NU Online News Service, Oct. 8, 8:05 p.m. – The New York State Insurance Department has given Empire HealthChoice Inc., New York, permission to convert to for-profit status.

Empire, which does business as Empire Blue Cross and Blue Shield, would become a subsidiary of a new, for-profit, publicly traded holding company, WellChoice.

A new charitable organization would start out owning 5% of the stock, and a government-controlled “public asset fund” would own 95% of the stock.

The fund and the charitable organization would then sell some of their shares through an initial public offering that would turn “WellChoice” into a publicly traded company.

Several other states have asked nonprofit health care organizations under their jurisdiction to use the proceeds from conversions to fund health care charities, but New York state plans to use most of the Empire/WellChoice IPO proceeds to finance government operations.

The New York department granted its approval after reviewing 500 written comments and letting public officials, members of the public and representatives from 16 consumer advocacy groups speak at a hearing in August.

The department has made every effort to ensure that the conversion process will protect consumers’ rights, according to Joanna Rose, a department spokeswoman.

“The proposed conversion will not adversely affect the applicant’s contractholders or members; will protect the interests of, and will not negatively impact on the delivery of health care benefits and services to, the people of the state of New York; and will result in the fair, equitable and convenient winding down of the business and affairs of the applicant,” Gregory Serio, New York’s insurance superintendent, writes in the order approving conversion.

The department approved an earlier Empire conversion plan in 1999, but Empire withdrew that plan. The new department approval applies to an amended plan filed Sept. 26.

The new approval order is valid for only one year, and New York regulators have retained the right to approve the terms of the Empire/WellChoice IPO.

Empire has also agreed to the following limits on its operations:

  • Individual direct-pay indemnity products: For the first three years after the conversion date, WellChoice must continue to comply with the pricing rules that govern New York’s nonprofit health services corporations. WellChoice will have to go through public hearings and ask New York regulators for permission before implementing rate increases greater than 10%.
  • Medicare supplement policies: When implementing automatic “file and use” rate increases, WellChoice must keep the medical-loss ratio for current and future policyholders above 80% for at least eight years after the conversion takes effect. The old conversion plan limited Medicare supplement rate increases for only five years after the conversion date.
  • Other major medical rate increases: WellChoice will have to go through public hearings and get New York department approval before implementing any rate increases over 10% for five years after the conversion date.
  • Corporate governance: The WellChoice board will have to qualify as an “independent” board, under proposed New York Stock Exchange rules, for six years after the conversion date. Originally, Empire had suggested the WellChoice board might be similar to the Empire HealthChoice board.

The full text of the New York department’s ruling is available at http://www.ins.state.ny.us/acrobat/empirecv.pdf