April 5, 2006 in City

Premera appeal rejected

From Staff and Wire Services The Spokesman-Review


The denial of its appeal to become a for-profit company won’t change Premera Blue Cross’ plans to expand its Spokane operation in a $12 million project, the insurer said Tuesday.

That construction project is expected to be completed in 2007.

SEATTLE – The state Court of Appeals on Tuesday upheld a decision by Insurance Commissioner Mike Kreidler that barred Premera Blue Cross from converting to a publicly traded, for-profit corporation.

Premera, which serves 1.2 million members in Washington and is the largest health insurer in Eastern Washington, has been seeking for-profit status since 2002. Kreidler denied the request in July 2004, and the company promptly appealed, saying he had misapplied the law and had no grounds for the denial.

“The Commissioner did not err … in rejecting its conversion plan on the grounds that the plan as a whole was unfair and unreasonable to subscribers, not in the public interest, and likely to be hazardous or prejudicial to the insurance-buying public,” Judge Marywave Van Deren wrote for the unanimous three-judge panel.

Kreidler welcomed the decision and said he expects Premera to appeal to the state Supreme Court. Premera has spent more than $34 million on its conversion proposal, and Kreidler compared it to “a high-stakes poker game, where you’ve got so much money on the table you can’t afford to walk away.”

Premera Communications Director Scott Forslund called the ruling “disappointing” but said it would have no effect on the insurer’s $12 million addition to the company’s Spokane campus on East Sprague Avenue. The expansion, which will be built with the help of a $700,000 state economic development grant, is expected to be completed in 2007.

“Our business strategy and consumer service remain the same whether we are for-profit or nonprofit,” Forslund said.

Kreidler said in a phone interview that he “had little doubt the court would come to this conclusion. What I saw as being something that placed the public at risk, the court has agreed I was correct in that decision. It means the insurance-buying public won’t wind up with a situation that’s worse than we have today.”

Premera, based in Mountlake Terrace, Wash., has been operating as a nonprofit since it was formed in Washington state in 1933. It argued that being publicly traded would allow it to generate greater cash reserves, which would help it insulate consumers from economic downturns and to invest in new technology.

As part of the conversion, it offered to create foundations that would provide as much as $500 million for public health advocacy in Washington and Alaska, where it has 110,000 members.

Kreidler said he denied the conversion because it would have left subscribers – especially those in rural Eastern Washington – at risk of premium increases, and because it likely would have resulted in Premera being acquired by a national insurance giant.

He also said Premera wasn’t clear about what it would do with the money it would have raised from an initial public stock offering, and that its proposal for creating foundations in Washington and Alaska did not meet the requirements of state law because Premera would be transferring less than the fair market value of its assets to those foundations.

Premera’s proposal had met with widespread opposition from community organizations.

The company’s appeal took issue with a number of Kreidler’s findings. The company argued that the insurance commissioner’s own staff determined that Premera would not likely raise premiums or reduce reimbursements beyond competitive levels in Eastern Washington.

The company also said Kreidler had no basis for insisting that the foundations receive the “fair market value” of the company’s assets. Nowhere in the applicable law does that phrase appear, the company said.

Under Washington law, Premera had to pay for accountants and other experts hired by the state to evaluate the proposal. About $20 million of the $34 million Premera spent on the appeal went to the state.

At the time of Kreidler’s decision, Washington was only the third state – after Kansas and Maryland – to reject a Blue Cross company’s plan to convert from nonprofit to for-profit, consumer groups said.

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