The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)



STATE OF MICHIGAN

JENNIFER M. GRANHOLM, ATTORNEY GENERAL

 

BLUE CROSS & BLUE SHIELD:

CORPORATIONS:

INSURANCE:

NONPROFIT HEALTH CARE CORPORATION ACT:

Authority of Blue Cross & Blue Shield of Michigan to convert or sell itself to a for-profit entity

The Nonprofit Health Care Corporation Reform Act does not authorize Blue Cross & Blue Shield of Michigan to convert itself from its special status as a nonprofit, tax-exempt, charitable and benevolent institution to a for-profit entity or to sell itself to a for-profit entity.

Opinion No. 7115

July 30, 2002

Honorable Paul Wojno
State Representative
The Capitol
Lansing, Michigan

You have asked whether the Nonprofit Health Care Corporation Reform Act authorizes Blue Cross & Blue Shield of Michigan to convert itself from its special status as a nonprofit, tax-exempt, charitable and benevolent institution to a for-profit entity or to sell itself to a for-profit entity.

In particular, you express concern about whether Blue Cross & Blue Shield of Michigan (BCBSM) can convert or sell itself to a mutual or stock insurance company which, for purposes of this opinion, are assumed to be other than nonprofit entities.

The People of this state have declared that the health of Michigan's citizens is a matter of primary public concern. Const 1963, art 4,  51, provides that:

The public health and general welfare of the people of the state are hereby declared to be matters of primary public concern. The legislature shall pass suitable laws for the protection and promotion of the public health.

Under this authority, the Legislature enacted the Nonprofit Health Care Corporation Reform Act (Act), 1980 PA 350, MCL 550.1101 et seq.1 BCBSM is the only health care corporation governed by the Act, which provides that "[a] health care corporation shall not be incorporated in this state except under this act." Section 201(1). The Act defines "health care corporation" to mean a nonprofit hospital service corporation, medical care corporation, or a consolidated hospital service and medical care corporation incorporated or reincorporated under this act, or incorporated or consolidated under former Act 108 or Act 109 of the Public Acts of 1939. Section 105(2).

Section 102, which declares the Legislature's intent and policy, provides in part that:

(1) It is the purpose of and intent of this act, and the policy of the legislature, to promote an appropriate distribution of health care services for all residents of this state, to promote the progress of the science and art of health care in this state, and to assure for nongroup and group subscribers, reasonable access to, and reasonable cost and quality of, health care services, in recognition that the health care financing system is an essential part of the general health, safety, and welfare of the people of this state. Each corporation subject to this act is declared to be a charitable and benevolent institution and its funds and property shall be exempt from taxation by this state or any political subdivision of this state.

(2) It is the intention of the legislature that this act shall be construed to provide for the regulation and supervision of nonprofit health care corporations by the commissioner of insurance so as to secure for all of the people of this state who apply for a certificate, the opportunity for access to health care services at a fair and reasonable price. [Emphasis added.]

As a nonprofit health care corporation subject to the Act, BCBSM's special status is reinforced in section 201(5) where the Legislature again declared that:

A health care corporation subject to this act is declared to be a charitable and benevolent institution, and its funds and property shall be exempt from taxation by this state or any political subdivision of this state.

Thus, the Legislature has expressly declared BCBSM to be a nonprofit, tax-exempt, charitable and benevolent institution. By doing so, the Michigan Legislature created a charitable trust for the benefit of Michigan's citizens. This trust may not be compromised by the diversion of BCBSM's charitable assets that are intended to benefit Michigan's citizens.2 BCBSM's statutory duty is to provide access to health care at a fair and reasonable price to all Michigan citizens who apply for coverage. Its special legal status makes BCBSM Michigan's health insurer of last resort.

BCBSM's special status is recognized by its express exclusion from the laws regarding insurance companies and corporations generally. Section 201(4). Indeed, the Act places limitations on the name by which a nonprofit health care corporation may be known: "[T]he words insurance, casualty, surety, health and accident, mutual, or other words descriptive of the insurance or surety business" may not be included in its corporate name. Section 202(1)(c). The Act's provisions clearly demonstrate the Legislature's intent to distinguish BCBSM from an insurance business and to eliminate any confusion in identity with that of an insurance company. Thus, the Legislature did not intend BCBSM to become, to operate as, or to convert to a for-profit insurance company.

In Blue Cross & Blue Shield of Michigan v Governor, 422 Mich 1,14-15; 367 NW2d 1 (1985), the Michigan Supreme Court recognized BCBSM's special status and unique mission by stating that:

BCBSM is a unique statutory creation, distinct from a private insurance company in that "'it is not carried on as an insurance business for profit . . . , but rather it provides a method for promoting the public health and welfare in assisting . . . persons to budget' health care costs." Under its enabling legislation, BCBSM is not "subject to the laws of this state with respect to insurance corporations, except as provided in [the] act . . . . [nor] with respect to corporations generally." Rather, BCBSM is, by legislative declaration, a non-profit "charitable and benevolent institution, and its funds and property shall be exempt from taxation by this state or any political subdivision of this state." [Emphasis added; citations omitted.]

The Michigan Supreme Court has characterized BCBSM as a quasi-public, tax-exempt institution. Westland Convalescent Center v BCBSM, 414 Mich 247, 264; 324 NW2d 851 (1982). A quasi-public corporation may not sell and transfer all of its property without legislative authorization. Cumberland Tel & Tel Co v City of Evansville, 127 F 187, 193 (D Ind, 1903) aff'd 143 F 238 (CA 7, 1906).

The general powers and duties of BCBSM's board of directors are set forth in section 301(1), which provides that:

The property and lawful business of a health care corporation existing and authorized to do business under this act shall be held and managed by a board of directors to consist of not more than 35 members. The board shall exercise the powers and authority necessary to carry out the lawful purposes of the corporation, as limited by this act and the articles of incorporation and the bylaws of the corporation. [Emphasis added.]

Thus, the Act limits the powers and authority of the BCBSM board of directors to those necessary to effectuate the corporation's purposes, "as limited by this act" and the corporation's articles of incorporation and bylaws.

Section 206(1) likewise imposes restrictions on BCBSM's acquisition and disposition of funds and property, as well as the transaction of corporation business, by providing that:

The funds and property of a health care corporation shall be acquired, held, and disposed of only for the lawful purposes of the corporation and for the benefit of the subscribers of the corporation as a whole. A health care corporation shall only transact such business, receive, collect, and disburse such money, and acquire, hold, protect, and convey such property, as are properly within the scope of the purposes of the corporation as specifically set forth in section 202(1)(d), for the benefit of the subscribers of the corporation as a whole, and consistent with this act. [Emphasis added.]

Thus, BCBSM may acquire, hold, and dispose of its funds and property only within the scope of its lawful purposes, consistent with the Act, and for the benefit of the subscribers as a whole.

The lawful purposes of a health care corporation are delineated in section 202(1)(d) of the Act, which provides that:

Persons associating to form a health care corporation under this act shall subscribe to articles of incorporation3 that shall contain all of the following:

* * *

(d) The purposes of the corporation, which shall be:

(i) To provide health care benefits.

(ii) To secure for all of the people of this state who apply for a certificate the opportunity for access to coverage for health care services at a fair and reasonable price.

(iii) To assure for nongroup and group subscribers reasonable access to, and reasonable cost and quality of, health care services.

(iv) To achieve the goals of the corporation relative to access, quality, and cost of health care services, as prescribed in section 504.

(v) To offer supplemental coverage to all medicare enrollees as provided in part 4A.

(vi) If under contract to serve as fiscal intermediary for the federal medicare program, to do all of the following:

(A) Carry out its contractual responsibilities efficiently, including the timely processing and payment of claims.

(B) Actively represent, in negotiations with the federal government and with providers of medical, hospital, and other health services for which benefits are provided under the federal medicare program, the interests of senior citizens as they relate to cost and quality of, and access to, health care services and administration of the program.4

(vii) To engage in activity otherwise authorized by this act, within the purposes for which corporations may be organized under this act.

* * *

(g) Other terms and conditions not inconsistent with this act, necessary for the conduct of the affairs of the corporation. [Emphasis added; footnotes added.]

The powers of a health care corporation are set forth in section 207 and are made expressly "subject to any limitation provided in this act," in any other statute of this state, or in the health care corporation's articles of incorporation. Section 207, subsection (h) authorizes a health care corporation to establish or own a health maintenance organization subject to the requirements of the Public Health Code; subsection (o) empowers it to invest its funds, inter alia, in shares of an insurer, provided that the investment be limited to not more than 10% of the voting securities of the insurer, be approved by the Commissioner of Insurance and be determined by the Attorney General to be lawful under section 202; subsection (u) authorizes it to cease its activities and dissolve, subject to the Commissioner's authority under section 606(2); and subsection (x) authorizes it to establish, own, and operate a domestic stock insurance company but only for the purpose of acquiring, owning, and operating the State Accident Fund pursuant to chapter 51 of the Insurance Code, under very specific limitations. Section 207(1) also restricts the actions of a health care corporation as follows:

A health care corporation, subject to any limitation provided in this act, in any other statute of this state, or in its articles of incorporation, may do any or all of the following:

* * *

(q) Sell, convey, lease, exchange, transfer or otherwise dispose of, or mortgage or pledge, or create a security interest in, any of its property, or an interest therein, wherever situated.

* * *

(t) Participate with others in any joint venture with respect to any transaction that the health care corporation would have the power to conduct by itself.

* * *

(v) Make contracts, transact business, carry on its operations, have offices, and exercise the powers granted by this act in any jurisdiction, to the extent necessary to carry out its purposes under this act.

(w) Have and exercise all powers necessary or convenient to effect any purpose for which the corporation was formed. [Emphasis added.]

None of these sections nor any other sections in the Act authorize BCBSM to sell itself or convert itself to a for-profit entity or to sell itself to a for-profit entity.

Section 216(1) permits a health care corporation to merge or consolidate only with (1) a corporation existing and authorized to do business under the Act, (2) a nonprofit dental care corporation under 1963 PA 125, MCL 550.351 et seq, or (3) a health maintenance organization pursuant to Part 210 of the Public Health Code, 1978 PA 368, as amended, MCL 333.21001 et seq.5 Section 216(3), however, restricts the purpose of the surviving or consolidated corporation as follows:

The purpose of the surviving or consolidated corporation shall incorporate the purposes of each of the constituent corporations as set forth in their respective articles of incorporation in effect at the time of their respective adoptions of the plan of merger or consolidation. [Emphasis added.]

Thus, the purposes of each constituent corporation must be expressly incorporated and continued in any surviving or consolidated corporation. As a result, this section provides BCBSM no authority to abandon its legislatively mandated purpose and mission.

In Sebewaing Industries, Inc v Village of Sebewaing, 337 Mich 530, 545-547; 60 NW2d 444 (1953), the Michigan Supreme Court addressed whether powers not having been expressly granted nor prohibited were nevertheless to be implied from others that were conferred by statute. There the Court ruled that:

When a statute creates an entity, grants it powers and prescribes the mode of their exercise, that mode must be followed and none other. Taylor v. Public Utilities Commission, supra (4 Justices); (2 Lewis' Sutherland Statutory Construction [2d ed], 491-493). When powers are granted by statute to its creature the enumeration thereof in a particular field must be deemed to exclude all others of a similar nature in that same field. So held in Bank of Michigan v. Niles, 1 Doug (Mich) 401 (41 Am Dec 575), in which this Court, in considering powers conferred upon a bank by its charter, said:

"The very grant of specified powers under restrictions, is an exclusion of other powers in reference to the same subject matter, not granted by the charter."

Similarly, as related to the powers of a corporation created under a general statute, 4 members of this Court, speaking in People v. Gansley, 191 Mich 357 (Ann Cas 1918E, 165), said:

"It has been held that the powers are simply such as the statute confers, and that the enumeration of them implies exclusion of all others. Thomas v. Railroad Co., 101 US 71 (25 L ed 950); Pennsylvania R. Co. v. Railroad Co., 118 US 290, 309 (6 Sup Ct 1094, 30 L ed 83)." [Emphasis added.]

The Court held that no express power existed and none could be implied for the Village of Sebewaing to borrow money and to assume an obligation for the purpose of acquiring a city hall. Similarly, BCBSM cannot take actions that are not specifically permitted in the Act. As a creation of the Legislature, BCBSM possesses only that authority specifically granted by statute. See Booth v Consumers Power Co, 226 Mich App 368, 373; 573 NW2d 333 (1997).

A fair reading of the Act discloses no grant of authority for a health care corporation to convert its status to a for-profit status or to sell the corporation to a for-profit entity. Such action would contradict the manifest intention of the Legislature and the sound public policy underlying the Act, and would be inconsistent with the purposes for which a health care corporation may be organized under the Act. Nowhere has the Legislature granted to BCBSM or to its board of directors the authority to thwart the legislative intent and express policy stated in the Act, or to undermine BCBSM's unique status as a nonprofit, tax-exempt, charitable, and benevolent institution.

It is my opinion, therefore, that the Nonprofit Health Care Corporation Reform Act does not authorize Blue Cross & Blue Shield of Michigan to convert itself from its special status as a nonprofit, tax-exempt, charitable and benevolent institution to a for-profit entity or to sell itself to a for-profit entity.

 

JENNIFER M. GRANHOLM
Attorney General

1The two predecessor corporations of BCBSM were incorporated pursuant to original enabling legislation, 1939 PA 108 and 109, MCL 550.301 et seq, and MCL 550.501 et seq, respectively. Two 1974 amendments to the enabling legislation allowed for the consolidation of these two corporations. See MCL 550.309a, as added by 1974 PA 331, and MCL 550.503b, as added by 1974 PA 332. The consolidation occurred in 1975, resulting in the formation of BCBSM. 1980 PA 350 repealed 1939 PA 108 and 109. See the excellent "Historical Background" in Blue Cross and Blue Shield of Michigan v Governor, 422 Mich 1, 13-18; 367 NW2d 1 (1985). See also David L. Hollister and Patience A. Drake, The Nonprofit Health Care Corporation Reform Act of 1980, 14 U Mich JLR 433 (1981).

2The Supervision of Trustees for Charitable Purposes Act, 1961 PA 101, MCL 14.251 et seq, confers on the Attorney General both the authority and the duty of overseeing Michigan charitable trusts for the purposes of representing the citizens of Michigan, protecting the trust corpus, and ensuring that the beneficiaries of the trust are the people of the State of Michigan.

3The articles of incorporation and amendments to the articles must be examined and certified by the Attorney General. Section 202(3) of the Act.

4BCBSM must consult with the Office of Services to the Aging and with senior citizens' organizations in regard to Medicare supplemental coverage. Section 207(2) of the Act.

5Part 210 of the Public Health Code governing health maintenance organizations was repealed by 2000 PA 252, MCL 500.3501 et seq.