By Randall Chase - June 30, 2011

Associated Press DOVER — The state House on Wednesday approved a bill aimed at protecting a proposed affiliation between two insurance companies from an opinion by the state’s attorney that would have forced one of them to keep some $175 million in reserves.

The bill concerns a deal between Blue Cross Blue Shield of Delaware and Pennsylvania-based Highmark Inc.

Attorney General Beau Biden said the affiliation triggered a 2004 law regarding conversions of not-for-profit health care entities into profitable companies. If so, the Blue Cross reserves had to be protected.

The Legislature disagrees. The 34-to-5 House vote came one day after the bill received unanimous approval in the Senate, marking the legislature’s final rejection of Biden’s stance.

Had Biden’s determination stood, it would have required that a foundation be created to ensure that some of the $175 million in reserves Blue Cross has accumulated because of its tax-exempt status be protected and used to benefit Delawareans.

But the bill, which goes to Gov. Jack Markell, states that the conversion law does not apply to deals involving two not-for-profits.

“Highmark’s proposal raises some significant questions, including about the future of the Delawareans that currently work for Blue Cross,’’ said Markell spokesman Brian Selander, who nevertheless said he expects the governor will sign it.

Blue Cross of Delaware has said the affiliation with Highmark, which runs Blue Cross Blue Shield plans in Pennsylvania and West Virginia, will give it the resources it needs to compete with larger insurers.

After Biden’s opinion was released, Blue Cross immediately sought help from the legislature, arguing that Highmark has reserved the right to walk away from the affiliation if it is deemed a conversion, even though Blue Cross has ensured that the reserves would stay in Delaware.

While the bill restricts the attorney general’s authority over the Highmark deal, chief House sponsor Rep. Byron Short, D-Wilmington, noted that a Senate amendment provide certain safeguards for the reserves through the Department of Insurance.

Among other things, the Senate amendment allows the insurance commissioner to review and approve any change in Blue Cross’ certificate of incorporation, and any expenditure or transfer of funds to Highmark exceeding $500,000.

The amendment also allows the insurance commissioner to seek relief in court to prevent Highmark from improperly using the assets of Blue Cross for its own benefit, rather than for the benefit of Blue Cross and its subscribers.

Despite the proposed safeguards in the amendment, Biden spokesman Joe Rogalsky said the attorney general still believes the 2004 law offers better protection of Delaware taxpayers’ dollars.