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Blue Cross to remain nonprofit public charity

By Robert Weisman
Globe Staff / October 12, 2011

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Blue Cross Blue Shield of Massachusetts has decided to remain a nonprofit public charity after examining whether it should seek a different legal status given its extensive business operations as the state’s largest health insurer.

The inquiry was spurred by outrage over Blue Cross’s $11 million payout to its former chief executive, Cleve L. Killingsworth, and the five-figure annual fees paid to members of its board of directors. The controversy raised the question of whether an organization that rivals some of the state’s biggest companies in revenues should be considered a public charity.

Blue Cross chief executive Andrew Dreyfus and other executives consulted with about 50 community leaders between May and June about the Blue Cross “identity crisis.’’ They ultimately concluded that they would not pursue a change.

Before the consultations began, the Blue Cross board indefinitely suspended compensation for directors, and there are no plans to reinstate the pay.

Dreyfus said he sees the Boston-based insurance carrier as a hybrid organization- more a nonprofit business than a public charity. Its research showed that, while many insurers have a nonprofit status, Blue Cross Blue Shield of Massachusetts is the only health plan in the nation classified as a public charity.

But he added that he and Blue Cross directors determined that their top priority should be reining in escalating health care costs. Seeking a change in the carrier’s legal classification could prove a time-consuming distraction, he said.

“We’re a nonprofit business, which might sound oxymoronic in one sense,’’ Dreyfus said during an interview with The Boston Globe’s editorial board. “But that’s who we are.’’

From the start, Dreyfus took off the table the possibility of Blue Cross converting to a for-profit health insurance company, citing its foundation, its role in health care public policy, and its history in a state where health insurance has long been dominated by nonprofits. One possibility it considered was becoming a nonprofit mutual insurer owned by its nearly 3 million members.

That would have required a new law because there is nothing in the Massachusetts statutes permitting such a legal structure. Dreyfus said many community leaders agreed that Blue Cross’s time and resources would be better spent concentrating on building alternative insurance plans that could help the state hold down health costs.

The community leaders, who included government officials, employers, business people, and representatives of advocacy groups, were asked about their view of the Blue Cross role in the health care system.

They were also told why Blue Cross officials believe the insurer is different from typical public charities. Among other things, it doesn’t collect donations or grants, isn’t eligible for tax-exempt financing, and paid $136 million in taxes and assessments last year, including a federal income tax, a state corporate premium tax, and in-lieu-of-tax payments on two buildings it owns.

“The nonprofit public charity classification does seem funny, but my advice was to continue with that legal status,’’ said Richard C. Lord, president of Associated Industries of Massachusetts, a trade group for more than 6,500 employers across the state. “I applaud Blue Cross for playing a leading role in trying to make health care costs more affordable.’’

Along those lines, Blue Cross has been working to reduce its administrative costs. As a symbolic move, Dreyfus, who took over as Blue Cross chief executive last fall, accepted a lower base salary and incentive compensation than his predecessor.

Robert Weisman can be reached at weisman@globe.com.