Efforts by two Blue Cross plans to reshape themselves in opposite directions have hit the same wall: rejection by state regulators. Blue Cross Blue Shield of Massachusetts hoped to split itself into three companies; its counterpart in Texas wanted to merge with Blue Cross Blue Shield of Illinois and possibly with other Blue Cross plans. Regulators in Boston and Austin nixed the separate proposals.
Texas Blue Cross argued that its merger with the Illinois plan, first announced in 1996, would create a company large enough to compete against for-profit giants being created by deals most recently typified by United HealthCare's merger with Humana and Aetna U.S. Healthcare's purchase of New York Life's health insurance business. Texas Attorney General Dan Morales challenged the Blues deal in court, arguing that it would result in Texas policyholders' money going to Illinois. A state judge rejected Morales' legal arguments, and the deal remained in limbo until state regulators weighed in.
Meanwhile, Massachusetts Commissioner of Insurance Linda Ruthhardt rejected a proposal by that state's Blue Cross plan to split itself into a tax-exempt HMO, an administrative services company and an indemnity health insurance company. The commissioner indicated in a letter to the company that it could reapply for the reorganization once the Internal Revenue Service resolves the tax status of the companies that would be created. But she asked that any reapplication include full financial information for 1998, which means that Blue Cross can't seek approval again until next year.
Ruthhardt last month also ended daily monitoring of the company's finances. She ordered the scrutiny last year because the plan was losing millions of dollars each month.