Grand Forks Herald Editorial on BCBS (September 8, 2009)
OUR OPINION: The word ‘nonprofit’ still counts
In the first paragraph of his letter to Blue Cross Blue Shield of North Dakota executives, insurance commissioner Adam Hamm gets to the heart of the matter:
“The report has disclosed management practices … that conflict with the purpose of a ‘charitable and benevolent corporation.’”
Do they ever. “Sales reward trips to posh resorts,” as a story in The Forum newspaper of Fargo put it.
“Nearly $15 million in employee bonuses that were almost assured regardless of performance … (a) veteran executive who was given a farewell party costing $34,814, including video production expenses of $23,961 and a gift of $1,524. …”
Add it all up, and you’ve got a situation where “the best interests of the membership have not been served by means of policies and procedures that have resulted in excessive expenses,” as Hamm concluded.
Congratulations to Hamm for producing a tough investigation and to The Forum — our fellow newspaper in Forum Communications — for breaking the news.
BCBSND’s management style and compensation plan may have fit many industries, such as Wall Street investment banking — at least in the not-too-distant past.
But it didn’t fit the business of running a nonprofit, “charitable and benevolent” quasi-utility in North Dakota. That’s what the fuss is about, and why this line from a Herald editorial in March remains relevant today:
“Should the words ‘nonprofit’ and ‘Grand Cayman Islands’ ever appear in the same senence?”
The answer probably is “no,” at least if that nonprofit wants to be assured of staying in the public’s good graces.
BCBSND now needs a salary and benefit structure “based on the North Dakota market for North Dakota employees,” Hamm writes — a pointed rebuke to strategists who say the organization must pay nationally competitive rates.
It’s a lesson other nonprofits as well as government agencies also should learn.
That’s especially true in those areas where the organization has a monopoly or near-monopoly, and therefore is less sensitive to “bottom line” issues of profit and loss. So for BCBSND, the question going forward is not, “What are other insurers across America paying?”
The question is, “What kind of person do we need for this job, and what will we have to pay in order to hire him or her?”
Almost surely, the answer is does not have to include the bonuses and other benefits that the insurance commissioner’s investigation uncovered. North Dakota never has experienced a shortage of executive talent that would force salaries into that range.
Winning nonprofit status can benefit an organization, but it imposes costs as well. One of the costs is that salaries must be kept at a level where they can be fully disclosed without embarrassment — because very likely, that disclosure is less a matter of “if” than “when.”
— Tom Dennis for the Herald