BLUE CROSS MAY LEAVE STATE BECAUSE OF MDI

If the Missouri Department of Insurance doesn't change its attitude, Blue Cross and Blue Shield of Missouri may just pack up its employees and assets and move to another state, chairman and chief executive officer Roy Heimburger says.

On June 28, the health insurance provider will head into court to argue its case against the department and director Jay Angoff.

At the heart of the lawsuit is Angoff's demand that Blue Cross Blue Shield turn over $200 million to $500 million in members' assets.

Angoff charges that the company, a not-for-profit corporation, has to forfeit its assets to the state or a designated charity because it illegally established a for-profit provider, RightChoice, a managed care component, in 1994.

Heimburger is calling Angoff's demand "a shakedown" and says the insurance department director is pursuing a vendetta against the company.

The suit, filed last month in Cole County Circuit Court, seeks a declaratory judgment against the Department of Insurance, Angoff and Missouri Attorney General Jay Nixon, outlining the company's liability and the insurance department's authority to demand the payment.

Spokespersons for the insurance department and the attorney general's office said they could not comment on pending litigation.

In March 1994, Blue Cross and Blue Shield applied to the department for permission to reorganize its managed care assets and other assets into RightChoice and to make a public offering to sell shares of stock in the new company.

The only way for the company to remain competitive in the marketplace was to forge into managed care, Heimburger said, and the only way to raise capital for that move was to go public.

Angoff approved the restructuring in April 1994, and in August of that year, the public offering was completed. Blue Cross Blue Shield controls 80 percent of the stock in RightChoice, and the remaining 20 percent is publicly owned.

In the time between the approval and the public offering, the lawsuit alleges, neither Angoff nor the department notified Blue Cross and Blue Shield that their approval was not final or that approval depended on a payment from the health insurance provider to the state or a designated charity.

Heimburger said that a week after the public offering was completed, Angoff issued a "cease and desist" order against Medigap, the company's Medicare supplement because of possible illegalities in its rate structure.

Stock in RightChoice "dropped like a rock," Heimburger said. The department fined the company $38 million, the same amount raised in the public stock offering.

The cease and desist order "gave Angoff great leverage," Heimburger said, adding the company couldn't back off the stock offering without risking millions in class action suits from angry investors.

Not long after the restructuring, the lawsuit alleges, Angoff and the department began "numerous false public allegations" that the health care provider owed the state the hundreds of millions.

In March of this year, the company was served with a written demand that for a payment of $97 million to settle the reorganizaton dispute. That demand later increased to $180 million, the lawsuit alleges.

The letter from Angoff also threatened to revoke the company's operating license if the payment was not made.

The dispute centers on whether or not Blue Cross Blue Shield has to give up the assets it collected in the 60 or so years it operated as a not-for-profit corporation.

Blue Cross Blue Shield was exempt from the state's 2 percent premium tax during that time, but part of that exemption required them to finance coverage programs for low income and uninsured families and children, such as Basic Blue.

The Department of Insurance says the company should have to forfeit those assets.

But Blue Cross Blue Shield officials argue that the not-for-profit corporation never dissolved, and that RightChoice is a subsidiary of that not-for-profit corporation.

They also argue that their charter stipulates that they were organized for the benefit of their members -- the consumers who pay them premiums in exchange for health care coverage -- not the general public.

Angoff and the Department of Insurance lack the authority, company officials say, to demand or levy such a payment.

Before the suit was filed last month, Heimburger said, company officials were in negotiation with state officials to work out a long-range plan using assets from RightChoice to finance health care coverage for low-income uninsured and underinsured families.

When the company's proposal wasn't approved, Heimburger said, the suit was filed.

Calvin Call, executive director of the Missouri Insurance Information Service, called the insurance department's demands on Blue Cross Blue Shield "one more example" of what he called overregulation of the insurance industry.

"We think he's just plain wrong about this issue with respect to Blue Cross Blue Shield," said Joe Marabito, Blue Cross' senir vice president for strategy and corporate development.

If Blue Cross hadn't gone public with RightChoice, Marabito said, the company would probably have raised premiums for its members to expand services.