ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, February 15, 1996 TAG: 9602150044
SECTION: EDITORIAL PAGE: A-11 EDITION: METRO
COLUMN: Ray L. Garland
SOURCE: RAY L. GARLAND
WHEN HOSPITALS were no fit place for the sick and doctors charged $2 for a house call, health insurance was hardly a factor and big insurance companies didn't want to bother with it. By the 1930s, Blue Cross was organized in most states as nonprofits offering cheap insurance for the masses.
In the days of confiscatory taxation, the deductibility of premiums made health insurance a logical benefit for companies to offer. But the notion it should pick up all costs, almost from the first dollar, did two things. It taught providers to raise prices and taught patients not to ask questions. By the 1980s, medical costs were rising twice as fast as inflation and consuming an eighth of the whole economy. It couldn't go on.
Whipsawed by rapidly rising costs and competition from giant commercial carriers for the business of large employers, some of the Blues fell upon hard times. Now comes the alleged solution: The Blues will shed their nonprofit status and become investor-owned enterprises, just like Travelers and Aetna.
The solution is now sweeping the country. The largest, Blue Cross of California, agreed to transfer all of its net worth, estimated at $3 billion, to two charitable foundations. But Blue Cross of Georgia will share only with policyholders, and the conversion of Maryland's plan is being shelved for now because consumer advocates criticized the money offered the state as insufficient payment for decades of tax preferences.
Blue Cross of Virginia, now Trigon, wants to go down this road. While the State Corporation Commission will decide the ultimate fate (and final details) of Trigon's proposed conversion, the company wants the General Assembly to fix now the amount that will settle the state's interest.
The agreement negotiated by Attorney General James Gilmore specified a payment of $159 million into a foundation that would fund medical research at state institutions of higher learning. The company just raised its bid to $165 million and may go as high as $180 million. But Gov. George Allen wants $95 million of that for operating budgets at state colleges, and Democrats want even more to spend now.
But Trigon also intends to distribute shares in the new company to 184,000 individual policyholders and 15,700 group policyholders. Depending on the value of the stock when it can be sold, this could be worth more than $300 million. The company believes it can raise more than $1 billion in a public stock offering later this year. Using the proceeds of the stock offering, Trigon intends to expand its some 30 percent share of the Virginia market.
There are three things to be said about this. First, you would have to think the SCC is the more appropriate body to settle all these issues. Second, there seems no logical reason why Trigon shouldn't operate on the same basis as other large companies in a highly competitive field. Third, Trigon's "gift" of cash and stock worth more than $500 million seems fair. It may be low. But investors would be certain to question anything much higher as "watering" their stock.
But this is academic. The legislature is clearly of a mind to take Trigon's money and run. It is not for nothing that the company has generously funded assembly races.
The company probably hopes assembly action will tip the scales in its favor at the SCC. And it may have reason for concern. The recent election of former Del. Clinton Miller to the three-member SCC could make for a hot time when Trigon lawyers present their case. Miller is a contrarian populist who never cared much for Richmond big wheels.
It would be presumptuous to judge the technical details of Trigon's proposal beyond asking the obvious question, "What's the alternative?" Besides, if Trigon can raise $1 billion on Wall Street to become a much larger player, isn't that the kind of economic development the state is now spending tax dollars to attract?
While understanding that a for-profit Trigon would want to bind its existing customers by giving them an equity stake in the new company - and may be obligated by reason of its recent operation as a mutual company - I am at a loss to know why the policyholders should get close to two-thirds of the loot and the state only a third. After all, it's the policyholders who presumably benefited from Trigon's favorable tax status all these years.
It should be said that as a large policyholder itself, the state would come in for stock worth about $25 million if Trigon's conversion goes through.
But a fair settlement, it seems to me, would be half for the state and half for the policyholders, of which the state would also be one. But legislators understand that gratifying 200,000 policyholders with "free" stock makes for far better politics than increasing the common pot.
The sad part is that a historic opportunity to provide a permanent funding source to assist private, charitable health services for the uninsured was ignored.
Considering the billions spent each year on medical research, the attorney general's original idea of a Virginia health-research foundation would be a drop in the ocean. And while that idea is still standing, there will be very little money left to fund it when the assembly gets done putting a dollar here and a dollar there.
But suppose the whole $165 million - or more - went into a trust for a Virginia foundation that would use the annual income of at least $12 million to offer grants to community organizations providing care for those who can't afford insurance but don't qualify for Medicare or Medicaid?
There are free clinics now, but hardly enough. What a great opportunity this might have been for people like Allen, who always talk about the need for private philanthropy to take the place of government, to marry deeds to words.
Ray L. Garland is a Roanoke Times columnist.
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