March 10, 2008
What is NC Blue Cross up to with an extra $1.2 billion and a new for-profit subsidiary?
And you thought posting the outsize compensation amounts in Blue’s executive suite raised questions. Today I post key pages from nonprofit NC Blue Cross’s annual statement they are required to file with the NC Department of Insurance. It’s a fascinating document for many reasons, but there are two things that particularly stand out. The first is how much this nonprofit now has in surplus – $1.2 billion. Second, the documents reveal a low-profile for-profit corporation Blue quietly created last year.
Last summer, Patrick Hogan in the Triangle Business Journal covered Blue’s huge jump in their surplus – money kept on hand to defray unexpected costs. While the NC Department of Insurance says that Blue Cross needs to keep $248 million on hand, Blue’s bank account lin 2006 was $1.1 billion (it's well over $1.2 billion now). Hogan reported that Blue’s surplus is greater than all but two similar Blue Cross companies nationwide. This has drawn questions from some experts:
"Most (Blue Cross) companies have not been challenged over their build-up of capital," says Deborah Chollet, a health-care economist at Princeton, N.J.-based Mathematica Policy Research. "In the case of a nonprofit, a charitable, benevolent Blue Cross Blue Shield company, I think it should be investigated …"
Interestingly, also revealed in last week’s filing is that last summer nonprofit NC Blue Cross established a for-profit subsidiary called NobleHealth, Inc. It’s got 10,000 shares of stock and is a wholly-owned subsidiary of nonprofit BCBS. In the annual statement, Blue evasively says it was formed to participate in “various other ventures.”
Noblehealth isn’t mentioned on Blue’s public website or anywhere at all I can find for that matter. The corporate filings with the NC Secretary of State are similarly mum on its purpose. Blue can have for-profit subsidiaries without converting to a for-profit itself. That point was one of the hardest-fought parts of NC’s groundbreaking Blue Cross conversion law passed a decade ago. Advocates wanted a better boundary on the amount of money Blue could devote to for-profit ventures, but they had to settle for a 40% limit.
So, what’s up here? Have Blue’s executives found a way to bump up their paydays to Countrywide-style hundreds of millions without actually converting the company? What is the purpose of the mysterious Noblehealth? Blue created another for-profit subsidiary called Saegis, but that was back in the 1960s. Could Blue be planning to invest some of that extra $1 billion in this new company and create new “opportunities” for top executives?
The bottom line is that with NC’s tough conversion law, it’s hard to convert NC Blue to a for-profit corporation where top executives can be assured of massive new paydays. Perhaps the build-up of such enormous amounts of surplus over the last few years combined with the creation of this new for-profit corporation are indicators that other avenues are being explored for tapping into Blue’s nonprofit assets without actually converting the company.
Use of nonprofit assets for for-profit ventures should bother advocates across the political spectrum. From the conservative side, it's not fair to other competing for-profit companies in the same business who don't have a billion dollars in nonprofit capital to draw on to finance their ventures. From the progressive side, if a nonprofit health insurer has enough extra money to be creating new for-profit companies, why aren't they lowering rates for their policyholders instead – or even issuing rebates?
Blue's latest annual statement raises many more questions than answers about this nonprofit.
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Some good points. But do you know what you do about a non-profit monopoly? You reduce the barriers to entry for competition. How do you reduce barriers to entry for competition? Get rid of state mandates and other costly regs, open the borders to out-of-state competitors, and then you don’t worry about what they’re charging — because good competitors will beat them on price. Many of the ‘progressive’ policies you espouse prop up this healthcare monopoly because there is no room for competitors in this stifling regulatory environment. Just a thought.
Blue does compete directly with major out-of-state insurers for both big and small business accounts. With larger companies they are by no means a monopoly – other major out-of-state insurers have a large share of that market.
Blue Cross had a for profit subsidiary in the 80s called the Personal Care Plan, Inc. which was a no deductible, no co-insurance IPA-HMO. Tens of thousands of state employees signed up.
WADR to Max above, competition won’t help much with lowering premiums and increasing care. The way the industry is structured means that they have to give less care than they receive in premium dollars or other returns. What we really need is universal health care as a fundamental right, with no profits for shareholders. There is plenty of money in the health care industry– but it’s not taking better care of patients. It’s taking better care of investors, execs and shareholders.
And yes, I do have an axe to grind here. My self-employed sister, age 54, is in reasonably good health, but the price of her Blue insurance premium is so high she can’t pay it.
This seems to me to be one of the most amazing idiocies of our health system – someone who works but can’t afford coverage because they aren’t under 40 and without a major health condition.
That makes no sense – the market has failed and needs some serious regulation, starting with banning insurance companies from charging higher premiums based on preexisting conditions.
Didn’t we just pass high risk pool legislation? I actually think this is a good thing, if it’s paid out of the General Fund and not others’ premiums. But if you force companies to pay for people with pre-existing conditions over 40, you guarantee another army of uninsured. And that’s not what we want. So the high risk pool, is a reasonable option, I think. Don’t you?
As far as sparky’s comments about universal healthcare being a fundamental right — lemme know how the folks on the waiting lists in Britain and Canada are doing exercising such a right under the CCCP rationing system.
Oh, and I’m not concerned about ERISA-exempt companies as much as the individual market, which is where the uninsured can or cannot get insurance. So when I’m talking about competition, I’m talking mainly about the individual and small group mkts. That said, what what percent of policies in N.C. are covered by BCBS? Anyway, believe it or not, we seem to share a hostility towards the Blues. I see them as rent-seekers, you see them as blood-suckers. We may both be right. But measures to bring in competitors would solve a lot of problems for you and me both. (Glad we agree on something.)
You’ve hit on a timely issue with nationwide significance. In addition to looking at conversions of nonprofit health plans (e.g. BCBS), policymakers are becoming more interested in the level of surpluses held by health plans (are they excessive?) and the creation of for-profit subsidiaries (”creeping conversions”).
Three issues have been at the forefront:
1. Whether the policyholders of nonprofit health plans have been subsidized by a Plan’s for-profit subsidiaries or vice-versa;
2. The extent to which the nonprofit plans have effectively been taken over by their for-profit subsidiaries and what the consequences have been;
3. Whether the reported surpluses of these nonprofit holding companies are accurate and if they are in line with their financial risks.
I helped a consumer-union-municipal coalition review the matter up in Pennsylvania where we found that surpluses in the state’s 4 BCBS Plans were excessive and (in some cases) understated– primarily because of the significant role of for-profit subsidiaries. The net effect was that policyholders were paying too much in premiums.