by Jim Stirling
Research Fellow, John Locke Foundation
In the era where politics has become increasingly tribalistic, we seldom see significant bi-partisan support from leadership within both parties. The Reorganization and Economic Development Act, House Bill 346, is one exception.
The bill addresses how North Carolina’s “hospital service corporations” like Blue Cross Blue Shield (BCBS) may structure themselves, providing some commonsense leeway.
Currently, thanks to the so-called conversion law passed in the late 1990s, should BCBS decide to convert into a for-profit organization, or sell to a for-profit corporation, it would be compelled to hand over assets equivalent to the market value of the corporation to a foundation established by the state.
Moreover, BCBS cannot have more than 10% of its net assets invested in anything other than insurance. Additionally, their investments outside of insurance are under stricter scrutiny than that of private insurers. For instance, any partnership or joint ventures must go through an extended approval process. That prevents hospital service corporations from being able to react to changes in the market as quickly as other insurance providers.
With the changes in the healthcare industry, the asset limit is a significant constraint preventing BCBS from operating on a level playing field with competitors. For context, the definition of non-insurance investments is a very broad category and can include anything from investments in new technology, databases, or other businesses.
What HB 346 does is clarify that if BCBS were to reorganize as a nonprofit holding company, it would be exempt from the conversion law requirements. The impact of this would allow BCBS to invest more capital into larger ventures and react quicker to the opportunities in the market.
What HB 346 does not do, however, is exempt BCBS from the conversion requirements if it chose to convert to a for-profit or sell to one. That mandate would remain unchanged.
While the bill has support from both Republican and Democratic leadership, proponents of the current obtuse government oversight and more are pushing against it. Among those attempting to maintain the status quo is Martin Eakes, CEO of the Center for Responsible Lending and the Center for Community Self-Help. Both the organizations he runs are members of Blueprint NC, a left-wing advocacy group made famous for its 2013 memo calling to “eviscerate, mitigate, litigate, and agitate” Republican leadership in North Carolina.
Eakes and a collection of North Carolina’s far-left advocacy groups, including Planned Parenthood, the NC Justice Center, and Healthcare for All NC, are all pushing a narrative of this being bad for premiums. However, premiums are not set by BCBS but must be approved by the Commissioner of Insurance. Furthermore, the Department of Insurance will have to approve any transfer of resources from the insurance company to the holding company. This indicates that opposition to HB 346 is more about control of the assets.
Under the conversion law, the foundation that would receive BCBS’ assets would be headed by a Board appointed by Attorney General Josh Stein. That would give Stein the sole appointing authority over nearly $9 billion in assets “to promote the health of the people of North Carolina,” or about a third of North Carolina’s state budget.
Under state law, if such a foundation is formed, the Attorney General must pick from a list recommended to him by an advisory committee made up of one representative from the North Carolina Healthcare Association and one from the Medical Society. They would serve alongside nine other members: three each from recommendations by the North Carolina Chamber, the UNC Board of Governors, and the North Carolina Center for Nonprofits. Granting this last group multiple recommendations could allow self-appointed watchdogs like Martin Eakes – along with other allies of Josh Stein – to gain strong influence over a significant pile of resources with the potential to turn in to a slush fund.
The state government is already bloated with a myriad of committees and commissions. We should not establish a new one equivalent to a third of the state’s budget, while handcuffing the state’s largest insurer.