Court: Blue Cross Not a Public Charity

August 6, 2003 ( - A Texas state appeals court ruled that Blue Cross Blue Shield of Texas is not a charity whose assets should benefit all state residents.

>Because of the Texas 3 rd Circuit Court of Appeals decision affirming a February 1998 ruling by former state District Judge Joe Hart, Blue Cross/Texas will not have to pay a multimillion-dollar settlement that it negotiated with the state, the Texas Lawyer reported.

“Not only has Blue Cross/Texas never had a public charitable purpose, the evidence is undisputed that with only minor exceptions, all revenues generated by Blue Cross/Texas have been used to benefit its policyholders or for its own corporate purposes,” Justice Lee Yeakel wrote for the three-justice panel, which has been considering the case since hearing arguments in September 1999.

>Asserting his powers to protect charitable trusts, former Attorney General Dan Morales filed the suit in 1996 after Blue Cross/Texas and Blue Cross Blue Shield of Illinois announced plans to merge. Morales alleged in the petition to the trial court that the proposed merger would “siphon hundreds of millions of charitable dollars from Texas.”

>Will Davis, an attorney for Blue Cross/Texas, says Morales agreed that the merger could move forward in 1998 after negotiating a high-low settlement that would have required the insurance company to pay $350 million, plus interest, to charitable health foundations in Texas if the state had won the case. Under the settlement agreement, Blue Cross paid the state $10 million in installments of $2 million each over five years, with the final payment made last December, Davis told the Texas Lawyer.

>Davis said there never has been any indication that Blue Cross/Texas was a charity. “It never acted as a charity, never performed as a charity, never was a charity. It’s never been anything but an insurance company from day one,” he says. The merger was essential to the financial well being of Blue Cross/Texas, Davis said.

The case is Abbott v. Blue Cross and Blue Shield of Texas, et al.