Missouri Blue Cross health care foundation is held out as national model for conversions

Missouri Foundation for Health will administer $200 million for state’s health care needs

A "fortuitous combination of law, public officials, and advocates" in Missouri has led to creation of a community foundation that all sides are holding up as a national model.

The Missouri Foundation for Health used more than $200 million from the conversion of Blue Cross Blue Shield of Missouri to a for-profit company to meet the health needs of Missourians not eligible for other health coverage or services.

Returning the public good

The foundation "embodies the way the people of Missouri who supported Blue Cross and Blue Shield’s nonprofit public benefit get back what they put into that organization that no longer exists because it is now for-profit," says Jaemin Kim, a staff attorney with Consumers Union (CU) in San Francisco. CU has been actively monitoring and participating in conversion cases around the country and was instrumental in creating the "fortuitous combination" that Ms. Kim says drove the Missouri deliberations.

The foundation was created as part of a settlement negotiated by Blue Cross and Blue Shield of Missouri and the state government to end litigation over a 1994 reorganization of the Blues plans. The reorganization, state officials said, resulted in illegal profits for the nonprofit plans when they transferred much of their health insurance business to their newly created, for-profit RightCHOICE Managed Care Inc. subsidiary.

In May 1996, Blue Cross filed suit to block any state enforcement action, and the state countersued. In December 1996, a county court ruled in favor of state Attorney General Jay Nixon and the Missouri Department of Insurance, saying that Blue Cross had exceeded or abused its authority.

After initial settlement negotiations ignored local health care advocates, they complained to a special master who had been appointed by the court to review the settlement agreement, saying the proposal didn’t adequately protect the public interest.

The master held hearings on the flaws in the settlement agreement, giving CU and local advocates an opportunity to lay out what they wanted to see in a settlement and a foundation. Ultimately, officials from Blue Cross, the state attorney general, and the state insurance department decided to work with the advocates to draft a better settlement, ending up with the agreement that is to be finalized this year.

Under terms of the settlement, the Missouri Foundation for Health will assume ownership of Blue Cross’ assets, receiving $12.8 million in cash and 15 million shares (80%) of RightCHOICE Managed Care Inc. of St. Louis. With a market value for the shares at about $200 million, the new foundation will begin operations as the largest charitable health foundation in the state. It will be charged with several tasks:

1. identifying and filling the gaps in the public and private health care services already available to the uninsured and underinsured in 85 southern and eastern Missouri counties that constituted the plan’s market;

2. identifying and addressing unmet needs in the underserved populations of that area where the foundation can have a significant impact;

3. identifying and funding programs in the service area that can maximize the impact of the corporation’s resources on the communities served.

What makes this foundation a national model is its total independence from Blue Cross, its reliance on citizen advocates and representatives to play key roles, and its mandate to provide health care services not already provided by others, say advocates.

The legal services attorney, credited by many with articulating the role and structure desired in a foundation in the settlement hearings, holds the final product out as a "model settlement for foundations."

"The board members and the advisory committee that will nominate them all represent the community, and the foundation cannot be used to supplant the activities of government," points out Joel Ferber, who represented Reform Organization of Welfare in the hearings. Initial provisions giving Blue Cross some input in the foundation were deleted in the final settlement, he says.

"The settlement is a breakthrough because usually people in need don’t get very much," says Peter De Simone of the Missouri Association for Social Welfare in Jefferson City. "The foundation will provide health care services for the uninsured, the underinsured, and the working poor who can’t access Medicaid. This will be a permanent break for them."


CU’s monitoring of the national scene indicates that many foundations being created from Blue Cross conversions don’t have the "best practices" that ended up in the Missouri settlement, says Ms. Kim. In some states, for instance, where the Blue Cross plan has become part of the for-profit Anthem Insurance Company, the foundation is known as The Anthem Foundation and is controlled by the company, she says.

In other instances, there is no requirement that the foundation devote itself strictly to health care services. "I also like that the foundation got the full valuation of the Blue Cross assets," Ms. Kim says.

Because of legal restraints from the Blue Cross and Blue Shield Association over use of the trademarked names, the foundation is not totally free to dispose of the assets as it wants. But the foundation does have veto power over any merger with another Blue Cross plan or acquisition of the Missouri unit by another Blue. RightCHOICE is required to advise the foundation if it receives offers or is considering an acquisition.

Company and government officials are pleased to point out that the settlement "culminates almost five years of insurance department efforts to make sure [that] the assets of Blue Cross and Blue Shield, accumulated tax free, continue to work for the benefit of the public in eastern and southern Missouri," says Insurance Director Keith Wenzel.

Blue Cross and Blue Shield of Missouri president and CEO John O’Rourke says the "independence of the Missouri Foundation for Health and RightCHOICE is fundamental to delivering value through this settlement because it protects the Blue Cross and Blue Shield trademarks and provides the foundation with the opportunity to achieve up to $70 million in savings through a tax-free transaction."

Consumer groups agree that while the negotiated agreement looks very promising, it will take continued oversight to ensure that the foundation functions as it is supposed to.

"It’s up to the public to monitor them," says Mr. Ferber. "The board is going to be the key. If we get a good first board, it will be a big step toward ensuring that the money will be spent the right way."

For Rachel Farr Fitch, representative of Missouri Consumer Health Care WATCH, a coalition of more than 90 organizations focused on the interest of health care consumers, the "guiding light was for the foundation to be independent and to address health care for the poor. And it’s better than I thought it would turn out."

Contact Jaemin Kim at (415) 431-6747, Joel Ferber at (314) 534-4200, Peter De Simone at (573) 634-2901, Keith Wenzel at (573) 751-4126, John O’Rourke at (888) 877-9125, and Rachel Farr Fitch at (314) 361-4752.