September 9, 2009-Bismarck Tribune
Hamm Targets Blues Spending
North Dakota Insurance Commissioner Adam Hamm said Tuesday he is “disappointed with the judgment” of Blue Cross Blue Shield of North Dakota executives in light of a report detailing the company’s administrative costs over the last five years.
Starting in March, the insurance department conducted a “targeted evaluation” of the Blues detailing North Dakota’s largest insurer’s $418 million in administrative costs from January 1, 2004, through March 31, 2009.
Included in those costs are $15 million in employee bonuses regardless of company performance, $3.5 million for a Fargo hotel partnership investment, $1.2 million for incentive trips for sales employees and a total of $551,370 in severance packages for two former vice presidents, according to the report.
The insurance department issued its final 101-page audit to the Blues on Sept. 2. The insurance department was barred from detailing the report for 15 days under state law, but Hamm said he received written permission from the company to publicly address the report after the Forum of Fargo ran a story about it on Tuesday.
Hamm said he did not leak the report to the press and to his knowledge no one in his department leaked the report, but if he learns that someone did then the matter will be dealt with “swiftly.” Blues officials said they did not know if any of their employees leaked the report to the press.
Hamm said he did not want to put a “black and white number” on the amount of money that could be considered excessive, adding the compensation program, incentive trips, severance packages and hotel investment are evidence of “millions” of dollars in questionable spending.
“Health care premiums are for health care,” Hamm said. “They’re not for expensive retirement parties, they’re not for corporate jets, they’re not for risky hotel investments and they’re certainly not for a compensation structure that rewards senior management regardless of Blue Cross Blue Shield’s financial performance.”
Hamm said he sent a letter to the company directing its board of directors to address the issue immediately, giving the Blues 30 days to respond to an insurance department inquiry regarding the company’s compensation programs, travel policies, investments, severance packages and termination polices.
CEO Paul von Ebers said in a Tuesday press conference that the Blues are likely to respond before the 30-day deadline.
“There is no question that our members are very concerned about the cost of health insurance,” von Ebers said. “Certainly there are changes here indicated in the Department of Insurance report that we intend to follow up on it. Having said that, it is still true that the administrative overhead is less than the vast majority of insurance companies in the United States, and likely compared to other insurance companies in North Dakota.”
Von Ebers said the executive compensation at the Blues is evaluated against similar companies, adding the company has hired an outside consultant to address the company’s compensation model. The results of the analysis should be finished by October.
As for the additional $15 million in compensation given to employees, known as the “Pay-at-risk” program, von Ebers said the company is looking at establishing a new program by the end of the year. He said the additional compensation pays employees at “a market standard” and not above it. It’s used as a way to attract and motivate employees, he said.
Hamm began the audit after the Blues spent $238,000 on a Cayman Islands getaway for some employees as an incentive trip amid a national recession. The insurer’s CEO Mike Unhjem was ousted by the board of directors shortly after the trip and given a $2.5 million severance package, originally thought to be only $2.2 million.
Von Ebers said those trips have since been nixed.
As for the $3.5 million investment into the Concierge Hotel Fargo, LLC, von Ebers said the company is expecting a 10 percent return on it, adding, “I can’t guarantee that return, but that’s our expectation right now.”
Hamm said that investment is a “risky” thing to do with policyholder money.
The last audit of Blue Cross Blue Shield of North Dakota, a nonprofit mutual insurance company, was in December 2004.