Although Blue Cross and Blue Shield of Minnesota won a $469 million settlement from the tobacco industry nearly two years ago, it has been legally barred from spending the money.

On Tuesday, however, the Minnesota Court of Appeals removed a barrier when it struck down a Minnesota Commerce Department ruling. The department would have required the insurer to provide rebates to current and previous policyholders, rather than using much of the money for tobacco-prevention programs. "This clearly reinforces our belief that investing in health-improvement programs is the right thing to do," said Dr. Mark Banks, chief executive of the company, based in Eagan. Last July, David Jennings, who was then the commerce commissioner, struck down Blue Cross' proposal to use the funds to help its members stop smoking, to finance health-education programs on such topics as heart disease, and to help members obtain products that promote public safety, such as home smoke alarms. Jennings said the proposal didn't do enough for Blue Cross members who had paid higher premiums as a result of health-care costs related to smoking, and he strongly suggested that the company should rebate at least part of the money to policyholders. He also raised concerns about whether the large settlement award would give Blue Cross an unfair competitive advantage in the health-care marketplace. In making the ruling, Jennings struck down a recommendation by Administrative Law Judge George Beck, who presided over a public hearing about the plan. Beck had recommended that Blue Cross be allowed to spend the money according to its proposal. Although Jennings had since left the Commerce Department and was replaced by Steve Minn until the Minnesota Senate voted that appointment down last week, the regulatory agency still supported Jennings' action. "We are disappointed with the court's opinion," said Bruce Gordon, department spokesman. "The department order that rejected the Blue Cross plan was based on sound public policy, and we maintain that position." He said interim Commissioner Jim Bernstein and his staff are reviewing the court's opinion and have not yet decided whether to appeal to the Minnesota Supreme Court. Blue Cross's Banks said he would not be surprised if the department filed an appeal, but he said he believed that the insurer would prevail. "This certainly was a very strongly worded opinion," he said. "It is our opinion that further legal occurrences now are probably a waste of effort. "I think people reading it will be clear that there isn't a lot of ground to make a new appeal here." An Improper Decision The Appeals Court ruling, written by Judge Gary Crippen, said the Commerce Department improperly struck down the recommendations of the administrative law judge. Judges Jack Davies and Randy Peterson also served on the three-judge panel that heard the case. The department had not provided enough evidence and rationale for striking down Beck's recommendation, the ruling said. Gordon said he could not comment on the specifics of the ruling. But Jennings, now head of the Minneapolis Chamber of Commerce, said the department was well within its right to go against Beck's finding. "We had a right to come to a different conclusion, and a preponderance of the information led us to a different conclusion," said Jennings. The Legal Ramifications He said he was unsure whether the Appeals Court's ruling will have significant legal effect, but he suggested that it could dissuade state commissioners from using the public-hearing process. "The practical outcome in my view is not good," he said. Such hearings might turn over the decisionmaking power to the administrative law judge. Karl Cambronne, whose Chestnut and Cambronne law firm also opposed the Blue Cross proposal, agreed with Jennings. "[The public-hearing process] takes away any power the Department of Commerce would want to exercise in its supervisory role of the insurance industry," said Cambronne. In any case, he was not optimistic that Blue Cross subscribers will receive rebates. "The court has ruled that the people who paid the bill for tobacco-related illnesses don't have any right to be reimbursed, but the pass-through agent -- that would be Blue Cross -- gets to keep all of the money," he said. Cambronne had challenged Blue Cross as part of a class-action lawsuit filed on behalf of shareholders seeking rebates. That suit was thrown out by a Dakota County judge in late 1998 and later turned down by the Court of Appeals. Banks said that despite all the legal challenges, the company is looking forward to going ahead with its proposal. "The morale among our staff for this program has remained high, and it certainly is at an all-time high today," he said.

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