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Mass. Report Blasts Blues' Breakup Plan

MANAGED CARE May 1998. © MediMedia USA
State Initiatives

Mass. Report Blasts Blues' Breakup Plan

MANAGED CARE May 1998. ©1998 Stezzi Communications

Massachusetts Insurance Commissioner Linda Ruthhardt last month issued a report that criticized elements of a plan by Blue Cross and Blue Shield of Massachusetts to split itself into three companies. The report could spell trouble for Blue Cross, because Ruthhardt must rule on the breakup --which the company says is crucial to its future success.

Blue Cross wants to reorganize itself into three divisions: a tax-exempt managed care entity and tax-liable administrative services and indemnity insurance units.

But the state report, produced by the Boston-based consultancy Peterson Worldwide, challenged the accuracy of the proposal's underlying financial projections and its argument that accountability would increase because Blue Cross would retain its current management and overall governance structure. The report also questioned the wisdom of dividing assets in a way that could increase financial risk for the three new units.

Currently, the company can use consolidated assets to help units that run into trouble. The breakup plan doesn't allow for such sharing of assets. The administrative unit has lost $322 million since 1992, including $32 million last year.

Blue Cross said that dividing the company's finances would help the public see how each unit is doing. A hearing on the points made in the report was set for late last month.