Consumer Groups: WellChoice Funds Improperly Used

Many states use the proceeds from conversions of not-for-profit Blue Cross Blue Shield health plans into for-profit companies to set up foundations for the uninsured.

Now, consumer advocates worry that this practice may be jeopardized thanks to New York's decision to use the cash from one such deal to shore up the state budget.

The conversion of not-for-profit Empire Blue Cross Blue Shield to for-profit WellChoice netted the state $2 billion.

According to the New York Times, the money has been used, in large part, to increase wages for members of the Service Employees International Union Local 1199, which represents a large number of health care workers.

Legislators backing the deal say that New York doesn't need a foundation to help the poor because there are many programs already in place for that purpose.

The Consumers Union and other advocacy groups are taking the matter to court. They claim that the state illegally seized private charitable property and used it for government purposes.

“They've set a terrible precedent for other states facing big deficits,” says Charles Bell, a Consumers Union official.

Other states can't help but take notice.

“As they see how big these honey pots are, that in itself will create a feeding frenzy because most states now have a not-for-profit Blue Cross with at least $1 billion — if not more — sitting in their coffers,” Dan Cain, a New York investment banker who specializes in health care, tells the Times.

And these “honey pots” have the capacity to reap much more than anyone at first suspects. Take the WellChoice deal, for instance.

The state originally expected to make about $1 billion from Empire's stock.

“In November, however, when Empire transformed itself into a publicly traded company…. Wall Street paid a handsome $25 a share,” the Times reports.

Meanwhile, at least two other not-for-profit insurers in the state are considering becoming publicly traded corporations. They are HealthNow of Buffalo, the parent of Blue Cross and Blue Shield of Western New York, and the Health Insurance Plan of Greater New York.

“I've been told Gov. Pataki intends to do exactly the same thing with HIP that he did with Empire,” a senior government lawyer tells the Times.