Last Updated: March 21, 2003
Commissioner's Statement on the Conversion of Blue Cross & Blue Shield United of Wisconsin
MADISON (March 28, 2000) - Insurance Commissioner Connie L. O'Connell announced today that she has required Blue Cross & Blue Shield United of Wisconsin (BCBSUW) to modify its plan to convert from a non-profit to a for-profit insurance corporation. "After a very thorough and careful review of the law, the filed application, and the mountain of letters and testimony I received from the public and interested parties on this matter, I have approved the plan, although with modifications. The modifications provide greater public input into the use of the funds, establish independent foundation governance, ensure the foundation receives full, fair and reasonable value of Blue Cross and specifically earmarks a portion of conversion proceeds to address public health needs," said O'Connell. The remainder of the proceeds are dedicated to improve the health of the public through medical research and education. "The tremendous input I received from so many dedicated and committed Wisconsin citizens was invaluable in shaping my decision. Although opinions were diverse and needs many, the resounding themes were for funds to be made available for local and community public health initiatives, medical research and provider education and access," O'Connell continued.
BCBSUW, the state's largest health insurer, submitted a conversion application to the Office of the Commissioner of Insurance (OCI) last year. As part of the conversion, BCBSUW proposed to transfer 100% of its value to a foundation. The foundation, over time, would sell its stake in the converted BCBSUW and transfer those funds to the University of Wisconsin Medical School and the Medical College of Wisconsin to further the health of the citizens of the State of Wisconsin.
Following is a brief summary of the modifications O'Connell made to the conversion plan:
- Full Value - The decision puts a number of requirements in place to ensure the full, fair and reasonable value of BCBSUW will be realized by the foundation.
- Foundation Board - The Insurance Commissioner will appoint all foundation board members and has done so with her decision. The foundation's primary purpose is to provide a vehicle to realize the full value of BCBSUW and transfer those funds to the medical schools.
- Fund Distribution - 35% of the funds generated by the proceeds of the conversion must be directed towards improving public health in the state. A substantial portion of these funds must be spent in collaboration with community organizations. The remainder of the funds are dedicated to medical research and education.
- Accountability - Each medical school is required to create a Public and Community Health Oversight and Advisory Committee (PCHOAC), consisting of nine members with expertise in local and community public health and medicine. These committees direct the use of the public health funds in collaboration with the medical schools. The committees will also review, monitor and report on funds committed for medical research and health care provider education.
"Expenditure of the proceeds from this conversion on public health, medical research and education through the medical schools advances the public interest," O'Connell stated. "The University of Wisconsin Medical School and the Medical College of Wisconsin are nationally recognized institutions of medical research and education who will serve well as the stewards of these funds," continued O'Connell. "The existing infrastructure and public nature of the medical schools, board of regents and board of trustees will result in the most efficient and effective use of the conversion funds. With the added public participation and oversight for the use of these funds that is included in my decision, I am confident that the many health needs of the citizens of our State will receive proper consideration," said O'Connell.
"I would like to compliment the board of directors of BCBSUW for their decision to commit 100% of the value of the company to improving the health of the public in our state," O'Connell said. In most other states, the full equity ownership of the company was not transferred to the public. "With the requirements in my decision the public can be assured the full and complete value will be realized for the needs of the health of the public in Wisconsin," said O'Connell.
However, the order approving the conversion does not place a definitive value on the company at this time. "A determination of the current value of the stock will not be indicative of the dollar amount ultimately achieved. For that reason the Appraisal Committee and my decision placed the focus on assuring the definitive valuation event, when the first stock sale occurs, will produce a fair and reasonable result," said O'Connell. The actual conversion date will coincide with the first sale of stock. At that time a dollar amount will be determined by investor views of current operational results of BCBSUW, market conditions and the health insurance market.
The conversion plan, once implemented, will fundamentally change the corporate structure of the company. However, during the conversion review, the company assured the OCI that fundamental operations, and commitments to the State of Wisconsin and BCBSUW policyholders will not change as a result of the conversion. By being able to raise capital as a for-profit stock insurance company in the current competitive health insurance market, BCBSUW will be better able to bring new products to its customers, expand its operations and react to the ever-changing face of the health insurance marketplace.
In reviewing the application for conversion, the OCI utilized the services of an independent Appraisal Committee, an investment banking firm (Deutsche Bank Securities, Inc.), and the testimony it received from the citizens of Wisconsin and other interested parties. In addition to the almost 200 people who testified at public hearings in Milwaukee and Stevens Point, OCI received more than 450 pieces of correspondence relating to this transaction. "I want to especially recognize the public health community for their comments, concerns and suggestions on the direction of public health in Wisconsin," said O'Connell.
From the start, the OCI created a fair and open review process. Public involvement in the conversion discussions was encouraged. The OCI's site on the World Wide Web
(http://oci.wi.gov/company/bcbsconv.htm) made all the relevant documents readily available to any interested parties. The OCI held two days of public hearings, as well several days of administrative hearings that included allowing consumer groups the opportunity to question the applicant.
The decision and order regarding the conversion are effective immediately. A copy of the decision and order is available on OCI's web site.
Decision and Order