EMPIRE BC/BS: SEEKS FOR-PROFIT STATUS

      New York-based Empire Blue Cross and Blue Shield announced
 yesterday that it would seek approval from the state to turn for-
 profit, abandoning its historic role as "insurer of last resort
 for the sickest people of the state."  NEW YORK TIMES reports
 that Empire, one of the country's largest nonprofit health care
 companies, will make the for-profit transformation by
 establishing a "charitable foundation" to provide financial aid
 for more than 2.5 million uninsured New Yorkers.  The company
 plans to hold public hearings on the conversion before seeking
 approval from the state Department of Insurance.  The move must
 also be approved by the Attorney General, the state Supreme Court
 and the federal Securities and Exchange Commission.
      THE PLAN:  Under the conversion plan, the Empire foundation
 would sell most of its holdings over a period of five years,
 establishing a market value for the company "which could be far
 higher than Empire's current book value of $300 million."  TIMES
 reports that in a move "to avert controversies that have delayed
 similar conversion plans by Blue Cross companies in Ohio and
 California," Empire is avoiding windfall payments in stock or
 cash to company executives during the change-over (see AHL 7/16). 
 Dr. Michael Stocker, president and chief executive of Empire,
 said the proposal "avoids many of the pitfalls experienced by
 other Blue Cross and Blue Shield plans and recognizes the
 public's investment in Empire over the years."  Empire currently
 has 4.7 million members, 523,000 of which are enrolled in managed
 care plans.  The planned conversion would "add $7 million to New
 York State tax rolls," Stocker said, reflecting a 34% growth
 since January 1 in the company's managed care business.
      HISTORIC SHIFT:  TIMES reports that Empire's "planned
 conversion reflects the fierce competition in the health care
 market."  TIMES notes that "with the deregulation of hospital
 rates in the state, Empire is losing the special treatment that
 was supposed to subsidize its unprofitable coverage for many
 people with no place else to go" (Freudenheim, 9/26).  In a
 separate article, NEW YORK TIMES reports that the move
 "represents the last phase in [Empire's] slow transformation from
 a unique state subsidized company to a mainstream insurer focused
 on managed care."  TIMES notes that after years of acting as
 insurer of last resort for the New York health care market, the
 company was "losing business and hemorrhaging hundreds of million
 of dollars a year by the early 1990s," a downturn Empire blamed
 on competition from insurers who "were free to reject patients
 who were poor insurance risks."  Charles Brecher, a professor at
 New York University's Wagner School, said, "They have been moving
 in the direction of becoming like other commercial insurers and
 with this announcement Empire is now no different than any other
 insurance company" (Rosenthal, 9/26).
      PUBLIC PROTECTION:  James Barba, chairman of the state
 oversight committee, said the charitable foundation established
 under the conversion "should be run by a board with a majority of
 outside directors."  He added that the panel "was very concerned
 about the value of the public asset."  He said, "It sounds like
 this would effectively transfer that value to a not-for-profit
 that would have a defined social mission in health care.  I like
 that."  Charles Bell, a spokesman for the Consumer's Union, said
 "he was pleased that 'Empire recognizes that its assets belong to
 the public,'" but warned that it would be "a terrible conflict
 for Empire to retain control over how those assets would be
 managed and disbursed" (Freudenheim, NEW YORK TIMES, 9/26).