Fox nixes using Blue Cross fund for rebates

The $100 million-plus proceeds from the sale of Montana’s largest private health insurer could be distributed back to its policyholders, through a nonprofit foundation, says an insurance consultant who suggested the idea.

But state Justice Department officials reiterated this week that state law prohibits such distribution of the money from the sale of Blue Cross and Blue Shield of Montana.

John Barnes, a spokesman for Attorney General Tim Fox, said Fox has no plans to revisit the issue or revise the nonprofit foundation that he established last week.

Fox filed papers last week with the secretary of state’s office to create the Montana Healthcare Foundation, which eventually will take possession of the Blue Cross sales proceeds.

He also appointed former University of Montana law school dean Edwin Eck as interim trustee of the foundation. He directed Eck to oversee a search for foundation board members, who would decide how to spend and manage the money.

Once Blue Cross is sold to Health Care Service Corp. of Chicago and sells off other assets that HCSC isn’t buying, the foundation is expected to receive anywhere from $100 million to $150 million from those transactions.

“The Montana Healthcare Foundation provides a tried-and-true standard structure to disburse the assets in accordance with Blue Cross’ charitable mission while providing integrity to the process, by removing direct involvement of the attorney general, all in accordance with (the law),” Barnes said.

Richard Miltenberger, a partner in Mountain West Benefits, and Jim Edwards, the firm’s president recently proposed using the sales proceeds to pay refunds or rebates to Blue Cross policyholders.

“The simplest thing in the world would be to give every (Blue Cross customer) a premium holiday,” Miltenberger said. “I’ve been passing along Blue Cross rate increases for many years, to people who can hardly afford it. And when (Blue Cross) comes to sell the company, there is zero consideration for the policyholders.”

Miltenberger said a legal opinion he obtained from a Helena attorney said Fox could have set up a foundation to accomplish the rebate, using a 501-c-4 status instead of the 501-c-3 status that he did.

He also argued that the 501-c-3 foundation set up by Fox will spend a lot of money on staff, administration and reviewing grants, just to “dribble out” some small grants over the years.

Paying rebates to tens of thousands of Blue Cross customers, worth a month or two of premiums, would be a quicker, more efficient use of the money to accomplish a health-related goal, Miltenberger said.

Fox’s office disagreed, saying that distribution would be a “private inurement” that benefits a small group of private parties, which is forbidden by federal and state laws governing charities.

Barnes also said that a 501-c-3 charity can received tax-deductible gifts, while a 501-c-4 could actually use the money for political purposes.

“The public is best-served by restricting these funds from political uses,” he said. “That (501-c-4) was a non-starter, from our standpoint.”

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