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Conversion Primer

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North Carolina is the only state to have passed a law that sets down rules Blue Cross must follow in pursuing conversion to for-profit status. After a coalition of nonprofit and health leaders stopped an initial conversion bill that required no repayment of the public investment in Blue Cross, a study commission was formed and a new bill passed in 1998 that calls for 100 percent of the company's stock to be transferred to a charitable foundation when it converts.

1. The trigger: Blue Cross launched the conversion process by filing an application with the state Department of Insurance. By law, conversion is also triggered if the company merges with a for-profit; if it sells or transfers stock to an outside investor; if 10 percent or more of its assets are used to buy for-profit organizations (except for North Carolina health insurance businesses) or if more than 40 percent of its activities are for-profit.

2. The regulators: The state Commissioner of Insurance and the state Attorney General must approve Blue's conversion plan. The commissioner must decide whether the plan is in the public interest and protects the rights of consumers. The attorney general reviews the new foundation to ensure that 100 percent of the fair market value of the company is transferred to the charitable organization when Blue converts.

3. The carrot: The foundation is charged with promoting the health of North Carolinians. Its resources will come from selling its stock in the new for-profit Blue. The stock transfer will have no monetary value until the foundation sells its shares. The attorney general appoints an initial board to run the foundation from nominees chosen by an advisory committee of health care, business and nonprofit leaders. A voting rights agreement outlines the foundation's voting powers over its stock in the new company. A separate board runs the new for-profit Blue.

4. The public: The Insurance Commissioner must hold three public hearings within 60 days of Blue's filing a conversion plan. Written comments are collected for a period that can last up to 10 days after the public hearings.

5. Post conversion: After converting to a for-profit, Blue Cross would have the ability to raise capital on the stock market, issue stock options to its executives, buy other for-profits or be acquired by another for-profit. It would no longer be eligible for premium-tax discounts or tax breaks given to nonprofits. The new company would still be regulated by the state Department of Insurance.

For more information about Blue's conversion, visit the Department of Insurance at www.doi.state.nc.us or Blue Cross at www.bcbsnc.com. For information about conversions of Blue Cross plans in other states, visit Community Catalyst, www.communitycat.org or the National Consumers Union, www.consumersunion.org.

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