Published October 2002

Premera aims to be
for-profit company

By Eric Fetters
Herald Business Writer

Premera Blue Cross, which has transformed itself during recent years into a profitable and more competitive health insurer, wants to reinvent itself again.

The 57-year-old nonprofit company with headquarters in Mountlake Terrace wants to become a publicly held, for-profit firm.

H.R. Brereton “Gubby” Barlow, chief executive officer for Premera, maintains the change won’t be as dramatic as some portray.

“We’re already in a dynamic, competitive market with all the forces that brings. That doesn’t change with a change in our legal structure,” he said.

While Premera’s leaders say the move would help the company raise money to invest in technology and patient services, it’s greeted with skepticism by some doctors and patients.

State Insurance Commissioner Mike Kreider said he wasn’t surprised when Premera first announced in late May that it wanted to become a publicly held, for-profit company.

Across the country, other health insurers affiliated with Blue Cross or Blue Shield have converted from nonprofit companies or been bought out by for-profit insurers. As public companies, the insurers can gain access to capital faster than the nonprofits.

“This is a very capital-intensive industry, and the needs are only going to grow,” said Scott Forslund, spokesman for Premera.

Barlow said, however, that Premera’s survival doesn’t depend on converting to a for-profit. Improving the company’s access to capital is a long-term growth strategy, not an immediate need, he said.

Over the past several years, Barlow has helped to lead Premera out of the red, and the company has gained new members. Before adding Microsoft’s large health insurance account to its roster in September, Premera counted 1.2 million subscribers to its services. That puts Premera among the top two insurers in Washington.

“We’re in a position to choose, which means we can look at it more objectively to decide whether it would be good for the company and members,” Barlow said.

In other states, insurers that have become public companies typically have been required by state governments to create foundations to fund health programs.

That is Premera’s intention in Washington and Alaska, the two states it primarily operates in, Barlow said. The company has proposed that 100 percent of the initial stock issued would support public health programs.

That promise, and how much money it will generate, will be one of the issues reviewed carefully by the state Office of the Insurance Commissioner. Spokeswoman Diane Prigge said the company’s net worth and financial health if it converts to a public company and the possible effects on consumers also will get special attention. The state Attorney General’s Office has to review aspects of Premera’s proposal.

Groups representing patients, doctors and hospitals already have expressed concerns about the conversion. Among those is the Washington State Medical Association, which represents doctors. CEO Tom Curry said his group may take an official position on Premera’s plan, but in the meantime, many members are raising questions.

“There is considerable concern and skepticism among physicians that conversion would be a good thing for doctors, subscribers, patients and hospitals,” Curry said. “So it’s up to the company to show us this would be a good thing.”

He said one particular concern is whether Premera’s conversion would make it attractive for a takeover by a larger, out-of-state insurer.

Barlow said that’s not the goal of the proposed conversion. Premera plans to remain independent and to continue growing, especially in the Western Washington and western Oregon markets. He won’t rule out expansion to other states, however.

Born and raised in South Africa, Barlow, 52, joined Premera in 1997 after working for several for-profit health insurers. Among those is HealthNet, which converted from the nonprofit Blue Cross of California in the 1990s. That experience should help him as he tries to lead Premera through a similar conversion, he said.

But Premera’s structural and financial shift to an organization with shareholders, Barlow said, cannot shift its priorities.

“My answer, which I think is the only answer, is that any company that serves shareholders first and customers second is doomed not to serve either well.”

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