WellPoint Shareholder Proposal – Feasibility of Non-profit Conversion

Below is the text of our resolution that will be included in the WellPoint proxy statement released the first week in April, 2010, with the annual meeting to be held the morning of Tuesday May 18, in Indianapolis.

PROPOSAL NO. 3     SHAREHOLDER PROPOSAL CONCERNING

A FEASIBILITY STUDY FOR CONVERTING TO NONPROFIT STATUS

We have been informed that Robert Stone and Karen Green Stone (husband and wife), Bloomington, Indiana, and Julia Vaughn, Indianapolis, Indiana, collectively the beneficial owners of 53 shares of our commons stock, intend to introduce at the annual meeting the following resolution.  The following shareholder proposal will be voted on at the annual meeting only if properly presented by or on behalf of Mr. Stone, Mrs. Stone and Ms. Vaughn.  In accordance with SEC rules, the text of the proposed shareholder resolution and supporting statement is printed verbatim from its submission.

“Whereas, the United States allows too many people to suffer and die due to lack of adequate health insurance and this is threatening the economic stability of the country; and

Whereas, no country has achieved universal healthcare through for-profit health insurance; and

Whereas, in written statements WellPoint supports “the best healthcare value for our customers” and promises  “to advocate for responsible healthcare reform”; and

Whereas, WellPoint has actively opposed President Obama’s healthcare reform efforts; and

Whereas, WellPoint was a nonprofit insurance company before it demutualized, raised capital through stock offerings, merged with, acquired, and demutualized other nonprofit Blue Cross/Blue Shield companies; therefore be it

Resolved, that the shareholders of WellPoint urge the board of directors to launch a feasibility study for returning to nonprofit status.  This study, conducted at reasonable cost, with results made available to the stockholders, omitting any proprietary information, should be completed within nine months of the 2010 shareholder meeting.

The proponent has furnished the following statement:

Investors are concerned about the effects of runaway health costs on the economy, and the crisis of over 46 million uninsured.  Recent studies show 45,000 people a year die because they lack health insurance (American Journal of Public Health 9/17/09).   Tens of millions more are underinsured, able to afford coverage only through policies with huge deductibles and out of pocket expenses.  The impact of high deductible policies is seen in recent bankruptcy data showing 62% of personal bankruptcies caused by illness and medical bills, but 78% of those declaring bankruptcy for medical reasons had insurance when they became ill (American Journal of Medicine 8/09).  WellPoint has been a leader in marketing high deductible policies, specifically under the Tonik label.

From 1999 to 2008 American health insurance premiums increased 119% while workers earnings and overall inflation rose 30% (Bureau of Labor Statistics).  Businesses cannot continue to afford covering their employees. The Hewitt Associates study “The Road Ahead: 2009” found 1 in 5 employers are planning to drop health benefits in the next 3 to 5 years.  This system is unsustainable.

Studies show 31% of US healthcare spending is attributed to overhead.  In comparison, Medicare runs 3.1% overhead.  Most other developed nations spend less than 10% on overhead (New England Journal of Medicine 8/21/03).  Nations with universal systems spend about half what we spend on a per capita basis and have better health outcomes (Organization for Economic Cooperation and Development).

WellPoint’s reputation has suffered as a consequence of the negative publicity surrounding its efforts to oppose healthcare reform.  This resolution could change that.

The Board recommends a vote AGAINST this proposal for the following reasons:

This proposal requests that our Board of Directors conduct a feasibility study for “returning” the Company to nonprofit status.  As an initial matter, the proposal states that we were formerly a nonprofit entity.  That is not correct. Anthem Insurance Companies, Inc., one of our wholly-owned stock subsidiaries, was until its demutualization in 2001, a “for profit” mutual insurance company organized under Indiana law (although some of the Blue Cross and Blue Shield companies we have acquired since 1993 had been nonprofit entities at some time in their respective corporate histories). Nevertheless, we assume that the fundamental intent of this shareholder proposal is to call for a feasibility study for our conversion to a nonprofit organization.  We are responding to the proposal on that basis.

Converting to a nonprofit organization would result in, among other things, the elimination of the ownership interests of our shareholders.  The Board does not believe that the vast majority of our shareholders desire that result.  Moreover, the Board believes that the process of converting to nonprofit status would be costly and complex.  While it is not clear what transaction structure could be used to accomplish a conversion to nonprofit status, the Board believes that any conversion transaction would require at a minimum that our shareholders receive the fair value of their shares (except for shares held by any shareholders willing to contribute them without consideration as a charitable contribution), which would require, in the aggregate, the payment of significant sums of cash.

The Board believes that our conversion to a nonprofit organization would not be in our best interests or the best interests of our shareholders, employees, customers and members, as well as the communities we serve.  The Board believes that having access to the public capital markets is the best way to strengthen our capital and competitive position, to serve an increasing number of customers and members, and to continue investing in infrastructure, new products and programs that improve the quality of service to customers and members.  As a nonprofit organization, we would not be able to raise capital by selling stock and could not issue stock to pay for business acquisitions.  Without access to the equity markets, the Board also believes that our ability to borrow money to support our operations and fund business investments and business acquisitions would be more restricted and more costly as compared to our borrowings as a for profit stock corporation.  In addition, we would be restricted in our use of stock as part of the compensation plans and programs for our employees, which would likely impair our ability to attract and retain well-qualified individuals to our management team and to set compensation and benefits programs that are consistent with market practice.  Overall, the Board believes that our future growth, new product development and our ability to serve our constituencies would be impaired by the reduced capital that would be available to us as a nonprofit organization.

The proponent of this proposal has not presented any factual information to support the view that converting to nonprofit status would benefit us or our shareholders, employees, customers and members.  On the contrary, for the reasons described above, the Board believes that converting to nonprofit status would not be in our best interests or in the best interests of our shareholders, employees, customers and members.  A feasibility study for converting to nonprofit status would be costly and would distract management and the Board from overseeing our operations and, given the other considerations described above, is unwarranted.

For the reasons described above, the Board opposes the feasibility study requested in the proposal and recommends a vote AGAINST this proposal.  Proxies will be voted AGAINST the proposal unless you specify otherwise.

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6 Responses

  1. If you look above at the WellPoint Board’s statement recommending a vote against our proposal, in the first paragraph notice the parenthetical “(although some of the Blue Cross and Blue Shield companies we have acquired since 1993 had been nonprofit entities at some time in their respective corporate histories)”.
    WellPoint’s original statement did not contain this, and their lawyers agreed to insert it only after I complained. SEC regulations prohibit the company from making statements in the proxy that are “false or misleading,” and I argued that while legalistically correct, their original wording was clearly misleading, and rather than face a formal complaint to the SEC, they modified it.

  2. [...] go to Hoosiers for a Commonsense Health Plan. To read the text of the resolution, go to the HCHP blog. View TV coverage of the 4/7 press conference in [...]

  3. I support the intent behind this resolution, but suspect that by framing the argument in terms of the financial interests of many (perhaps most) of its stockholders, the board will succeed in defeating it, and thereby continuing their profit-driven practices that are so destructive to the health-care needs of thousands.

    Perhaps a subsequent resolution could address ways of putting caps on profits, overhead, and the salaries of those who are administering Wellpoint. This might limit the attractiveness of Wellpoint as a stock offering, and it might eventually lead to a smooth transition to a non-profit. It would at least lead to a new kind of corporation, one in which shareholders recognize and accept a smaller return in exchange for a stake in better health for others–and its directors would be charged with making that case to the shareholders, not with demonstrating an ability to soak the system for money.

    I don’t buy Wellpoint’s argument that only high salaries will attract the best administrators (and lawyers)–why not appeal to bright and idealistic managers who share a conviction to help others, not merely to make money?

  4. I am for Proposal #3 and the findings it can reveal. The system as it stands now is broken and not sustaInable . We must find workable otions.

  5. I agee wholeheartedly that changing wellpoint to a non-profit would be a good move. I remember Blue Cross & Blue Shield when is was a non profit and the service and benifits were much better back then.

    Boosting rates up to 39 percent while purging its sickest customers and spending millions on exorbitant salaries and retreats for its executives is shameful!

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