Memo:

TO:                      PEF Officers, Executive Board and Council Leaders

FROM:               Lorraine Simpkins and Deborah Stayman

DATE:                 July 17, 2002

RE:                      Empire Blue Cross and Blue Shield (BCBS) For-Profit Conversion

Empire Blue Cross and Blue Shield (BCBS) has been trying to convert from a non-profit to a for-profit health insurer since 1996. After six years, the process is almost complete. In January, New York legislators and Governor Pataki approved a change in New York’s insurance law allowing Empire BCBS to convert to for-profit status.  The next step in the process is public hearings.

The New York State Department of Insurance requires that the Notice of Public Hearing be mailed to all Empire BCBS enrollees. This includes our members enrolled in the Empire Plan and the Empire BCBS BlueChoice HMO options. Members began receiving these notices last week.

Members may contact you with questions or to express concerns about the conversion. Please assure them that the conversion will be transparent. The change in Empire’s tax status from non-profit to for-profit will have no affect on our members’ benefits, current premium rates, or access to participating providers.

Members enrolled in the Empire Plan will continue to receive the level of benefits as indicated in the 1999-2003 PEF/NYS contract. Any changes to the Empire Plan benefit level would have to be negotiated and then ratified by the membership.

PEF does not negotiate the level of benefits provided by the HMOs. An HMO may change benefits from one year to the next. HMO enrollees are notified of any benefit changes in November. This procedure allows HMO enrollees to change health plans during the annual option transfer period if they wish.

Premium rates will not change in 2002 as a result of the conversion. There may be a small increase in the future because for-profit insurance carriers are required to pay NYS taxes, which are then included in premium rates. The premiums for the Empire Plan are based on the usage of benefits by covered members (i.e., experience-rated). Each year,

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Empire BCBS has to submit a premium rate renewal justifying the premium they are requesting for the upcoming year. NYS management, in particular, the Division of the Budget, spends a considerable amount of time and effort trying to negotiate the lowest premium rate possible.

If NYS management is not satisfied with the premium rates being charged by Empire BCBS, they can always put the hospital portion of the Empire Plan out to bid. In other words, Empire BCBS will have to continue to charge competitive premium rates if they want to continue to insure the hospital portion of the Empire Plan. Otherwise, NYS management can award the contract to another insurer.

Two other Empire Plan carriers, United HealthCare and Cigna, are for-profit companies. Cigna insures the prescription drug program, and has competed against not-for-profit carriers to win the prescription drug contract. Thus, for-profit status does not necessitate higher costs.

Most of the criticism directed at the conversion is aimed at how the state intends to use the estimated minimum of $1 billion in assets that Empire BCBS must turn over to the state after obtaining for-profit status. The proceeds from the conversion are being used to help fund the Health Care Workforce Recruitment and Retention Act, as well as a $50 million foundation to improve health care access in New York. The Health Care Workforce Recruitment and Retention Act is a three-year plan to help hospitals, nursing homes and clinics across the state recruit and retain a highly trained workforce.

If you have any questions, please contact either Lorraine Simpkins or Deborah Stayman at PEF headquarters, 1-800-342-4306, ext. 283.

cc:   PEF Staff