John Hood: Blue Cross bill makes good sense
RALEIGH — How often do the majority and minority leaders of any legislative chamber in America agree on a significant policy change? You can probably count those occasions on your fingers without putting down your coffee cup.
But one such example is unfolding right now in our state capital. Rep. John Bell (R-Wayne) and Rep. Robert Reives (D-Chatham) are two primary sponsors of House Bill 346, which would loosen some state controls on the operations of Blue Cross NC. Bell and Reives are also, respectively, the majority and minority leaders of the North Carolina House.
Critics of the bill argue it represents a back-door attempt to transfer the value of the nonprofit health insurer into private hands. Back in the late 1990s, some of these critics helped block a major effort to convert Blue Cross into a for-profit entity. The result was a 1998 law that requires the proceeds of any such sale to private owners to flow into a charitable foundation.
That was my position in 1998, too. While Blue Cross NC had by then became a fully taxed entity, much of its assets had been accrued during an earlier period when it benefitted from sizable tax breaks and other state assistance. If it were sold to private firms or shareholders, who would the buyers pay? Surely not themselves, the state, or the former executives or directors of the nonprofit. It seemed prudent at the time to require any such for-profit conversion to result in an independent foundation dedicated to the health and wellbeing of North Carolinians.
It remains the prudent policy today. The bill Bell, Reives, and dozens of other state lawmakers are sponsoring this session wouldn’t change it. If the leaders of Blue Cross NC decide to sell, the proceeds will go to a foundation. Where I differ from the critics is that I see House Bill 346 as making a sale less likely.
Right now, Blue Cross is the dominant player in North Carolina’s market for private health plans. Indeed, it’s the only insurer selling policies in all 100 counties. But health care is undergoing rapid change. Both federal legislation and industry trends have created increasing returns to scale. Local hospitals and other providers are merging, becoming parts of national chains. Insurers are also scaling up, in part to compete for the business of employers who operate across the country.
Among other benefits, these scaled-up companies can invest productively in new technologies, massive databases, artificial intelligence, and other lines of business that enhance their ability to control insurance premiums and promote wellness. Generally speaking, however, the insurers don’t make investments directly, which would quickly run up against state-imposed caps on the investment of their assets. Instead, they are organized as holding companies that own both the tightly regulated insurance company as well as affiliated subsidiaries.
Under current law, Blue Cross NC can’t do that. Moreover, as a “hospital service corporation” under state law, it faces not only a 10% cap on how much of its assets can be invested in non-insurance ventures but also an automatic trigger to convert to a for-profit company if it ever sold a significant interest in such a venture.
House Bill 346 would permit it to reorganize as a nonprofit holding company that would continue to own the nonprofit Blue Cross insurer as well as other affiliated companies and investments. The bill also stipulates that no current executives receive equity-based compensation from any subsidiaries created by the holding company and that any subsequent sale of Blue Cross would still put all the proceeds of that sale — from all lines of business — into a foundation.
The way I see it, the critics are mistaken about the bill. It would reduce the probability that some out-of-state entity will end up owning and controlling North Carolina’s largest health insurer. That’s one of the reasons both Republican and Democratic leaders in the General Assembly have lined up behind it. They see it the same way.
John Hood is a John Locke Foundation board member. His latest books, Mountain Folk and Forest Folk, combine epic fantasy with early American history (FolkloreCycle.com).
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