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WHY HAS CINCINNATI BLUE CROSS PLAN CHANGED ITS MIND ABOUT MERGER? THE BUSINESS PLAN OF ITS NEW ACQUISITION MAY HOLD THE ANSWER, SAYS CLEVELAND BLUES' EXECUTIVE

 COLUMBUS, Ohio, June 14 /PRNewswire/ -- A top executive of Blue Cross & Blue Shield of Ohio (BCBSO) today questioned whether Community Mutual Insurance Co. (CMIC), the Cincinnati Blues company, plans to stay in Ohio and continue to function as a traditional not-for-profit health insurer.
 Kent W. Clapp, president and chief operating officer of Cleveland- based BCBSO, noted that in a hearing last Thursday before the House Insurance Committee, CMIC lawyer Michael J. Canter spoke favorably of a trend away from the traditional Blue Cross non-profit approach to health insurance.
 "The most penetrating question is: Does Community Mutual plan to abandon its traditional Blue Cross mission and become a for-profit concern?" asked Clapp.
 Clapp said Canter told the committee some Blues Plans have acquired for-profit lines of business or subsidiaries which give them access to capital markets to which mutual insurance companies do not have access.
 And in his appearance before the committee, Canter identified CMIC's acquisition of Florida-based Home Life Financial Assurance Corp. as part of the company's strategy to participate in that trend, which he said included -- in the case of several other commercial mutual companies -- public stock offerings.
 Clapp asked: "Is Community Mutual planning to stay in Ohio as a non-profit Blue Cross & Blue Shield company, or is it planning to move to Florida with Home Life?
 "CMIC's officials are saying they've changed their minds about a merger after all these years because they want to maintain a competitive atmosphere. But I think they've changed their minds for other reasons."
 One reason, Clapp said, is the appointment of management for the merged company would amount to a "jump ball," in which 15 to-be-named board members would choose the surviving management. And, he said, by every major comparison between the Cleveland and Cincinnati Plans, CMIC would lose.
 But an even more important reason, he said, might be that Community Mutual intends to phase itself out as a not-for-profit health insurer, become a for-profit company offering a variety of insurance products, and, perhaps, move its operational base to Florida.
 Strong evidence of that is in Home Life's strategic plan, "A Business Plan for the Future," which he made available to reporters.
 Noting that, in response to a question, Canter told the House Insurance Committee that Home Life did not "cherry-pick" business -- that is, insure only very low-risk customers -- Clapp called specific attention to a section of the Home Life document titled, "HLFAC Strategic Direction."
 Here, the plan says: "We believe the most critical success factors in our industry are the ability to: ...Migrate our business to products that transfer risk and are less sensitive to regulatory pressure." (Emphasis added.)
 "That says pretty clearly that Home Life considers cherry-picking critical to its future success," said Clapp.
 Clapp pointed out that in a subsection called "Business Strategy," the company's document says: "Focus on risk assessment. This allows us to insure a better class of customer, at a more favorable price, than many of our competitors."
 And, under the heading, "Specific Strategies," the document says: "Note that we are forecasting a shrinkage in the Client's Choice fully insured group business. We view this as desirable because this product is the most difficult for us to control. It is our only product where we do not underwrite new entrants after case issued, and where the employer has no stake in the quality of that risk."
 This same section also says: "Promote non-medical products (i.e., life insurance, disability insurance.)"
 Said Clapp: "This corporate document may not be a smoking gun, but it's certainly strong circumstantial evidence that CMIC may have an entirely different agenda than they're telling the public and the Ohio General Assembly about.
 "The agenda of Blue Cross & Blue Shield of Ohio is not only very clear, it's also never changed.
 "We believe earnestly that the efficiencies represented by a single, statewide Blue Cross & Blue Shield Plan is best for Ohio in every possible way, economically, operationally, and as a means for improving access for all to the healthcare system.
 "We will continue to work toward that goal. And at this critical point, it is time for CMIC to be forthright about its goals. It is time for them to tell the people where they are headed as a health insurer."
 Clapp said Ohio's third Blue Cross Plan, based in Columbus, has already stated it probably would drop its Cross-and-Shield affiliation if the Plans were merged, making management of a new, statewide company clearly a test between the Cleveland and Cincinnati Blue Cross Plans.
 He said: "Comparisons between the two companies will take into account how each of the plans managed their money, controlled their own administrative costs, and controlled hospital and doctor charges."
 And, he added: "Independent analyses of Blue Cross & Blue Shield of Ohio's performance show very clearly that we have done a better job in every category."
 Clapp also said CMIC is "intellectually dishonest" in its legislative testimony that a single Ohio Plan would not be in the public interest.
 "As recently as 1990, and as long ago as 11 years, Community Mutual, and before CMIC its predecessor companies, worked actively to bring about creation of a single plan it professes to oppose today," said Clapp.
 "In the summer of 1990," he said, "CMIC was engaged in merger negotiations with the Cleveland Plan, even insisting that a merger would be dependent on its having control of the board of directors of the merged company.
 "And as long ago as January 1982, the predecessor company to what is now CMIC was contemplating the plan by which it became CMIC and one by which it would control all Blue Cross & Blue Shield business in the state of Ohio."
 The predecessor company was Ohio Medical Indemnity Mutual Corp. (OMIM) of Worthington, Ohio. OMIM's external relations committee was then chaired by Philip R. Moots, who until recently was a member of the CMIC board, said Clapp.
 In addition, Dwane R. Houser, who today is CMIC's chairman and chief executive officer, was at that time an executive vice president of OMIM. Later, before OMIM merged with Hospital Care Corp., the Cincinnati-based Blue Cross Plan, Houser joined Hospital Care Corp. as its president.
 Clapp said he was making available copies of several letters to support what he said about CMIC's desire to control a single Blue Cross & Blue Shield Plan in Ohio.
 These included a January 1982 letter to Moots from the consulting firm, Coopers and Lybrand, addressing long-range plans to consolidate eventually with Blue Cross and/or Blue Shield Plans in Cincinnati, Columbus, Toledo, and Cleveland.
 He also had copies of letters between John Burry, Jr., chairman and chief executive officer of BCBSO, and his Community Mutual counterpart, Houser, on the subject of merger and the progress of merger discussions.
 "Nothing can change the fact that CMIC has wanted a single, statewide Blue Cross & Blue Shield Plan from the very beginning," said Clapp. "They're trying to tell a different story today because they're fearful of losing the competition for control of the merged company."
 In terms of financial performance, Clapp had documents using Ohio Department of Insurance data to show Community Mutual's reserves stood at $443 million in 1987 by Statutory Accounting Principles, or SAP, the method required by the state -- highest of any Plan in America.
 That compares with $45.1 million SAP for the Cleveland Plan the same year, said Clapp.
 But, he added, at the end of 1992, CMIC's reserves had dropped to $300 million SAP -- while BCBSO's had skyrocketed to $161 million SAP.
 Over the past five years (1988-92), BCBSO reserves have more than doubled and accumulated net earnings have totaled more than $100 million SAP.
 By contrast, he added, CMIC still has not recovered to pre-1987 reserve levels and is still, perhaps, $200 million dollars off its previous high. And, in the past five years, CMIC's accumulated net earnings have totaled a loss of nearly $20 million ($19.9 million).
 Clapp said an independent analysis of reports filed by BCBSO and CMIC with the Ohio Department of Insurance showed the Cleveland Plan had a considerably lower administrative expense ratio for the period 1989 through and including 1992.
 In terms of controlling provider charges, Clapp said: "CMIC has been saying that a merger will result in a shift of the 'higher cost' of medical care in the Cleveland area to Blue Cross customers in the Cincinnati area," Clapp said.
 "Not only does the system not work that way, but the cost of hospital care, per case, and the medical consumer price index overall are today lower in Greater Cleveland than they are in Cincinnati."
 Clapp noted that analyses of data provided by the American Hospital Association and U.S. Bureau of Labor Statistics showed that in 1991 the hospital cost per case in the Cleveland metropolitan area was $5,996 -- and that in metropolitan Cincinnati it was $6,020.
 Those numbers represent an increase since 1985 of 37.2 percent in Cleveland -- and of 58.5 percent in Cincinnati.
 Increases in the Consumer Price Index - Medical for the same period were 50.9 percent in Cleveland and 56.5 percent in Cincinnati, Clapp said.
 He added the Cleveland Plan estimates that since passage of the Health Insurance Reform Act in 1987, it has saved its customers more than $200 million by aggressively negotiating contracts with hospitals and physicians.
 -0- 6/14/93
 /EDITOR'S NOTE: Supporting documentation available on request/
 /CONTACT: William A. Silverman of William Silverman & Company, 216-696-7750, for Blue Cross & Blue Shield of Ohio/


CO: Blue Cross & Blue Shield of Ohio; Community Mutual Insurance Co. ST: Ohio IN: INS SU:

KL -- CL009 -- 1666 06/14/93 12:51 EDT
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Date:Jun 14, 1993
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