Blue Cross NC could access billions from policyholders with no oversight, official warns

Allowing Blue Cross Blue Shield of North Carolina to use billions in policyholders’ money with no regulation is “nothing good” for state residents, state Insurance Commissioner Mike Causey said during a news conference Monday.

Causey said those policyholders may see premiums increase if a bill passes that is making its way through the legislature.

Dubbed the “Reorganization & Economic Development Act,” the bill was filed jointly in the House and Senate. It makes changes to state law that would allow Blue Cross NC, currently classified as a nonprofit medical service corporation, to completely avoid regulations from the Department of Insurance and any other department, Causey said.

“Blue Cross NC’s nonprofit status, and how the proposed reorganization impacts that, are at the heart of my concerns,” the Republican insurance commissioner said.

As a nonprofit, Blue Cross NC’s “7.7 billion in admitted assets and $4.6 billion surplus is, either directly or indirectly, North Carolina policyholder money,” he said. “The investment of policyholder money should be for the benefit of North Carolina policyholders and citizens.”

The bill is set to be heard Tuesday in a House health committee.

Objections to the bill, and what Blue Cross NC says

Under the current bill version, Blue Cross NC would avoid supervision via the creation of a deregulated holding company into which it could move assets of its flagship company. This holding company would become the “ultimate controlling company,” according to the bill.

With the new holding company, Blue Cross NC could cut deals with for-profits, buy out companies and transfer nonprofit value to for-profit use with no supervision, critics say.

Blue Cross NC says that the bill would allow it greater flexibility to invest to the gain of North Carolinians.

But Causey said he was concerned “that North Carolina policyholder money will be used for investments that do not benefit North Carolina,” like the purchase of an insurance company “in Oregon or Washington State.”

“There should be limits on how the holding company can invest its policyholder dollars,” he said.

Rep. Donna White, a Johnston County Republican and the chair of the House health committee, said at the press conference that she had been flooded with calls and messages from North Carolinians concerned about this bill.

“With a provider like Blue Cross Blue Shield and other providers in the state, we always want to make sure that we we’ll have oversight,” and “It doesn’t appear, and I’m talking about the current form, it doesn’t appear that this bill has gives the commissioner of insurance the meaningful oversight to protect consumers and the public interest from whatever may happen,” White said.

“When we had a conversation with the folks running this bill, this was one of the things that they did talk about, that they would be investing out of state, which could lead to higher premiums and out-of-pocket costs as well as diminished quality of care and services to North Carolina,” she said.

The primary sponsors of the bipartisan House version of the bill include the majority and minority leaders of the chamber, Reps. John Bell and Robert Reives. The Senate version’s primary sponsors are Republicans.

Causey said Blue Cross NC has not been amenable to suggested changes. Any bill, he said, would need to require the holding company remain the parent of the hospital service corporation, give the insurance department jurisdiction over the holding company and enact reporting requirements so the department can know what Blue Cross NC pays out to directors and executives.

“If they’re paying million-dollar bonuses to executives every year” and that’s “when we’re looking, what can they do when we’re not looking?” he said.

Darcie Dearth, a spokesperson for Blue Cross NC, wrote that the company was reviewing proposed changes with legislators and Causey, including ones that would provide more transparency for the business activities of the insurance company and holding company and require it to maintain its nonprofit mission and focus.

Another spokesperson, Sara Lang, wrote that the bill would allow Blue Cross NC to continue its “unique not-for-profit mission and status,” and that “this bipartisan legislation would provide the necessary flexibility to invest in health solutions that continue this shared work while maintaining our non-profit status.”

Lang wrote that they had engaged in months of good-faith discussions with Causey “that have resulted in strengthened consumer protections, transparency and oversight” and that they “took issue” with Causey’s characterization of the legislation despite “his direct knowledge of, and contributions to, these additions to the bill.

“The Commissioner and his allies are also asking for even more burdensome regulations that would raise costs and make conditions less favorable for consumers,” she wrote.

Competition for Blue Cross

Causey said he did not believe Blue Cross NC had a problem competing with for-profit companies and was already the largest health insurer in the state.

According to data from the state’s insurance department, Blue Cross NC holds 80% of the North Carolina individual and group insurance market. It’s also part of a large network with connections across the country.

Last year, Blue Cross NC lost its state contract as administrator of North Carolina’s State Health Plan to a national insurance company, Aetna.

It’s “very possible” there’s a correlation between that loss and this bill, said Causey, who said he was just speculating.

“They could be looking to the future and (saying), ‘Well, we’re gonna lose this block of business. So we need to figure out some ways to make it up by making money and investments somewhere else.’”

Connection to insurance premiums

Blue Cross NC, which is now taxed, was originally founded in the state as a charitable nonprofit, which allowed it to get tax breaks for decades.

The bill allows Blue Cross NC to avoid triggering the state’s 1998 conversion law that requires a hospital service corporation, should it go for-profit, leave its value in a nonprofit charitable foundation created to promote the health of North Carolinians.

With this bill, Blue Cross NC would also avoid limits on how much the insurer may hold in reserves, Causey said.

Under state law, Blue Cross NC can have company reserves of no more than six times its average monthly spending. If this threshold is reached, the company is required to return the excess amount to its policyholders via a refund or rate reduction.

With the bill, Blue Cross NC could move its money to the holding company, thereby bypassing the reserve limits, which could cause “a significant increase in premium rates for policyholders,” said Causey, “and once those funds are transferred to the holding company the Department of Insurance has zero regulatory authority over how the holding company invests those funds.”

“They are getting very close” to that threshold, he said.