Fla. Blue's proposed restructure to get hearing

Published: Thursday, July 25, 2013 at 6:45 p.m.
Last Modified: Thursday, July 25, 2013 at 6:45 p.m.

MIAMI — Health insurance giant Florida Blue, one of the state's largest employers and political donors, wants to restructure itself, but critics warn the move could create a conflict between turning a profit and the obligation to provide low-cost insurance to its 4 million policy holders.

The Office of Insurance Regulation held a public hearing Thursday in Miami on Florida Blue's bid to switch from a not-for-profit mutual insurance company to a not-for-profit mutual insurance holding company. Florida Blue is a political powerhouse with nearly $5 million in campaign contributions during the 2012 election, including $2.4 million to the Republican Party of Florida and nearly $700,000 to the Florida Democratic Party, according to state campaign finance reports. The Jacksonville-based company employs 9,500 in Florida.

CEO Pat Geraghty says the move will allow Florida Blue to expand its assets outside the insurance industry and into the health and wellness sector. The company wants to change its mission from simply paying health claims on the back-end to working to keep people healthy in the first place.

For example, Florida Blue currently has 11 retail centers around the state where customers can purchase insurance, ask about a claim or get their blood pressure checked. Those retail centers will likely get more traffic because of the Affordable Care Act's provision requiring individuals to purchase health insurance. Florida Blue wants to capitalize on that business, selling vitamins, fitness gear and other non-insurance related items.

Geraghty said the restructure will allow the company to access broader products and get them to the market more quickly, hinting that Florida Blue will likely be acquiring other companies.

"It really is about financial flexibility and making sure in this time of great change for the health care industry that we're positioned in a way that's most supportive of taking care of our customers for the long run," he said in a phone interview with The Associated Press.

Geraghty said Florida Blue has "no intention of being a publicly traded entity."

"There will be no member of my staff, myself, my board of directors who will own stock in Florida Blue. That is crystal clear," he said at Thursday's hearing. "One-hundred percent of the stock will be owned by the mutual insurance not-for-profit holding company."

But critics worry the switch is just a bid to become a publicly traded company and boost executives' pay. Florida Blue is currently an independent licensee of the Blue Cross Blue Shield Association

"Mutual insurance holding companies create a shell, a parent company, that doesn't do any business. It doesn't issue insurance anymore. The only reason it exists is so the shareholder cannot control the corporation," said Brendan Bridgeland, director of the Massachusetts-based Center For Insurance Research.

The New York Assembly Standing Committee on Insurance called the concept "fundamentally flawed" in a 1998 report.

The Florida Alliance for Retired Americans cited that report when it spoke out against Florida Blue's proposed reorganization on Thursday.

"It's management nirvana really. It gives them the ability to issue stock through a subsidiary holding company, which means you can start giving yourself stock awards, stock options that you can cash in but you avoid the problem of having to answer to shareholders," said Bridgeland.

Opponents said the company could transfer $1.6 billion in surplus to a for-profit entity and that money would be available to give to company executives and outside investors if stock goes public, according to a lengthy statement from Florida Alliance for Retired Americans.

"The result of such a stock issuance would be crippling conflicts of interest between the interests of the policyholders (who want lower cost health insurance) versus the new outside investors," the organization said.

Lawmakers this year passed a last-minute amendment to allow mutual holding companies like Florida Blue to acquire not-for-profit subsidiaries. Previously, such companies had only been allowed to own for-profit subsidiaries.

"This was an amendment that never really got a chance for public debate. It looked like a pretty shrewd lobbying effort that got that amendment on," said Ben Wilcox, research director for the independent government watchdog group Integrity Florida.

But Florida Blue said the amendment was not needed for the reorganization and noted it passed unanimously in the House and Senate.

The Florida Times-Union reported the state's top insurance regulator originally opposed the move amid concerns the restructure "may not adequately protect the interests of the policyholders."

A spokeswoman for the Office of Insurance Regulation said the commissioner had not made any decision yet. If the commissioner signs off, policy holders will still have to vote on the change.

When asked about the commissioner's original concern, Geraghty said "there was some confusion as the process started." He added, "I think today there is support for what we're trying to do."

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