Statement By Attorney General Spitzer Regarding The Proposed Empire Blue Cross/blue Shield Conversion
The New York State Insurance Department has announced that it has no objection to a conversion proposal by Empire Blue Cross and Blue Shield. I continue to believe, however, that this proposal -- which requires approval by the New York State Supreme Court -- would violate state law and deprive New Yorkers of millions of dollars in charitable assets.
I do not oppose in principle Empire’s wish to convert, but I am legally bound to protect the public interest when an organization that has enjoyed millions in state subsidies seeks to change its mission to earning profits for private owners.
These are some of my reasons for continuing to oppose Empire’s present proposal:
- The conversion is prohibited by statute. Sections 4301(j) and 7301 of the Insurance Law, buttressed by decades of legislative history, forbid the conversion of companies like Empire. The Insurance Department’s announcement does not affect the existing bar to this transaction that our Legislature has enacted. It should be noted, however, that just as the Legislature can bar conversions, it can change the law to allow them. In this regard, Assemblyman Grannis has introduced a bill that would permit and set standards for health plan conversions, and I support that bill.
- The charitable Foundation proposed by Empire would not receive fair value. Under Empire’s proposal, the people who now run the existing “Old Empire” would have unilateral control over the voting and transfer of the Foundation’s “New Empire” stock. For five or more years, the Foundation would be a major shareholder of New Empire but would have no voice in management, and would thus be unable to protect the value of its primary asset. The Foundation would be barred from making any block sales of its New Empire stock, and would thus be unable to obtain any “control premium” for its shares.
- This is not an “arm’s length” transaction. Except for the change to for-profit status, New Empire will be virtually identical to Old Empire: same facilities, same employees, same operations, same products and lines of business, and -- most tellingly -- the same board of directors and management. New Empire’s board and management will, for years to come, have unilateral control of the company -- without having paid a penny of their own money for it. Under these circumstances, this transaction cannot be deemed fair to the public unless there is an orderly and objective process under which the valuation implied by Empire’s proposal can be compared to what an arm’s length buyer would pay.
As I have said many times before, I strongly support quality health insurance and health care for all New Yorkers. In its present form, Empire’s proposal is not one I can support as being consistent with applicable law. I still believe, however, that with cooperation from all participants, an appropriate transaction can be achieved that will be lawful in all respects and will serve the health and well-being of the people of New York State.