Stricter rules still being sought for HMOs that convert to for-profits.

Nonprofit health care administrators who were heartened by Blue Cross of California's "public benefit" settlement late last month may be disappointed to learn that similar settlements in the future are unlikely, according to a key legisltative aide.

Blue Cross of California settled a dispute with state lawmakers Aub. 25 by agreeing to provide $5 million a year for the next 20 years to a number of health care charities, including ones that provide insurance to the uninusured.

The dispute settled what Blue Cross must pay to compensate for being allowed to create a for-profit subisidary, Wellpoint Health Networks.

By transferring 80 percent of its assets to Wellpoint, state legislators and consumer groups had argued that Blue Cross sidestepped a California law that requires a non-profit company to donate the value of its assets to charity when it converts to for-profit status.

If Blue Cross had been held to strict compliance with the state law for conversions, it could have been forced to set aside as much as $1.5 billion, the total value of its assets as of the end of fiscal 1992.

Woodland Hills-based Health Net, the state's second-largest health maintenance organization, is only a fraction of the size of Blue Cross. But Health Net was forced to pay $300 million over a 15-year period to fund the creation of a nonprofit foundation, called the California Wellness Foundation, when it converted to for-profit status in 1991.

Blue Cross officials, however, asserted that its complicated creation of Wellpoint constituted a "restructuring" rather than a for-profit conversion, and the Department of Corporations agreed.

Gene Erbin, counsel to the state Assembly Judiciary Committee, called Blue Cross' settlement for $100 million over 20 years a "typical legislative accommodation."

But a state bill originally aimed at squeezing more charitable care out of Blue Cross will be reintroduced, Erbin said, to insure that nonprofits that create for-profit subsidiares will have strict guidelines stipulating what they need to provide to charity.

"The bill won't pertain to BCC (Blue Cross of California), but it will try to regulate in some manner how similar transactions will function in the future," he said.

Although the specifics of the bill have not been hashed out, he said, the goal of the legislation will be to treat a "restructing," such as the one undertaken by Blue Cross, as a conversion.

About 25 California nonprofits have converted to for-profit status since the state law regulating such conversions was passed in the early 1980s. Since then, nonprofits converting to for-profits have set aside huge sums for charitable foundations.

Assemblyman Phillip Isenberg, D-Sacramento, who heads the Assembly Judiciary Committee, introduced legislation (AB 1784) to retroactively close a "loophole" in the state law that allowed Blue Cross to create a for-profit subsidiary without giving a "substantial" amount of charity.

The bill was temproarily dropped while state lawmakers hashed out an agreement with Blue Cross officials, said Erbin.

"The reason we wanted to negotiate (a settlement with Blue Cross) is because no one knew where the votes were," he explained. "You don't go to war if you're not going to win."

Patrick Garner, a Blue Cross senior vice president, said he was pleased with the settlement. He said when Blue Cross originally filed its application for restructuring with teh Department of Corporations, company officials said they would increase the company's public-benefit activity.

Now that an exact figures has been reached, he said, Blue Cross will amend that filing.

Since the settlement was announced, Garner said, numerous calls from charities have been coming in.

Under the terms of the settlement, Blue Cross would start dispensing money to charities beginning Jan. 1, 1994 in the following ways:

* One million dollars a year would be given to tax-deductible, health-related charities.

Blue Cross currently gives money to tax-deductible charities involved with AIDS, Alzheimer's Disease, diabetes, cancer, arthritis, and Hispanic and African-American health.

* One million dollars a year would be given to the Major Risk Medical Insurance Program -- the state's insurance pool for high-risk individuals -- and Access for Infants and Mothers -- which provides insurance for pregnant women and their children

Under the Major Risk Medical Insurance Program, also known as Mr. Mip, the state provides $30 million in tobacco tax revenues to subsidize health insurance premiums for 16,000 people, said Richard Figueroa, a deputy director of the program. He said the average patient participating in Mr. Mip pays a premium of $220 a year, whereas some of them were previously paying premiums of as much as $1,600 a month.

Under Access for Infants and Mothers, also known as AIM, the state provides $58 million in tobacco tax revenues to subsidize insurance for pregnant women and their children. The insurance covers that cost of prenatal care, delivery and two years of health care for the child, said Figueroa.

Although a number of health plans participate in both the programs, Figueroa said, Blue Cross has 70 percent of the combined enrollment of AIM and Mr. Mip.

* One million dollars a year be given to non-government sponsored programs that provide health care to the needy, such as a clinic in East L.A.

* Two million dollars a year would go towards Blue Cross' "partnership" programs, such as its California Kids Program, which helps provide insurance for children of low-income parents.