers, announced that it was reorganizing, Palm Beach Post insurance reporter Charles Elmore and health reporter Stacey Singer teamed to dig deeper. They reviewed hundreds of pages of insurance filings. Through records requests, they obtained information not included in the application including documents showing at least 14 non-profit officers and directors were paid more than $1 million in 2012.