Palm Beach Post
MIAMI — The proposed reorganization of Florida’s largest health insurer will transfer $1.6 billion of the nonprofit company’s $2.8 billion surplus to a for-profit stock company and should be “rejected by regulators and protested by policyholders and the public,” one group opposing the plan says.
The “primary outrage” is that Florida Blue has accumulated $1.6 billion in surplus beyond what it admits it needs to be well-capitalized, meaning it has been “overcharging customers” in the view of the Florida Alliance for Retired Americans. The Wellington-based nonprofit organization says it has more than 200,000 members and advocates for public policies in their interest.
“The proposed reorganization should be put on hold and an immediate investigation conducted to determine how this build up was allowed to occur,” the group’s statement to Florida Insurance Commissioner Kevin McCarty said.
Company officials assured state insurance regulators at a hearing in Miami Thursday that the interests of policyholders will be well protected under their plan, which is needed to provide flexibility in an era of change for health care.
“Our members lose nothing in this transaction,” said Florida Blue chairman and CEO Pat Geraghty. He said there are no plans for executives to take stock in new ventures, there’s no public offering in the works and the way executive compensation is calculated won’t change.
Under questioning by regulators, Geraghty said, “There is a potential there could be some sale of stock in the future.”
The statement from the Florida Alliance for Retired Americans, filed in writing, made several references to reporting by The Palm Beach Post.
The newspaper reported Sunday that corporate officers could gain from future stock deals under what one analyst called a “bizarre” corporate structure. Company documents admit the changes could pose a conflict between its board’s historic duty to provide low-cost insurance to its 4 million policyholders and a new obligation to do what’s best for shareholders.
Documents obtained by the Post show Jacksonville-based Florida Blue paid at least 14 officers and directors more than $1 million each in 2012, with more than half of those receiving a raise of at least $500,000 from 2011. At the top of the compensation list: Geraghty with $6.8 million.
Insurance commissioner McCarty called Thursday’s event “a fact-finding hearing, not an adversarial hearing” and said his office will make no immediate decision on the reorganization. If regulators approve it, policyholders must also OK the plan.
Public comments will remain open for 10 days after the hearing, a state spokeswoman said.
About 100 people including regulators and company officials attended the Miami hearing, with several speaking in support of the company’s community involvement.
Florida Insurance Consumer Advocate Robin Westcott said the plan would move assets to parts of the company under much less control of regulators, and called for greater transparency if the plan were to be approved.
Company officials said the overall organization will remain under the control of a not-for-profit mutual insurance holding company that answers to policyholders.
“Florida Blue will remain very well capitalized after the reorganization with over $1 billion in statutory surplus,” said Chuck Divita, Florida Blue’s group vice president of corporate development and chief accounting officer.
Company officials also said the movement of $1.6 billion in assets has no impact on the calculation of the medical loss ratio used to determine potential customer rebates under the Affordable Care Act, and has no impact on the taxes Florida Blue pays.
Florida Blue noted state regulators require all insurance companies to maintain significant risk based capital on reserve for potential claims, and the Blue Cross and Blue Shield Association requires even greater reserves of its association plans.
But the plan doesn’t look so convincing to opponents like the Florida Alliance for Retired Americans, which said its statement was prepared with the aid of adviser Jason Adkins from the law firm of Adkins, Kelston & Zavez. His firm said it specializes in representing consumer and policyholder interests in mutual insurance company reorganizations around the country.
In the alliance’s view, the company’s proposed reorganization, “rather than complementing its mission of providing affordable health care to Floridians,” will instead “fundamentally threaten and undermine that mission.”