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Blue Cross of California Cleared For For-Profit Division

January 10, 1993

LOS ANGELES (AP) _ State regulators approved a plan by Blue Cross of California to spin off most of its members into a for-profit subsidiary.

The Department of Corporations said Friday it had issued a license to Blue Cross that would allow the non-profit company to create a for-profit division.

The new company, expected to be formed this year, will include Blue Cross’ 423,000-member health maintenance organization, its 1.5 million-member preferred provider network and the company’s pharmacy, dental, mental health, senior and workers’ compensation programs.

Blue Cross is headquartered in the Woodland Hills area of Los Angeles.

Blue Cross, the state’s largest health insurer, expects to raise $414 million of funding through an initial stock offering, according to filings with the U.S. Securities and Exchange Commission.

Analysts said the company, which will be called Wellpoint Health Networks, would have an initial stock price of around $24 a share and that the offering should be received avidly by investors.

″It will be hugely successful,″ said Michael LeConey, an analyst at RAS Securities. ″It’s an extremely well-managed entity.″

Blue Cross will hold onto 80 percent of the stock and nearly all of the voting shares in Wellpoint.

Several other HMO companies such as Health Net and PacifiCare have made the switch from non-profit to for-profit, and Blue Cross & Blue Shield United of Wisconsin started a similar subsidiary in 1991.

Critics have complained that such ventures lead to windfall profits for the managers of the HMOs. And some consumer groups have expressed concern that the profit motive might supersede the importance of providing care.

But Blue Cross California Chairman Leonard Schaeffer said there would be no negative impact on premiums, service or the company’s philanthropic activities.

DS-01-10-93 1718EST

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