October 15, 2009-Bismarck Tribune
Hamm: Blues take positive step
Blue Cross Blue Shield of North Dakota’s promise to cut questionable expenses will help rebuild policyholders’ trust in the company, the state insurance commissioner said Thursday.
Blue Cross Blue Shield, the state’s dominant insurer, came under scrutiny earlier this year after a weeklong Caribbean trip. Insurance examiners subsequently found that the company used premium payments to fund $15 million in employee bonuses, cover $35,000 for a retirement party and pay for other inappropriate or excessive payments.
Insurance Commissioner Adam Hamm told the company to make changes, and Hamm said a response from the company earlier this month outlining spending reforms satisfied his order.
“I believe this response from them is a positive step to help them restore trust in the company,” Hamm said Thursday. “Now the department and I will work to ensure the company follows through on what they have said.”
President and CEO Paul von Ebers, who took over in July, said the company’s operation and spending is being better scrutinized.
“We did get a little self-centered about our needs and not focusing on the needs of our customers,” von Ebers said. “We know we are in the position of trying to rebuild trust.”
The corporate culture of a company “never changes overnight,” von Ebers said. “It takes a little time.”
The company provides health care coverage to more than 375,000 North Dakota residents and 75,000 nonresidents.
Hamm ordered the audit in March, after criticism of a sales managers’ trip to the Grand Cayman Islands that cost $238,000. The company’s CEO at the time, Mike Unhjem, was fired later that month.
It was the first audit of the nonprofit company since 2004. Hamm said it found “a lack of judgment” by board members and senior management.
Of $418 million in the company’s administrative expenses over the past five years, the audit found “millions and millions of dollars” in excessive or inappropriate expenses, Hamm said.
In its response to Hamm, Blue Cross Blue Shield said it has temporarily frozen executive salaries and that their earnings likely will be tied to performance in the future.
The company’s other measures include cutting back on retirement parties and gifts, as well as on travel and on the use of charter flights. The insurer says it also won’t buy alcohol for board members or employees at meetings, banquets or other functions.
Hamm said he has met several times with von Ebers to discuss the company’s changes.
“We definitely have an open line of dialogue back and forth,” Hamm said. “The tone of the conversations is completely different than it was before. The previous leadership had a much more antagonistic approach to these issues.”
Said von Ebers: “We know he will hold our feet to the fire. We expect him to keep very close tabs on what we’re doing.”
Hamm said no more audits of the company have been planned, although he did not rule out the possibility.
“The department has the ability to do it whenever we want,” Hamm said. “They need to keep in mind that their actions at all times must be in the best interest of the policyholders, who own the company.”
October 14, 2009-Jamestown Sun
N.D. insurance program ranked tops in nation
Adam Hamm, North Dakota insurance commissioner, announced today that the State Health Insurance Counseling program was ranked No. 1 in the nation by the Centers for Medicare and Medicaid Services.
“Being ranked No. 1 in the nation is a direct result of the hard work and dedication of the people in the Insurance Department and our partnering organizations and volunteers across the state,” Hamm said in a press release.
The award earned the program a performance award of $56,000.
Hamm said the Insurance Department is reaching out to North Dakotans this fall during the upcoming Medicare Part D annual enrollment period by holding 10 enrollment events across the state.
The Center for Medicare and Medicaid Services has been distributing performance awards since 2006. North Dakota ranked second last year.
October 11, 2009-Fargo Forum Editorial
Editorial: No more punches in the gut?
In the past couple of months, Blue Cross Blue Shield of North Dakota has been poked in the eye, slapped up side the head, rapped on the knuckles and punched in the gut. Deservedly so, we might add.
The state’s largest health insurer was found to be living a tad too high off the corporate hog at a time when the economy was tanking and the high cost of health care and health insurance was making headlines.
When a sweet-deal golden parachute for a fired president/CEO and a fat executive pay/bonus system were reported by The Forum, the company went into full-scale damage-repair mode. With some initial success, we might add.
It appears – and sometimes appearances can be deceiving – the company is doing all the right things to clean up a public relations mess and satisfy directives for change ordered by North Dakota Insurance Commissioner Adam Hamm. Aimed specifically at ensuring Blues’ expenses benefit members (policyholders), Hamm’s directives came after his department concluded that the company misspent millions of dollars of health insurance premiums. The questionable expenditures included executive compensation and
travel, two categories that set policyholders’ teeth grinding.
New management at the company, led by chief executive Paul von Ebers, has adopted (again, what appears to be) a transparent and cooperative program to scrape tarnish off the company’s image and, more importantly, adopt reforms. In addition to taking to airwaves and print to present the company’s take, von Ebers and his team responded quickly and apparently completely to Hamm’s directives. (See Patrick Springer’s front-page article in the Oct. 6 Forum.)
If long-term follow-up conforms to intentions stated in responses to the commissioner’s directives, the changes will be significant, not only as they relate to executive pay, but also as an indication the company will be conducting business sans its previous extravagances. If at this time next year, the Blue Cross story is a non-story, the company’s management team will have succeeded.
October 10, 2009-The Washington Post
North Dakota Scandal Raises Concerns About Health Co-op Route
By Karl Vick
Washington Post Staff Writer
Saturday, October 10, 2009
BISMARCK, N.D. — For the North Dakota insurance sales reps, March may have been the ideal time to enjoy the swim-up bar at a resort on Grand Cayman Island. But back on the northern Plains, where temperatures were below zero, policyholders at Blue Cross Blue Shield of North Dakota were less delighted when they learned about the trip for 66 staff members and guests.
Word of the $238,000 Caribbean retreat broke last winter, compounded by news of other perks: $15 million in executive bonuses over five years, $400,000 for charter flights and $35,000 for a vice president’s retirement party. And when the ensuing uproar cost Michael Unhjem his job as chief executive, his landing was softened by a $2.5 million severance payment. The golden parachute had been added to his contract after his 2006 drunken-driving arrest, a state audit pointed out.
In an era in which stories of corporate excess have become common, the drama of North Dakota’s dominant insurer resonated deeply here, largely because the state’s nonprofit Blue Cross Blue Shield is essentially a cooperative, owned by policyholders. It is an arrangement close to the model promoted by powerful lawmakers as an alternative to the “public option” that would put the federal government in the insurance business. The legislation that the Senate Finance Committee will probably approve Tuesday calls for the creation of health insurance cooperatives in all 50 states and the District.
A liberal group here argues that the North Dakota scandal illustrates the danger of assuming that the cooperative model would assure virtuous behavior, especially in an industry awash in money.
“Call it cooperative, call it mutual, call it private insurance,” said Don Morrison, executive director of NDpeople.org. “If what we want is to have quality health care at a price people can afford, it’s not coming from the culture of private insurance. If this is a model, let’s get real.”
As an existing company, the Blues would not be allowed into the ranks of new co-ops envisioned by Sen. Kent Conrad, the North Dakota Democrat who is also the Finance Committee’s most zealous promoter of the model. Conrad, who grew up in Bismarck, declined to comment on the controversy surrounding the Blues. But he cites the success of the electrical, farm and even commercial cooperatives that rose out of the same tradition of prairie populism that produced the original Blue Cross seven decades ago.
“The co-op plan aims to achieve the same benefits for consumers as a public option without government control of health insurance,” Conrad said in a statement this month. “It does so by creating private, consumer-driven, nonprofit health plans. Because these plans will be owned by their members, they will focus on getting the best value for consumers, rather than maximizing revenues or profits.”
Not much is known about health- care cooperatives on a large scale because there are only a few in the country. Timothy S. Jost, who studies health-care policy at Washington and Lee University, said they tend to provide good service to members but have not made “any tremendous difference in terms of cost or price.”
For the Blues, which have common roots in the cooperative model, controversies over executive compensation have not been limited to North Dakota. Maryland’s insurance commissioner halved an $18 million severance payout last year for the chief executive of CareFirst Blue Cross Blue Shield, calling it “simply too much money to pay the departing CEO of a nonprofit company.”
In Massachusetts, where residents are required to carry health insurance, the attorney general last month launched an inquiry into executive and board compensation at health-care nonprofits after the chairman of the state’s Blue Cross Blue Shield retired with a $16 million lump sum.
“Our office is concerned about the generally high cost of health care. This is a part of that,” said David Friedman, first assistant attorney general in the office headed by Martha Coakley, a Democrat running for the Senate seat of the late Edward M. Kennedy.
In North Dakota, which has a $1 billion state budget surplus, residents wear their parsimony proudly. And all of the spending excesses, said state Insurance Commissioner Adam Hamm, came roughly at the time the company was seeking premium increases of 15 to 20 percent.
“They’re owned by the policyholders,” said Hamm, whose powers would have been curtailed under legislation the company was pushing when the scandal erupted. “Every dime they’re spending is the policyholders’ dime.”
Paul von Ebers, who took over as the Blues’ CEO in the scandal’s aftermath, said the current scrutiny is both inevitable and frustrating, given the company’s overall record. It spends just 7 percent of premiums on overhead. Last year, only eight official complaints were filed against the company, up from six the year before.
“Nationwide, the attacks on insurance companies are a concerted attempt to distract discussion from the real issues of what’s going on in health care,” von Ebers said from the company’s Fargo headquarters. “In Washington, we’re focusing on insurance companies as evil entities, while anyone who understands health care realizes that utilization rates and technology are the major cost drivers.”
Critics, however, find a timely lesson in the transformation of the North Dakota insurer from its populist origins.
Conceived in the late 1930s by a bishop as a “benevolent and charitable corporation,” the Blue Cross co-op rose from the same egalitarian impulse that produced a state-owned bank and grain elevator. In the late 1980s, it merged with another nonprofit, Blue Shield, and grew into a major player in the political establishment.
“They have more clout than anyone in the state,” said state Sen. Tim Mathern of Fargo, the 2008 Democratic candidate for governor.
Along the way, board members’ salaries rose along with executive pay; they quadrupled in two years to $12,000 annually, plus $1,200 per meeting.
“It’s a self-perpetuating board,” said Morrison of NDpeople.org, noting that a 1998 effort by consumer advocates to nominate two directors was rebuffed in favor of candidates selected by incumbents. “The people on the board who supposedly had the people’s interests were the power elite of North Dakota.”
The board’s coziness with executives was clearest in the severance package for von Ebers’s predecessor, Unhjem, who acknowledged at the time that he should have realized the public relations problem the Cayman Islands trip would cause. State auditors were also puzzled that the board paid severance to two other executives whose contracts required none. Bonuses for “performance” were paid even when underwriting showed a loss.
Board Chairman Dennis Elbert did not return calls seeking comment.
“The premiums keep going up and up. It makes me angry that the top CEOs and so on would reward themselves. And for what? For what?” said Pat Swanson, 68, who during her time in an insurance broker’s office sold policies for “the Blues,” as the nonprofit is known. She now works at a Hallmark store at Kirkwood Mall.
Though the Blues’ premiums are among the lowest in the country, they have risen 87 percent since 2001 for group policies, far faster than income has. “When they pay, they pay out of their minds. That’s why their policies are so spendy,” said Lisa Marchus, 47.
Marchus works on the frontier of the service economy, taking orders in her Bismarck home from McDonald’s drive-throughs in distant states, then typing them onto a screen that appears before fry cooks inside the restaurants. The pay is $7 an hour without benefits, and she said when she saw a surgeon about a knee replacement, he “made me out to be an idiot” because she relied on Medicaid.
Hamm, a Republican elected in November, thinks the Blues’ virtual monopoly stands at the core of the scandal. But in the quest for competition on the national level, he worries that a public option might use federal subsidies to undercut private competitors unfairly. Still, he was loath to recommend co-ops, either.
“One of the main things you see in health-care cooperatives in this country is the board hasn’t always acted in the best interests of the membership and cut down on waste,” Hamm said. “It hasn’t been able to achieve in the health-care economy what it’s been able to achieve in agriculture and other areas.”
October 6, 2009-Fargo Forum
Blue Cross Blue Shield of North Dakota details expense changes
North Dakota health insurer responds to directive by state insurance commissioner
By: Patrick Springer, INFORUM
Blue Cross Blue Shield of North Dakota has trimmed its executive pay guidelines and is now using a regional benchmark for comparing its executive compensation.
Also, new performance targets are being drafted for executives of the health insurer, whose salary ranges and levels have been frozen, according to a letter to state insurance regulators released Monday.
Paul von Ebers, the Blues’ chief executive, and board chairman Dennis Elbert wrote in response to a directive by Insurance Commissioner Adam Hamm to take steps to ensure that its expenses benefited members.
Hamm’s directives followed an examination of costs, including executive compensation and travel, that led the insurance commissioner to conclude that “millions” of dollars of health insurance premiums were misspent.
In their response, Blue Cross Blue Shield leaders said the following changes are being implemented:
- The so-called “pay-at-risk” incentive program for executives has been discontinued for 2010, and a new plan is expected by January.
“The Board is likely engage an outside consultant to work with the Board and management to design a longer-term program with goals and corresponding incentives tied to longer-term strategic improvement as a company,” the letter said.Last year, Blue Cross Blue Shield reduced a consultant’s salary-range recommendations by 10 percent, changes that became effective this year. The comparison was based on a national research of like-sized health insurance, insurance and service-oriented businesses.
“While the Board feels the past use of consultants and standards was based on accepted industry practice, the Board changed its philosophy for 2010 and beyond to include a local analysis, and has directed Blue Cross Blue Shield of North Dakota (BCBSND) human resources to analyze executive compensation against like-sized North Dakota companies from al industries.”
All executive salaries will be set based on North Dakota and western Minnesota standards, “blended with regional and national data as appropriate to give the board adequate information to make decisions,” the letter said.
- Employee benefits also are being trimmed, with the goal of falling at the midrange of a North Dakota comparison group.
The intent is to make benefit offerings that are competitive – but not overly competitive – with lower-paid staff paying 10 percent of their health premiums, while higher-paid staff and executives will pay up to 30 percent. - Policies call for limiting retirement parties to a “modest level of celebration and cost for all employees regardless of grade level” and also scale back its service award banquet.
- Travel policies now call for reimbursements using the federal government rate for employees and directors, and require the “lowest lodging rates possible.” Alcohol will not be reimbursed for board or employee meetings, banquets or functions.
- Out-of-state management and board travel will be limited to business meetings and educational meetings that can’t be done in North Dakota. Also, charter flights will be limited to “rate situations where other transportation is not available or not practical to meet important business needs.”
- Managers secured changes to an agreement involving the Blues’ $3.5 million investment in the Hilton Garden Hotel in Fargo, which examiners concluded was illegal because it fell outside the board’s control.
- Investment policies now may call for appraisals if market value is not readily available. “Allocation of profits and losses to individual and for-profit partners must be proportionate with ownership interests.” Hamm had concluded that the hotel exposed the insurance company to much higher risks than its partners.
“Arrangements should be negotiated at arm’s length and be commercially reasonable for the parties to enter into,” the letter said. - Severance packages now will be limited to “reductions in force and layoffs only,” with severance levels reduced to 75 percent of previous levels for executives.
“These changes provide severance benefits that are more in line with North Dakota standards and are meant to provide a basic level of protection for employees affected by a reduction in our workforce.”
The letter was submitted Friday, but Hamm’s office did not release it until Monday. The company considers attachments to the letter confidential, and Hamm is still reviewing that information.
Hamm, who was traveling Monday, was not available for comment. Blue Cross Blue Shield spokeswoman Denise Kolpack also was not immediately available for comment.