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Published September 13, 2009, 12:00 AM

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:

  • Have I done everything I can to make sure that Blue Cross Blue Shield acts in the best interests of its policyholder-owners?

  • When problems have been brought to light, have I done everything I can to correct them?

  • Is my continued presence on the board in the best interest of the organization?

    Since the 1990s, board members have been paid a retainer and for participating in board and committee meetings. Board members are asked to commit to devoting 18 to 20 days a year to board duties, including participation in board and committee meetings, a strategic annual retreat, and telephone conferences. Some attend a national conference.

    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.


    Readers can reach Forum reporter Patrick Springer at (701) 241-5522

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