In order to correct a $160 million excess surplus created by its settlement with the tobacco industry, Blue Cross and Blue Shield of Minnesota (BCBSM) will refund $60 million to more than 238,000 individual customers, Medicare members, and employer groups.

The plan will also give $30 million to the Better Health for Children and Communities Foundation, a new group that will provide grants to community clinics in Minnesota. The foundation will not be operated or governed by BCBSM, a condition imposed on the plan by Minnesota Commerce Commissioner Jim Bernstein. Bernstein's predecessor torpedoed BCBSM's first excess surplus plan because it retained too much control of the money.

Additionally, another $70 million will be paid to the Minnesota Comprehensive Health Association (MCHA). The MCHA provides health insurance to residents who cannot otherwise obtain coverage. (See High-risk health insurance pools.) BCBSM says it will transfer the money to the foundation and MCHA within 30 days. However, if a lawsuit is brought against BCBSM relating to the tobacco settlement before Jan. 1, 2003, the funds will be frozen, pending resolution of the litigation.

According to BCBSM, the size of individual refunds will depend on a number of factors, including the type of policy and how long a subscriber was enrolled as of June 15, 2001. Refunds to fully insured groups vary by the size of the group and how long the employer has been covered by Blue Cross. The average refund for an individual health insurance policyholder will be $138 and the average refund for a group will be $1,600. It will be up to employers to decide what to do with their group refunds.

Consumers need not apply for the refund and will not see any money before Jan. 1, 2003.

"This plan will benefit thousands of Minnesotans and, at the same time, it will bring Blue Cross into compliance with Minnesota insurance law," Bernstein says. Under Minnesota law, nonprofit health insurance plans, such as BCBSM, must not exceed certain reserve and surplus levels beyond what is needed by the plan to pay its claims.

The present value of BCBSM's settlement with the tobacco industry — estimated at $434 million — exceeds those levels set by state regulators. The $160 million refund plan, which has been approved by regulators, is in addition to a $21 million grant to the BCBSM Foundation and $75 million reserved for taxes.

According to BCBSM, the company intends to spend approximately $252 million on tobacco-cessation, heart disease, and cancer programs. Bernstein has determined that this amount is not part of the excess surplus.