Statement By Attorney General Eliot Spitzer Regarding Legislation To Protect The Public Interest In Health Insurer Conversions

Last week, I announced that my office had reached a conceptual agreement with Empire Blue Cross and Blue Shield regarding Empire's plan to convert to a for-profit company. Three steps must now occur before that conversion can be completed: the conversion plan must be approved by the national Blue Cross Blue Shield Association; the State Legislature must eliminate the current statutory bar against such conversions; and Empire's petition to convert must be approved in court.

My goal throughout this process has been to protect the public interest. The pros and cons of health insurer conversions will continue to be debated, and it is not the Attorney General's role to resolve that particular policy question. Rather, it is my job to ensure that any conversion complies with law, and that the full value of the converting entity is preserved for the benefit of all New Yorkers.

New York State provided tax exemptions, discounted hospital rates and other public subsidies to Empire for more than 65 years. Consequently, the State's taxpayers are entitled by law to receive the full value of Empire's not-for-profit operations when Empire converts to for-profit status. Under Empire's proposal, this would be accomplished through the creation of a new charitable public health foundation, which initially will own 100 percent of the stock of the new for-profit Empire. In addition, the agreement with Empire would give the new foundation important rights to protect the value of the stock it receives.

Several proposals have been made to lift the current statutory bar against the conversion of health insurers such as Empire. However, I believe that only the bill proposed by Assemblyman Pete Grannis (A.8846) contains sufficient protections for the public. In this regard, conversion legislation should include the following provisions:

  • The entire fair market value of the converting not-for-profit entity must be preserved for the public interest, such as through the creation of a charitable foundation;
  • This charitable value must be irrevocably dedicated to health purposes for the benefit of the people of New York State;
  • The calculation of the fair market value of the converting entity must be based on all relevant considerations -- such as market value, net asset value, control premium and the value of licenses -- and not just on whether 100 percent of the stock will be held by the new charitable foundation;
  • The public must be given notice of the proposed conversion plan and an opportunity to comment before the plan is approved;
  • The converting entity must uphold its fiduciary duties by demonstrating that it sought and considered alternative transactions to promote the charitable purposes of the converting entity and maximize the value preserved for the public;
  • If the charitable foundation is to receive stock of the new for-profit entity, the foundation must have the ability to protect the value of that stock;
  • The Superintendent of Insurance and the Commissioner of Health must be empowered to review the proposed conversion and ensure that it protects existing policyholders and does not adversely impact the provision of health care in New York State;
  • The conversion will not take place unless the plan has been approved by the Attorney General, and a petition for conversion must be approved by the New York State Supreme Court; and
  • The legislation must govern not just the Empire conversion, but all future conversions, and must apply regardless of the technical form of the conversion transaction, including an indirect or gradual transfer of assets to a for-profit entity.

I urge the State Legislature to enact the necessary legislation this session. I will work closely with the Assembly, Senate, Governor, State Insurance Department, Empire and others to ensure that this legislation appropriately protects the interests of the people of the State of New York.