CONVERSION OF
ASSOCIATED HOSPITAL SERVICE OF MAINE
(d/b/a BLUE CROSS AND BLUE SHIELD OF MAINE),
AND
ACQUISITION OF ASSETS AND
ASSUMPTION OF LIABILITIES BY
ANTHEM HEALTH PLAN OF MAINE, INC.
(d/b/a ANTHEM BLUE CROSS AND BLUE SHIELD OF MAINE),
A WHOLLY OWNED SUBSIDIARY OF
ANTHEM INSURANCE COMPANIES, INC.
JOINT INTRODUCTORY STATEMENT
September 15, 1999
Introduction
Pursuant to the Asset Purchase Agreement dated July 13, 1999 (the "Asset Purchase Agreement") between Associated Hospital Service of Maine (d/b/a Blue Cross and Blue Shield of Maine) ("BCBSME"), a Maine nonprofit hospital and medical service organization, and Anthem Insurance Companies, Inc. ("Anthem"), an Indiana mutual insurance company, Anthem Health Plans of Maine, Inc. (d/b/a Anthem Blue Cross and Blue Shield of Maine) ("Anthem BCBSME"), a Maine domestic health insurer, to be formed and to be a wholly owned subsidiary of Anthem East, Inc., which, in turn, is a wholly owned stock subsidiary of Anthem, will purchase substantially all of the assets and assume substantially all of the liabilities of BCBSME (the "Acquisition").
The Parties
BCBSME is a Maine nonprofit corporation subject to Title 24 of the Maine Revised Statutes and is a nonprofit hospital and medical service organization, as that term is defined in 5 M.R.S.A. § 194-A(1)(K). BCBSME has been a licensed Maine nonprofit hospital and medical service organization for sixty years and is the largest health insurer in Maine. BCBSME's activities and purposes are also governed by 24 M.R.S.A. § 2301(3-C).
BCBSME owns 50% of the stock of each of Maine Partners Health Plan, Inc. ("Maine Partners") and Central Maine Partners Health Plan, Inc. ("Central Maine Partners"). As health insurance affiliates of BCBSME, these subsidiaries are currently governed by 24 M.R.S.A. § 2308-A.
Anthem is an Indiana domiciled mutual insurance company that was incorporated in 1944 under the name Mutual Hospital Insurance, Inc., commonly known as "Blue Cross of Indiana." In 1946, Mutual Medical Insurance, Inc., commonly known as "Blue Shield of Indiana," was incorporated as an Indiana mutual insurance company. These two companies combined their operations under the name "Blue Cross and Blue Shield of Indiana." In 1985, the two companies legally merged, with the surviving company bearing the new name "Associated Insurance Companies, Inc." In March 1996, Associated Insurance Companies, Inc. changed its name to Anthem Insurance Companies, Inc.
Starting in the mid-1980s, Anthem identified certain strategic risks, including a declining industrial population base in Indiana and deepening underwriting cycles in the health insurance business. To mitigate these risks, Anthem implemented a strategic plan to strengthen its core health care insurance business, to expand into markets outside Indiana and to diversify into other lines of business.
In the early 1990s, Anthem further observed the significant consolidation trend in the health insurance market and the resulting increase in size, strength and market presence of companies against which Blue Cross and Blue Shield companies, like Anthem, would have to compete. In response, Anthem refined its strategic plan to focus on bringing together individual Blue Cross and Blue Shield plans to form strong regional clusters.
Consistent with Anthem's strategic business plan, in 1993, Southeastern Mutual Insurance Company, a Kentucky domiciled mutual insurance company which did business in Kentucky as "Blue Cross and Blue Shield of Kentucky," was merged into Anthem. The Community Mutual Insurance Company, an Ohio domiciled mutual insurance company which did business in Ohio as "Community Mutual Blue Cross and Blue Shield," was merged into Anthem in 1995. In 1997, Blue Cross & Blue Shield of Connecticut, Inc., a Connecticut domiciled mutual insurance company, was merged into Anthem. These companies were each mutual insurers, and their policyholders and members became policyholders and members of Anthem. As is intended with BCBSME, the Kentucky, Ohio and Connecticut transactions included the maintenance of sizable in-state operations to service the needs of each state's policyholders and members. These three consolidations added approximately three million covered lives to Anthem's membership, and furthered Anthem's objectives of expanding its geographic base of operations and strengthening its core business. As a result of the 1993, 1995 and 1997 consolidations, Anthem constitutes one of the larger health care management companies in the United States, and currently does business in Indiana, Kentucky, Connecticut and Ohio under the Blue Cross and Blue Shield trademarks and service marks.
The Transaction
Anthem seeks to incorporate and obtain a certificate of authority for a domestic health insurer in Maine, Anthem BCBSME. Anthem BCBSME will be a wholly owned subsidiary of Anthem East, Inc., which, in turn, is a wholly owned stock subsidiary of Anthem. In contemplation of the Acquisition, Anthem seeks all necessary approvals required for Anthem BCBSME to acquire substantially all of the assets of BCBSME and control of its subsidiary interests. Anthem BCBSME will assume substantially all obligations and liabilities of BCBSME, excluding (i) any Medicare program liabilities in excess of 3% of the total consideration (after adjustments), (ii) BCBSME taxes, and (iii) certain other exclusions as set forth in the Asset Purchase Agreement.
Pursuant to 5 M.R.S.A. § 194-A(5) and 24 M.R.S.A. § 2301(9-D), BCBSME will convert to a stock insurer, whereupon BCBSME will sell and assign, and Anthem BCBSME will purchase and assume, all Insurance Contracts of BCBSME in force at the Closing, together with all operating assets of BCBSME used in the operation of its business, and its stock in, respectively, Maine Partners and Central Maine Partners. Immediately after the Closing, the policy and contract holders of BCBSME will become policy or contract holders of Anthem BCBSME, without any break in continuity of benefits and services. In addition, while BCBSME's ownership interest in Maine Partners and Central Maine Partners will transfer to Anthem BCBSME, the policy and contract holders of Maine Partners and Central Maine Partners will continue, without interruption of benefits or service, as policy and contract holders of those HMOs. At Closing, Anthem BCBSME will acquire BCBSME's (and, indirectly, Maine Partners' and Central Maine Partners') then-existing network of physicians and other providers who will continue to provide service to policy and contract holders.
The Acquisition does not include the purchase of Patriot Mutual Insurance Company ("Patriot Mutual"), d/b/a Blue Alliance Mutual Insurance Company ("Blue Alliance"), and its subsidiary, Patriot Life Insurance Company (together, "Patriot"). However, if requested by Patriot, Anthem BCBSME will continue to provide management and administrative support services to Patriot for at least two (2) years after the closing under the existing agreements between Patriot and BCBSME. In addition, Anthem BCBSME will acquire from Patriot its 43% ownership interest in Machigonne, Inc., a Maine corporation, which, combined with BCBSME's existing 57% ownership interest, will result in Anthem BCBSME's ownership of all of Machigonne, Inc.
Following the closing of the Acquisition, BCBSME will wind up its affairs, liquidate, and dissolve. Pursuant to 5 M.R.S.A. § 194-A(5), the net cash proceeds of the asset sale that are paid to BCBSME, after payment of BCBSME's remaining obligations and expenses, will be paid to an independent Charitable Trust (the "Trust") to be established by BCBSME in accordance with a Charitable Trust Plan that must be approved by the Superior Court in a proceeding in which the Superintendent has the right to intervene. The anticipated role of the Trust is to fund health care programs that will meet the unmet health care needs of the citizens of Maine, provided that, for a period of ten (10) years, neither the Trust nor BCBSME competes with the Applicant.
Anthem BCBSME will operate the BCBSME business following the closing under the name "Anthem Blue Cross and Blue Shield of Maine."
Regulatory Approvals Sought in This Initial Consolidated Filing
As a prerequisite to the closing of the Acquisition, BCBSME seeks approval of the following from the Superintendent of Insurance:
Simultaneously, Anthem and Anthem BCBSME have filed for approval of:
Conclusion
BCBSME, Anthem, and Anthem BCBSME very much look forward to working and cooperating with the Superintendent, the staff of the Bureau of Insurance, and any parties admitted as intervenors in this proceeding. Both BCBSME and Anthem are confident that the Acquisition will provide significant benefits to current policyholders of BCBSME and the citizens of Maine.