Attorney Sues Blue Cross to Stop Giving $3.4 Billion to Foundation

The proposed sale of 100-year-old, member-owned Blue Cross/Blue Shield system in Louisiana is bad for the members and bad for the state. 

The basic plan is to sell this institution, which is owned and managed by its members and serves almost 80 percent of the health insureds in Louisiana, to a for-profit insurer, Elevance, formerly Anthem. 

This stock company will raise rates to recoup its investment of $2.5 billion dollars. Overnight, the members will lose control of the management of their health insurance and costs. They will be forced to cede control to Elevance. 

What is almost as harmful to the members is that the proceeds will not be shared with them. Instead, the board of Blue Cross has created a “foundation” to bank the proceeds and use as they see fit. This is a double-whammy bad idea. 

History of Blue Cross in LA

In 1927, a group of doctors in Louisiana banded together to start a self-regulated, nonprofit entity to provide healthcare insurance for the citizens of the state. One of the key reasons for its formation was that it would not have to make a profit to distribute to shareholders. Sure, it had to make enough revenue to cover expenses, but “just enough.” 

The financial base of Blue Cross was not created to make the most that it could, but to be financially sound for the benefit of its membership and policy holders. 

The board was elected by its members and was supposed to act only in the best interests of its members — not to distribute profits, but to provide the best and most reasonably priced health insurance. It was also designed to fairly reimburse providers. 

The Blue Cross model worked exactly as designed. Its finances are in great shape, and its fiscal projections through 2024 are solid. Members, policy holders, and providers are all satisfied. As they say, “if it ain’t broke, don’t fix it.”  

The Plan 

However, in late 2022, the Board of Blue Cross decided to demutualize the member-owned entity. Demutualization occurs when an entity ceases to be governed by its membership and becomes a stock company governed by its shareholders. 

The overwhelming majority of Blue Cross members are unsure regarding the need for the breakup of their company. It was not a decision based on financial soundness nor something that Blue Cross members have as yet approved.

The CEO of Blue Cross of Louisiana, Dr. Steven Udvarhelyi testified to a Joint Louisiana Legislative Committee on August 16, 2023, that the system was financially sound and that there was no immediate need to sell the company.  

Both member and providers were satisfied with the current system. Yet, the Blue Cross board nevertheless concocted a plan to sell the members’ assets to Elevance and break up the member-owned mutual company. Morever, the board of Blue Cross never really explained the reasons it wanted to sell. 

There were statements such as, “Elevance can better manage your diabetes care.” This has alarmed the many informed policy holders since the last entity that they want “managing” their healthcare is Elevance. 

These kinds of statements also alarmed the Louisiana State Medical Society and the Louisiana Hospital Association, which filed opposition to the plan and have raised serious questions about the plan respectively.  

The Blue Cross board said the plan would enhance “digital access.”  However, the Blue Cross plan failed to state any inadequacies or complaints about the digital services currently provided by Blue Cross. It also ignored the question whether such issues should have been previously addressed if they were real. And it ultimately ignored the fundamental question, “Should this 100-year-old company be dismantled and sold in order to upgrade its digital function?” 

Blue Cross provides health insurance to 1.9 million people in our state which has a total population of 4.6 million. This is about 80 percent of the fully insured market and 55 percent of the self-insured market. Blue Cross employs more than 3300 employees in its Baton Rouge office alone. What happens in the proposed demutualization will have an enormous impact on Louisiana.  

If we keep the current Blue Cross system, the membership and policy holders can continue to enjoy exemplary health insurance and continue to control the delivery of their insurance. 

Blue Cross can continue to run the company to ensure just enough is charged to continue financially, and providers are fairly compensated. This is understandable, since the providers are their neighbors and community stalwarts. Or, Blue Cross members can allow the board to sell their company to Elevance, which will run the company for its own purposes. 

Interestingly, when Blue Cross and Elevance were listing the benefits of demutualization and the sale, they did not claim there would be lower premiums, more competitive rates, or better payments to healthcare providers. 

In fact, the proposed demutualization and sale offer no benefits to the Blue Cross members. Furthermore, no member or policyholder is even promised continued health insurance after the expiration of their one-year policy period.  

The Money Flows to the 

Handpicked Foundation Board 

In this proposed convoluted financial transaction, Elevance is buying Blue Cross’s membership assets for $2.5 billion dollars, but they will not be paying this money to the member-owners of the company. 

Instead, they will pay these billions to an entity that Blue Cross board members have created, The Accelerate Initiative of Louisiana, Inc. This was formed a few months ago as a Delaware 501(c)(4) entity, with a board of directors made up of four current Blue Cross directors. 

This foundation has nothing to do with the current members of Blue Cross. In fact, there is not a single word in the charter of the new entity that mentions Blue Cross or its former members. The supposed job of this foundation would be to do “good” for the people of Louisiana, not the members or policyholders. 

The board of Blue Cross will also “give” to the foundation an additional $900 million dollars, resulting in the foundation walking with $3.4 billion dollars — while not having contributed anything for this money. 

Of the sale price, the members, — who are the actual owners — will be paid only $337 million! 

According to Blue Cross and Elevance, under the current proposal, Blue Cross members will get only nine percent of the sales price and the foundation will get 91 percent. 

One of the foundation’s board members, Tim Barfield, said The Accelerate Initiative will be one of the top 10 largest foundations in the United States. 

At the Louisiana Joint Insurance Committee on August 16, 2023, Barfield said he will be president of The Accelerate Initiative and that he wants to be paid in a similar manner to the directors of the 10 largest foundations in the U.S.  

Status of Process 

This plan was originally submitted to the Louisiana Department of Insurance in January 2023. It was twice scheduled for public hearings in the summer and early fall last year but was derailed by determined opposition and by the objection of then attorney general of Louisiana, and now Gov. Jeff Landry. 

Substantial questions were raised by the attorney general, and by the U.S. Department of Justice, concerning the potential anti-competitive effects of this takeover by Elevance. These issues are still unresolved. 

Additionally, a class action lawsuit has been filed to stop the Delaware-based foundation from collaborating in the scheme to terminate Blue Cross and to take money that they have no right to collect.  There is nothing good in this plan for members, policy holders, or the citizens of Louisiana.  

A public hearing on plan to strip Blue Cross of the members’ assets will by held Feb. 5 and 6 at the Louisiana Department of Insurance.  Anyone may come and testify at the hearings or file comments before Feb. 4 at La. Dept. of Insurance, 94214, Baton Rouge 70804 

If and when Blue Cross members receive a ballot on whether to approve demutualization of the company, they are well advised to vote No!

About the Author 

Henry W. Kinney is the founding partner of Kinney & Ellinghausen. He has served as general counsel for the Audubon Commission since 1976 and as special counsel for the Board of Commissioners for the Port of New Orleans and the Housing Authority of New Orleans, and as special counsel to the State of Louisiana, Division of Administration. Prior to entering private practice, he was an assistant city attorney for the city of New Orleans. Kinney has extensive trial and appellate experience in all of Louisiana’s courts, including the Louisiana Supreme Court and the U.S. Court of Appeal for the Fifth Circuit. He has also handled matters in the Supreme Court of the United States.  Kinney received a bachelor’s degree in political science and a law degree from Tulane University in 1969 and 1973 respectively