September 27, 2009-Bismarck Tribune
Blues board should grab the helm
By Lloyd Omdahl
Insurance Commissioner Adam Hamm should be commended for keeping the feet of North Dakota Blue Cross-Blue Shield to the fire for a series of scandalous errors in judgment over the past few years. These errors are too serious to dismiss with one news release claiming that all will be fixed.
Organized as a mutual, Blue Cross belongs to the premium-payers. Unfortunately, most subscribers consider it just another insurance company and pay little attention to their responsibilities to nominate, elect and hold accountable the management or the board of directors.
Serving over 400,000 North Dakota customers, the Blues have grown too large and impersonal for premium-payers. So they expect a 13-member board made up of eight consumer representatives and five provider representatives to be their watchdog. The board members are paid $30,000 a year - more than half of a full-time salary for most North Dakotans - to participate in major management decisions.
Something happened along the line that compromised the independence of the board. Management elbowed the board aside, grabbed the helm, and took a tack that scandalized the company. Without inside information on the machinations, we can only surmise what happened.
In the first place, the magnitude and complexity of the insurance business became too much for the time commitments of a lay board. This is not to suggest that the board is loaded with incompetents. Their credentials put them a cut above ordinary laypersons so it was not incompetence that created the vacuum in leadership.
Secondly, the board members were victims of North Dakota’s traditional trust in the integrity of other people. They trusted the Blues administration to do the right thing and the administration took advantage of them.
Third, the board members unwittingly compromised some of their independence by accepting gratuities, salary increases and junkets proposed by management. Instead of remaining independent policymakers, the board members became too cozy with management.
As the board struggles to restore the integrity of the mutual, it should look at the policymaking structure that has worked for the State Investment Board. The board is made up of state officials and employees who acknowledge their inadequacy for making major investment decisions. So they hire a highly-qualified investment officer who sits in on Board meetings and offers independent expert advice when dealing with money managers.
The Blues board members should acknowledge their lack of in-depth expertise in the insurance field and hire an expert who could give independent advice on proposals from management. Before the board can take charge, it must equip itself with expertise of its own to check the expertise of management. That would give the Board a firm grip on the helm.
(Lloyd Omdahl is a political scientist and former North Dakota lieutenant governor. His column appears Sundays.)
September 25, 2009-Fargo Forum
Hamm looks at insurance law change
BISMARCK – North Dakota’s insurance commissioner plans to seek changes in state insurance laws to prevent any company from using domestic violence as a reason to avoid selling health insurance coverage to a woman.By: By Dale Wetzel / Associated Press, INFORUM
BISMARCK – North Dakota’s insurance commissioner plans to seek changes in state insurance laws to prevent any company from using domestic violence as a reason to avoid selling health insurance coverage to a woman.
A report issued last year by the National Women’s Law Center in Washington, D.C., names North Dakota as one of nine states that allow insurance companies to turn down health coverage for women who have been beaten.
Commissioner Adam Hamm said the Insurance Department had no record of any complaints from domestic violence victims in North Dakota who were denied coverage.
The state’s four top health insurers, which take in about 98 percent of North Dakota’s market, said they did not consider domestic violence a pre-existing condition that would deny coverage, Hamm said.
“We don’t have a statute that specifically precludes it. We don’t have one that allows it, either,” he said. “It’s kind of a silent area of the law in North Dakota.”
State law does prevent domestic violence from being used to justify the refusal to sell property and casualty insurance, which protects homes, cars and businesses. The law does not extend to health, life and disability insurance.
In 1995, North Dakota House Republicans rejected a bill, offered by then-Rep. Pam Gulleson, D-Rutland, that would have prevented insurers from denying coverage on the basis that the customer had been a domestic violence victim, said Joe Aronson, director of the state Democratic Party. It would have applied to all types of insurance.
“We are happy that the Republicans have come around, 14 years later,” Aronson said. Hamm, a Republican, and GOP Gov. John Hoeven “are in need of a history lesson,” Aronson said.
Gulleson, who is now state director for U.S. Sen. Byron Dorgan, D-N.D., said her proposal was similar to legislation drafted by the National Association of Insurance Commissioners, a Kansas City, Mo.-based regulatory group, for consideration by state lawmakers.
Three of her four co-sponsors were Republicans, including then-Sen. Rod St. Aubyn, of Grand Forks, who is now director of government relations for Blue Cross Blue Shield of North Dakota, the state’s largest health insurer.
One insurance lobbyist called the measure’s language too broad, and a lobbyist for Blue Cross Blue Shield also opposed it during a legislative committee hearing. The deputy insurance commissioner and an assistant attorney general testified in favor of the bill, as did the state Council on Abused Women’s Services.
Rep. Rick Berg, R-Fargo, who was chairman of the Legislature’s Industry, Business and Labor Committee during the 1995 session, said proponents of the measure offered no examples that North Dakota insurers were denying coverage to domestic violence victims.
“You can see pretty easily, when you’ve got model legislation that comes forward, and if there’s no specific case that, ‘Hey, this is impacting people in North Dakota,’ … it doesn’t surprise me on the vote,” Berg said. “It does surprise me that 15 years later, someone is bringing this up.”
Gulleson said she had expected the measure to be well-received by legislators because of incidents in other states.
“They basically just dismissed it as a problem,” Gulleson said. “They just said, ‘Well, we don’t have evidence that it’s occurring.’ And, of course, that wasn’t my point. The point was, we sure don’t ever want to get to the point where we have evidence that it’s occurring. We want to make sure it’s a banned practice.”
September 25, 2009-Fargo Forum
Medica to offer individual health coverage in North Dakota
By: Patrick Springer, INFORUM
Medica, which provides more than 1.4 million customers with health insurance, announced Thursday that it will offer coverage to individuals in North Dakota starting Oct. 1.
The health insurer, which has offered group coverage in North Dakota for 15 years, is responding to demand for more alternatives to offer consumers, an executive said.
“I think the citizens of North Dakota just need some viable options,” said Charlene Maher, Medica’s vice president and general manager of individual business.
Adam Hamm, North Dakota’s insurance commissioner, welcomed the entry of Medica in the individual health insurance market.
“The decision to bring additional choices to North Dakota consumers from a company that has a history here indicates that the market is attractive,” he said. “I firmly believe competition is key to ensuring the highest quality of products is offered at affordable prices.”
Hamm is reviewing an application by Sanford to offer its health insurance, the Sanford Plan, beginning Jan. 1. Sanford Health, based in Sioux Falls, and Fargo-based MeritCare hospital plan to merge later this year.
Independent agents who make up Medica’s sales force had been asking the Minnetonka, Minn.-based company to offer individual coverage in North Dakota, Maher said.
Medica covers 12,000 North Dakota residents through group plans, ranking it second, with 4.6 percent of the overall market, behind Blue Cross Blue Shield of North Dakota, with almost 90 percent.
Most of Medica’s 1.4 million customers are in Minnesota, but it also provides coverage in South Dakota, where it began selling individual policies in recent years.
When Medica entered the North Dakota market 15 years ago, it set a goal of capturing a market share of 50,000 to 100,000 customers. That goal remains in effect, Maher said.
Medica started offering individual health insurance in 2005, and covers 19,000 individuals, according to company figures.
Its North Dakota sales office is in Fargo. Its provider network includes all major North Dakota health systems, and is available in 91 percent of the state.
Medica’s service area in North Dakota includes all counties except Benson, Burke, Divide, McKenzie, Mountrail and Wells.
The company will take a “disciplined approach” in marketing, and its plans incorporate wellness and preventive health, Maher said. “We’ll do exactly what the market wants us to do,” she said.
“We face a lot of competition every day, and we believe Medica will be a strong competitor,” said Denise Kolpack, vice president of corporate communications at Blue Cross Blue Shield of North Dakota.
Minot Daily News Editorial on BCBS (September 10, 2009)
Keeping an eye on the Blues
After Blue Cross Blue Shield of North Dakota fired its chief executive earlier this year, officials at the non-profit insurance giant that insures more than 375,000 North Dakota residents vowed to make changes.
Now, an audit ordered by Insurance Commissioner Adam Hamm has found “a lack of judgment” by board members and senior management members.
”The culture of this organization is very different than it was a few months ago,” board chairman Dennis Elbert said in an Associated Press story following the release of the report.
We certainly hope so.
Among other things, the report said the company used premium payments to pay for $15 million in employee bonuses, spent nearly $35,000 on a party for a retiring vice president and spent $3.5 million as an investment in a Fargo hotel.
Paul von Ebers, who took over as president and chief executive when Mike Unhjem was fired in March, said the company has already begun making changes by cutting back on incentive trips for employees, reducing expenses for executives and cutting out-of-state travel. The company will also compare executive compensation levels with similar jobs in North Dakota instead of nationwide.
It all sounds good, and North Dakotans have every right to expect Blue Cross Blue Shield to follow through with these changes. The company has a responsibility to spend premiums from clients on the proper items namely providing quality, affordable health insurance to its thousands of customers.
North Dakotans will no doubt be watching, especially if the company again seeks a large rate increase. We suspect Hamm will be watching, as well.
Bismarck Tribune Editorial on BCBS (September 10, 2009)
Blues are in need of change
In response to a scathing assessment of overly generous administrative salaries, benefits and expenses, Blue Cross Blue Shield of North Dakota must set out concrete means to return to the values of the businesses and people of the state who struggle to pay ever-higher health insurance premiums.
The report conducted by investigators from the state insurance commissioner’s office revealed that expenses, primarily for compensation, grew by $64 million over five years. It set out bonus payments to the president and CEO of the non-for-profit mutual insurance company that grew 111 percent, or from $204,017 to $431,468, in five years. The incentive pay for the executive vice president of corporate and government operations grew 211 percent during the same period, from $75,693 to $235,360. These are on top of generous base salaries.
The report details a total lack of regard for cost control and the people who pay make co-pays and deducables, a majority of which have some form of BCBS coverage.
Investigators documented annoying disregard for its members including providing heated garage stalls for BCBS’s top six executives.
BCBS has 30 days to respond to the report initiated by state Insurance Commissioner Adam Hamm. That response must include systematic changes in the management and oversight of BCBS, as well as critical review of expenses and rates, with the intention of reducing both. The company needs to make cultural changes in its management, and needs to bring some hard-nosed accountability into play on behalf of members.
No one wants to lose what’s good about the Blues, and there’s much of that. But there comes a point where people will no longer accept being taken for their hard-earned money. And that point has been reached.
The annual meeting of BCBS will be held in December. At that time, the board of directors should offer by-law changes that will ground the board in the frugal values held close by many of its members. This should be done by ensuring the membership has candidates to vote on for the board of directors that seriously represent the interests of members. Eight of the 13 board members are to come from membership. It’s clear the board has become too comfortable with gloss of BCBS’s financial success and the discomfort of policyholders.
North Dakotans have this idea that they are different from everyone else. More frugal. Honest. Accountable. Impervious to cold. The BCBS image as presented by the investigators represents a company with values that look more like Wall Street in New York than Main Street in Beulah. That’s a problem. BCBS had already taken a recent public relations hit in 2009 with the firing of former BCBS president and CEO Mike Unhjem and his
$2.5 million severance package. BCBS needs to be clear in talking about what it will do in the future to avoid extravagant corporate behavior. The problems at BCBS will take a more dramatic fix than putting a new president and CEO in place.
BCBS has become part of the problem of health care reform, and not part of the solution. That must change.
Bismarck Tribune (September 13, 2009)
Not the best of times, but not the worst yet either
These aren’t the best of times … these aren’t the worst of times. But they are difficult times, even in North Dakota, a state that is better off than most (if not all) others.
The days of our lives in America are punctuated with companies freezing wages and businesses doing away with bonus or incentive programs. Employees are being laid off, and other workers have seen salary cuts. Some have been required to take unpaid leave, and other benefits, such as 401(k) matches, have been dropped. Those that leave employment voluntarily are often not replaced, and the duties are sucked up by the survivors.
All of the country’s angst has been deemed necessary for businesses to stay afloat in the face of a recession — or at least remain at the same level of profit of which some have become accustomed, especially those publicly traded.
It has been a departure, some say welcome, from business as usual. Expenses, and costs once thought to be necessary, have been reconsidered, reclassified, eliminated or significantly reduced. The nation has had months of belt tightening to constrict waste, and Bismarck-Mandan recently faced bad news with the announcement that Bobcat would be locking its doors.
But who would have guessed anything really serious was wrong here at home in North Dakota? For instance, Blue Cross Blue Shield has been spending money like the alleged drunken sailor on leave. Its out-of-control escalating and lavish spending hasn’t been representative of a charitable and benevolent not-for-profit corporation.
I guess it shouldn’t surprise us as some signs have been uncovered in the recent past, but BCBS has now been exposed as grossly obese in its ugly hidden underbelly. It is bloated and stretched beyond normal comprehension, a victim of a culture of entitlement thrown into the face of our hard times.
Those are harsh words, but closer to the truth than a politically correct response after a target financial examination reported the BCBS management practices “conflict … with the purposes of a charitable and benevolent corporation.”
Yes, they do, but this is not a hand-slapping situation.
A letter to the company from Insurance Commissioner Adam Hamm charged the insurance company with excessive expenses and instructed them to “adopt and implement stricter standards … that reflect the values and expectations of the North Dakota public.”
Hamm, I suppose, had to be somewhat restrained. But you and I should be appalled at the report’s findings and BCBS should be embarrassed, apologetic and serious about fixing what went wrong, including replacement of personnel and board members, as needed. There should be no excuses. No defensive posturing. No crazy justifications.
The devil, whatever devil and wherever he lives, didn’t make them do it. They did it to themselves, leading us to question if they believed they were legends in their own mind, or a monopoly minting its own funny money.
While the BCBS patient can be saved, scarring and stretch marks will be a reminder of the privilege and entitlement mentality of the out-of-control spending.
Consider some interesting information in the report:
* Over the past 63 months, BCBS expenses have been more than $1.1 billion. Through 2008, it translates to about $200 million a year.
* Thirteen directors were paid a total of $392,200 in 2008, an average of $30,000-plus.
* More than $15 million has been spent on travel in those 63 months, with a high of $3.5 million in 2007.
* More than $400,000 was spent on charter aircraft.
* Almost $475 million has been spent during the same period on executive salaries (this does not include bonuses). Average pay for managers ranged from $85,056 to $209,353. Average pay for executives ranged from $164,941 to $1,078,560.
* The bonus or incentive program cost almost $44 million over the period reviewed, with
$12.2 million awarded in 2008.
* The president and CEO’s severance package totaled $2.5 million. That and other severance packages prompted this review statement: “Executives are paid severance packages even when BCBS is under no obligation to make such payments, including when an executive resigns to accept other employment.”
* Incentive trips to Cancun; Palm Desert, Calif.; Naples, Fla.; Puerto Vallarta; Marco Island, Fla.; and Grand Cayman Island totaled more than $1.2 million. Each trip averaged 73 people.
* BCBS has invested $3.5 million in a hotel project in violation of the North Dakota Century Code, with significant risk exposure and little involvement in oversight and governance of the project.
As politicans and officials continue to try to reach agreements on some form of health care reform, something that seems more and more difficult, insurance reform can’t be separated as a non issue.
Once again, it is a matter of following the money.
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
Grand Forks Herald (September 12, 2009)
It’s not easy being a Blues exec
It turns out that Caribbean-gate was just the tip of the coral reef, if you will, of the extravagant spending of Blue Cross Blue Shield of North Dakota. It all started in March, when word leaked of an expensive reward trip to a Cayman Islands luxury resort.By: Ryan Bakken, Grand Forks Herald
It turns out that Caribbean-gate was just the tip of the coral reef, if you will, of the extravagant spending of Blue Cross Blue Shield of North Dakota.
It all started in March, when word leaked of an expensive reward trip to a Cayman Islands luxury resort. This came at the same time the insurance company was seeking a big rate increase and John Q. Public was tightening his belt because of the economy.
The uproar over this spending led to the firing of boss Michael Unhjem, who floated out the door with a $2.5 million golden parachute. That, naturally, led to a bigger uproar and consequently greater scrutiny by the state’s regulators.
This past week, greater scrutiny revealed that the Caribbean junket was like a coffee slush fund compared with the rest. One executive had his annual bonus payment increase 211 percent over five years, even though the company suffered losses in four of the five years. The suits shared $15 million in bonuses for failure.
These bonuses were laughingly easy to reach, too, Insurance Commissioner Adam Hamm said. I don’t know if that’s true. What do you think of their bonus benchmarks that follow?
- Having a pulse: $400.
- Going all year without showing up for work naked: $500.
- Saying “good morning” to co-workers: $750.
- Keeping your hair well-groomed: $900.
- Keeping your nose hair well-groomed: $1,000.
- Conserving supplies by using fewer than five pencils per year: $1,250.
- Landing a new customer in a state where the company has a virtual monopoly with 90 percent of the health insurance business: $1,500.
- Winning at computer solitaire at work: $1,800 per win.
- Having a nice crisp knot in your tie: $2,000 (only $1,000, however, if it’s an ascot tie).
- Telling a customer that “we’re trying hard to keep your premium costs low” without giggling: $2,200.
- Attending a tea party to protest health care reform: $2,500.
- Attending a tea party to protest health care reform while carrying a picket sign: $3,000.
- Attending a tea party to protest health care reform while carrying a picket sign and chanting about how government control would mean wasteful spending and higher rates: $4,000.
- Attending a company tea party without spilling the tea on your spiffy BCBS blue blazer: $5,000.
- Blue blazer clothing allowance: $6,000.
- Multitasking rewards, such as reading company reports while sitting on the john: $7,000.
- Winning the company’s Cayman Islands luxury resort junket surfing competition: $8,000 and an economy-size tube of sunblock.
- Winning the company’s Cayman Islands luxury resort junket karaoke competition: $8,000 and a guaranteed audition for American Idol.
- Winning the company’s Cayman Islands luxury resort junket margarita-chugging competition: $8,000 and a large bottle of Excedrin.
- Winning the contest for best recycling idea, this year going for the suggestion to shred expense reports and use the paper for bedding at the animal shelter: $10,000.
- Keeping embarrassing business practice documentation from the insurance commissioner and nosy newspaper reporters: $500,000 (uncollected this year).
- Leaving the company with a spotless record: $1 million.
- Leaving the company with a heavily soiled record: $2.5 million.
- Brown-nosing the company’s top executives and board members, so you, too, can one day become a riches-heaped-upon executive: Priceless.
Fargo Forum Editorial on BCBS (Sunday, September 13, 2009)
Forum editorial: Blues CEO embraces challenge
Some of the shouting and cursing about a critical examination of executive pay at Blue Cross Blue Shield of North Dakota is a tad over the top.By: Forum Editorial Board, INFORUM
Some of the shouting and cursing about a critical examination of executive pay at Blue Cross Blue Shield of North Dakota is a tad over the top. The issue is complex and fraught with shades of gray. It’s easy to work oneself into an indignant froth because Blues’ execs are paid well. It’s difficult and time-consuming to examine in detail the company’s salary structure and its justification for paying big bucks to top people.
A report commissioned by the North Dakota Insurance Department concluded that portions of executive salaries were not justified. Bonuses for executives apparently were paid using an incentive formula that guaranteed payment in almost all circumstances. It appears the link between bonuses and job performance was malleable.
(BCBS leaders object to the term “bonus,” contending that it’s a loaded word that does not accurately or fairly define the incentive program. However, others, including the insurance commissioner’s staff, called the system a “bonus look-alike.” (Anyone with a modicum of common-sense perception knows that if it looks like a duck, walks like a duck and quacks like a duck, it’s a duck.)
New CEO Paul von Ebers, who was not on board when the bonus system, hotel investment and costly trips to exotic locations were instituted at BCBS, said he recognizes the need for changes in all those areas. He’s working with Insurance Commissioner Adam Hamm to make appropriate adjustments, specifically in the incentive (bonus) structure. Von Ebers said fancy trips and certain kinds of investments also are out.
That’s all fine. But the real problem has been a corporate culture that seems to have forgotten its mandate to be responsive to the needs of its members – the individuals and groups that purchase health insurance. The company’s current public relations disaster might be the worst, but it’s not the first. The past 20 years have seen recurring missteps: from lavish Hawaiian “retreats” to the piling up of what the Insurance Department found were excess reserves to the excesses of the former (fired) CEO.
Von Ebers’ task (for which he is well-qualified) is to change the direction of the ship, not merely rearrange deck chairs on the Titanic. He has to make substantive changes in management style, which, if done right, will scrape some of the tarnish off the company’s image. In conversation last week with The Forum Editorial Board, it’s clear he is up to the challenge – indeed, eager to take it on.
We wish von Ebers and his team success in that effort because a well-managed and respected BCBS is essential to North Dakota’s health care economy, and to the well-being of policy holders.
September 13, 2009-Fargo Forum
Will Blues change ways?
Another controversy, another promise of reform
News reports exposing Blue Cross Blue Shield of North Dakota board retreats at a Minnesota resort costing $35,000 and an $800 helicopter ride by the chief executive on a business trip in Hawaii.By: Patrick Springer, INFORUM
News reports exposing Blue Cross Blue Shield of North Dakota board retreats at a Minnesota resort costing $35,000 and an $800 helicopter ride by the chief executive on a business trip in Hawaii.
Editorials lambasting “lavish” expenses at a time of rising premiums. Public outrage over corporate extravagance from a nonprofit.
Expressions of remorse, and promises of reform, from board members and executives.
It sounds similar to last week’s disclosure of a report by state insurance examiners documenting “millions and millions of dollars” of misspent premium dollars, in the view of Insurance Commissioner Adam Hamm.
But those were findings of an examination insurance regulators issued in 1995, detailing Blue Cross Blue Shield spending excesses in 1993.
“We’ve gotten your wake-up call, and believe me, we’re wide awake,” said Richard Hall, the Blues’ board chairman at the time, with the CEO announcing that emergency corrective steps had been taken.
Fast forward to last Wednesday, when it was Dennis Elbert, Hall’s successor as board chairman, who would meet the press:
“It’s already a significantly different company,” Elbert said of changes made since this spring, after the exam period closed.
One big change: The CEO at the helm both in 1993 and the latest examination period, Michael Unhjem, was fired in March following revelations of a $238,511 sales reward trip to a luxury resort in the Grand Cayman Islands.
Unhjem collected a $2.5 million severance, and his successor, Paul von Ebers, has been charged with reshaping compensation and other spending policies.
Another change: Hamm, who had feuded with Unhjem over proposed premium increases, made his demands for changes in the form of directives, not recommendations, as his predecessors did.
Hamm has given the North Dakota Blues 30 days to submit a plan for corrective actions, a deadline the health insurer plans to beat.
Still, the 13-member board of directors bears responsibility for keeping the company on track and protecting the interests of policyholders, who own the company. Eight directors represent consumers and five represent health providers.
Where was the board?
“My only question would be, ‘Where was the board oversight?’ ” asked Rep. Jim Kasper, R-Fargo, who serves on a legislative committee exploring ways to improve the state’s insurance market. “It appears the board should have been more engaged and more active.”
Elbert said the board is working hard on new policies to ensure that policyholders and the public can have confidence in how it spends premium dollars.
The Blues’ administrative costs, 7 cents per premium dollar, are among the lowest in the nation but have risen along with medical costs, reflected in the other 93 cents.
“We did make the right decisions, based on the information we had at the time,” Elbert said. He added, however, that board members have been reflecting upon their oversight in light of recent revelations and working to make changes, including adoption of a seven-point reform plan.
Hamm, when asked if he has confidence in the board, has responded that if he were a board member he would ask himself three important questions:
In their expense audit, insurance examiners found that 18 board members had been paid $1.8 million in compensation and had spent $795,254 in travel costs over 5 1/4 years.
Also, some board members earned additional compensation for serving on boards of affiliated companies. For example, Elbert and Mark Sanford, who serve on the board of Noridian Administrative Services, a for-profit subsidiary, were paid $81,700 and $80,800, respectively, for service on that board over the five-year period.
Board pay review
Board members are reviewing their own pay, Elbert said. A recent study by a consultant, which cost $9,000, ranking board pay at the North Dakota Blues with what it considered comparable insurance and service companies, concluded the compensation was “conservative” given the time commitment and responsibilities of overseeing a huge and sophisticated organization, he said.
Elbert said he did not know how many of the comparison companies were not-for-profit, as the North Dakota Blues are. Human resources staff are reviewing board pay to see how appropriate it is for North Dakota, Elbert said.
If members are unhappy with the board’s performance, Hamm said the remedy is simple: Vote them out of office.
The board’s nominating committee screens applicants for board service. Next month, notice will be sent to members of the two finalists selected by the nominating committee for a consumer position on the board that will be voted on at the Blues’s annual meeting in December to fill a vacancy when Sanford’s term expires.
Almost 60 candidates applied for the opening, and five were selected for interviews, Elbert said. Most have a background in health care. Bylaws permit the board to remove top board officers, including the president and vice president, by a two-thirds vote, with or without cause.
On average, between 12 percent and 15 percent of members vote in board elections, said Denise Kolpack, the Blues’ vice president of corporate communications. When the last board vacancy was filled, last year, 143,064 notices were sent out and 12,303 ballots were returned, electronically or on paper, a turnout rate of 8.6 percent.
Old habits return
Don Morrison, executive director of NDPeople.org, an advocacy group that favors a government “public option” similar to Medicare to spur more competition among private health insurers, said the consumer’s voice is not being represented by the board.
A familiar pattern keeps repeating itself, he said, with public outrage and promises of reform following embarrassing spending revelations at Blue Cross Blue Shield. For awhile, during times of high public scrutiny, health insurers restrain costs. Then old habits return, Morrison said.
“We need to really understand – this is how private business operates,” he said. “This is the culture of large business organizations. The board election is not an effective way to have any impact on what Blue Cross Blue Shield does.”
Hamm, a skeptic of a public option, said those who must face a public vote do respond to the constituents who elect them. He has credited the Blues’ board and new chief executive, Paul von Ebers, with taking preliminary steps to make changes, and believes von Ebers is committed to change. But Hamm also has made clear that scrutiny will continue.
Normally, the Blues’ annual meeting is held in a room at its corporate headquarters in Fargo. This year, expecting the need for more space, the meeting will be in a larger room at the Fargo Holiday Inn.