Blue Cross' restructuring: "The devil is in the lack of details."

Published May 11, 2023

By Tom Campbell

There is legislation sailing through our General Assembly “faster than a speeding bullet,” with few raising questions or opposing it. HB346, a bill that would allow Blue Cross to “restructure” and create a holding company above the current non-profit insurance company. But there are some serious questions that deserve answers and this proposal needs to be slowed down before it becomes law and does harm to policy holders and the public.

Blue Cross (BCBS) is the largest health insurance company in North Carolina, with some 4.3 million policy holders, as much as 80 percent of the individual and group insurance market.  The company acknowledges assets of $7.7 Billion, however total assets were $8.6 Billion. It has surplus and contingency reserves of approximately $4.6 billion. In 2022, BCBS had statutory net income of 203.7 million dollars. Their CEO earns a salary of $6 million a year, many others have big salaries and, even though a not-for-profit company, they donate hundreds of thousands of dollars a year to various groups. BCBS is doing exceedingly well, so why do they want to change?

BCBS says they need “greater flexibility” in the current competitive environment. What does that mean? Basically, Blue Cross wants to accomplish several objectives with this restructuring scheme (and I use that term advisedly).

The largest goal appears to eliminate or greatly minimize oversight or regulation from the North Carolina Department of Insurance – oversight which has provided them favorable treatment and allowed them to thrive. They cite data showing for-profit national insurance players are combining and generating record profits, implying they might face unfavorable competition.  BCBS wants to join the game without actually becoming a for-profit corporation, yet investing in, merging with or buying out other insurance providers. The bill would allow them to “vertically integrate” services, for instance buying hospitals or healthcare provider groups, effectively becoming the insurer and care provider simultaneously.

For the record, Blue Cross attempted a similar maneuver in 1998, triggering the passage of a new Public Trust Conversion Statute. The effort failed. In 2003 they tried again and, due to strong opposition, withdrew the proposal. Why is BCBS attempting a similar effort now?

Unquestionably they believe the climate in the current legislature is more favorably inclined to give them what they want. Perhaps the more than 14 lobbyists who practically live at the legislature, coupled with about $300,000 in campaign contributions to lawmakers helps explain why the bill sped through the House, not even allowing the Insurance Commissioner to testify before the Insurance Committee. It’s scheduled to be fast-tracked in our Senate beginning May 15th.

Let us be clear. HB346 or its Senate counterpart, SB296, is not just questionable legislation, but in its current form could harm the millions of policy holders who count on Blue to pay their claims.

Perhaps because the issue is complicated and somewhat difficult to explain it has gotten little media attention and few responsible voices have raised their concerns. Thankfully, Insurance Commission Mike Causey is one who has.

Here’s why this is a bad deal for North Carolina. First, at a time when Blue Cross still dominates the health insurance market, we need more, not fewer competitors. Our state has a pretty good track record of regulatory oversight, a playing field that has benefited both residents and insurers. BCBS is thriving and there’s no compelling reason for them to do an “end run” on that oversight.

If this measure passes Blue Cross will become even larger. When will we ever learn that bigger doesn’t mean better? Is there any hope that premiums will be reduced or that service will improve? No promises.

What is the fair market value and how will BCBS’ assets be distributed? Will that money be returned to policy holders, set up as a charitable foundation to donate to nonprofits, or will a large portion (or all) remain in BCBS’s control? Might it even be transferred to the new holding company? Never forget this isn’t Blue Cross’ money! It accumulated as a result of folks like you and me paying premiums, as well as their favorable non-profit treatment for almost nine decades.

Other states have faced privatization or restructure proposals. Over the past ten years more than 13 Blue Cross plans in other states have done so. The track record shows they grew larger (some moved out of state) and premiums increased. There is no compelling evidence to show that policyholders benefitted.

It may be true that the competitive landscape is changing rapidly and the current status of BCBS might need restructuring, however no definitive case has been made to demonstrate the necessity.

We need to slow down and consider four necessary factors regarding the issue. What can be done to assure reasonable accessibility for our citizens? What assurances can be provided that health insurance will remain affordable? How do we guarantee that reasonable oversight can and is provided to both the company and the policy holders? And what is a fair method for assessing and distributing assets?

In short, we have many unanswered questions and the speed with which this is about to become law is frightening. As Commissioner Causey stated, “The devil is in the lack of details.” Call your state Senator, news outlets and public officials and tell them to slow this move down until we get satisfactory answers to the many nagging questions.