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Published September 18, 2009, 12:00 AM

Hamm slaps $30K fine on Blue Cross Blue Shield

North Dakota Insurance Commissioner Adam Hamm announced Thursday that he has fined Blue Cross Blue Shield of North Dakota $30,000 for violations including using misleading information for marketing purposes.

By: Patrick Springer, INFORUM

North Dakota Insurance Commissioner Adam Hamm announced Thursday that he has fined Blue Cross Blue Shield of North Dakota $30,000 for violations including using misleading information for marketing purposes.

The misleading statement involved a discrepancy in what the North Dakota Blues said in promotional materials that their customers’ premium dollars paid for administrative expenses.

“So all of these statements are misleading because they overstate the amount being paid as benefits and understate the amount paid as costs,” Hamm said.

Instead of administrative expenses – which include employee salaries and benefits as well as travel – of 7.4 cents for every dollar paid in premiums, the actual cost was 8.6 cents, Hamm said.

Blue Cross Blue Shield’s marketing statements exaggerated the benefits to their fully insured customers by not subtracting amounts paid for premium taxes, Hamm said. The premium tax is 1.75 percent.

The premium tax wasn’t counted as an expense in marketing materials because insurers don’t customarily include it as an administrative cost, because they have no control over the level of tax, which varies from state to state, Blue Cross Blue Shield spokeswoman Denise Kolpack said.

Another problem was lumping together the administrative costs for fully insured customers and those from self-funded employer groups it administers, Hamm said.

By law, insurance company marketing statements cannot contain misleading statements. “The wording of the marketing statements has to be completely accurate,” Hamm said.

The Blues have agreed to correct the violations and pay the $30,000 in fines.

Two other violations, each of which drew a $10,000 fine, involved an agreement Blue Cross Blue Shield had with physicians. Regulators discovered the agreement was not on file with the agency as required by law, and then discovered it failed to include several required provisions.

“We made the decision to pay the fine because technically the two violations were true,” Kolpack said, referring to the marketing statements and physician agreement.

“The original agreement was originally written and presumably filed more than 40 years ago under the regulations at that time,” she said. The Blues then provided a copy of the agreement to insurance regulators last October. The agreement went into effect in February.

The fines follow an extensive examination by Hamm’s department into expenses, but are unrelated to that examination.

Blue Cross Blue Shield of North Dakota was last fined in 2006, when the company paid an $8,000 penalty for failing to update forms and notices for a Medicare supplement insurance policy, Hamm said.


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

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