BCBSIL / BCBSTX Merger information

Several years ago, Illinois BCBS (BCBSIL) and Texas BCBS (BCBSTX) submitted proposals to merge. BCBSIL is a mutual insurance company that can become for-profit by a vote of a majority of its board, while BCBSTX was a nonprofit health services corporation. The Texas Attorney General filed a lawsuit to block the proposed merger in 1996, arguing that the proposed merger violated Texas law because the Illinois company did not meet the Texas definition of a “nonprofit.” In 1998, the trial court issued a letter opinion against the Attorney General and in favor of the merger. The court held, contrary to much of the evidence before it, that BCBSTX is not a charitable corporation and that BCBSIL meets the Texas definition of a nonprofit corporation.

In 1998, BCBSIL pleaded guilty to Medicare fraud charges for the years 1985 through 1994 and agreed to pay $144 million in fines to the federal government, the largest penalty assessed against a Medicare claims processor for fraud. As a result of its fraudulent activities, BCBSIL received $1.29 million in undeserved bonuses.

Also in 1998, the Texas Attorney General agreed not to appeal the issue of whether BCBSIL met the Texas definition of a nonprofit corporation and allowed the merger to move forward. In exchange, BCBSIL agreed to pay $10 million over five years to Texas Healthy Kids Corporation (for subsidies to low-income families buying insurance for their children). The merger was approved by the Insurance Departments of both Texas and Illinois in late 1998 and has now been consummated.

The Texas Attorney General appealed the trial court ruling that BCBSTX was not a charitable organization. In 2003, the Court of Appeals for the Third Judicial District upheld the trial court’s ruling. Weeks later, the Attorney General discovered and shared with the Court of Appeals a written history, which was authorized, underwritten, and published by BCBSTX, entitled Lone Star Legacy: The Birth of Group Hospitalization and the Story of Blue Cross and Blue Shield of Texas (1999). In it, the author stated that BCBSTX had, in fact, solicited and received charitable donations over the years. Because of the new evidence, the Attorney General asked the Court of Appeals to reconsider its affirmation of the trial court’s ruling, which the Court refused to do. In early 2004, the Attorney General filed a petition for review of this matter with the Supreme Court of Texas. The Court rejected the Attorney General’s petition. In 2005, the Attorney General filed a Bill of Review with the Court asking it to reconsider.

Health Care Service Corporation (HCSC), the Illinois company that operates BCBSTX and BCBSIL, acquired Blue Cross Blue Shield of New Mexico in May 2001. Also in 2001, HCSC filed an application with regulators in six states to “affiliate” with Blues plans in Oregon, Washington, Idaho and Utah. However, one week before public hearings were to begin on this proposal, HCSC announced it was withdrawing its application.

In 2005, HCSC proposed to merge with the Blue Cross Blue Shield plan in Oklahoma/

Information on health plans from BCBSIL, and BCBSTX can be found at www.medequote.net