Premera conversion could send $150 million to Alaska

Company has proposed changing from a nonprofit to a for-profit organization

Posted: Thursday, April 15, 2004

ANCHORAGE - Alaska could receive $150 million or more for health care if Premera Blue Cross is allowed to convert from a nonprofit to a for-profit company, according to state reports.

Premera proposed the conversion in 2002 in Washington and Alaska, where it provides health insurance to more than a million people.

The change will allow it to raise capital through stock sales and to promote growth and improve technology and services for consumers, company executives say. Insurance directors in both states must approve or deny the conversion this summer.

When a nonprofit corporation converts to a for-profit, law requires that its charitable assets go to another nonprofit, such as a foundation, said Scott Benbow, staff attorney with the Consumers Union, a consumer protection agency advising community groups in Alaska and Washington.

If its conversion is approved, Premera has proposed creating two foundations to pay for health care initiatives, one in Alaska and another in Washington.

Both states hired consultants to study the conversion and present findings to Mike Kreidler, the insurance director in Washington, and Linda Hall, the director in Alaska. Washington's experts have estimated Premera's value at between $500 million and $700 million. That value will be transferred to the foundations' organizations in Alaska and Washington if the conversion is approved.

The foundations would sell the stock and give the proceeds to health-care charities. It is not yet known which charities may benefit.

Consultants for Alaska and Washington have disagreed about how to fairly allocate the Premera stock. Signal Hill Capital, investment bank analysts studying the conversion for Alaska, recommended that Alaska's foundation receive 25.8 percent to 29.6 percent of Premera's stock. Reden & Anders, actuarial advisers, recommended that Alaska receive 24 percent to 28 percent.

The Blackstone Group, however, wrote a report for Washington that recommends giving Alaska only 11 percent to 17 percent of the conversion proceeds. The difference could mean more than $60 million for Alaska, based on midrange estimates.

"There's obviously a considerable divide on what both experts are saying," said attorney Amy McCullough, with Alaska Legal Services.

Scott Schoengarth, spokesman for Washington's insurance division, said the insurance directors in Washington and Alaska, as well as Washington's attorney general will decide the stock allocation if the conversion is approved.

Alaska and Washington have scheduled hearings to discuss the proposed conversion. Washington's is scheduled to start May 3. Alaska's will begin June 7 in Anchorage.

Washington's insurance commissioner, will issue a decision by July 19. Alaska's commissioner, will decide by July 25.

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