Local Politics

Audit: Bad projections, contract led to health plan losses

Posted April 30, 2009

Map Marker  Find News Near Me

— Inaccurate forecasts of medical expenses and a bad contract with Blue Cross Blue Shield of North Carolina led to huge losses in the health insurance plan for state workers and teachers, according to an audit released Thursday.

The State Auditor's Office said State Health Plan officials need to keep closer tabs on medical costs racked up by members and called on lawmakers to look at changing oversight of the plan and at preventing similar contracts with vendors like Blue Cross.

State Health Plan audit Audit calls for more oversight of health plan

Projections of a $57.9 million surplus at the end of the 2008 fiscal year last June quickly morphed into a $79.7 million deficit because claims and administrative expenses were underestimated, the audit said.

The shortfall continued to balloon in recent months, resulting in a $250 million taxpayer-funded bailout approved last week by lawmakers and Gov. Beverly Perdue. The bailout also calls for higher deductibles and co-payments for members, an 8.9 percent increase on premiums for dependent coverage and cuts in benefits for people who smoke or are obese.

State Auditor Beth Wood also accused former plan director George Stokes of covering up the deficit for several months, which she said compounded the problem.

"If it had been discovered in January of 2008, the governor would not have had to bail out the health plan for $250 million. The state could have gotten on top of this a lot sooner," Wood said.

Stokes told WRAL News that the allegation that he hid the sinking financials from lawmakers was "absolutely wrong." He said he shared monthly reports with lawmakers, fiscal research analysts and auditors.

A surge in enrollment in the plan's PPO option and the resulting growth in check-ups and procedures led to expenses running $163.8 million ahead of projections for the 2007-08 fiscal year, according to the audit. Plan administrators also overestimated the discounts they would receive from hospitals and physician groups, the audit said.

Projections of administrative expenses were off by $36.3 million, primarily because State Health Plan administrators couldn't forecast Blue Cross' fees for handling claims, the audit found. Actuaries couldn't review the contract to try to determine the insurer's costs because of a confidentiality agreement, the audit said.

"The State Health Plan has agreed to a contract that requires the plan to reimburse (Blue Cross) its costs, but does not allow the plan to verify those costs or even know what they are," the audit states.

Also, Blue Cross was reimbursed for its costs and received a percentage of its costs under the contract, which auditors said didn't encourage any savings effort by the insurer. The federal government outlawed such contracts in 1941, and auditors recommended that the General Assembly do likewise for state contracts.

"There were aspects of the contract that were not in the best interest of the state," Wood said.

Blue Cross released a statement saying the health plan had the authority to share its contract with actuaries. The insurer didn't comment specifically on criticisms in the audit, however, except to say company officials weren't interviewed.

Dana Cope, executive director of the State Employees Association of North Carolina, backed the audit's call for shifting oversight of the State Health Plan from lawmakers to an executive branch agency.

"(The plan's financial problems are) absolutely outrageous. It's a no-bid contract that will cost the state billions of dollars," Cope said.

The State Health Plan provides medical insurance for almost 650,000 state workers, public school teachers and retirees. It also administers N.C. Health Choice, which covers 122,000 uninsured children statewide.

30 Comments

This story is closed for comments.

Oldest First
View all
  • james27613 May 1, 2009

    No more eye exams under the 2009 plan.

    I wonder how many people were diagnosed with glaucoma and
    other eye problems that will now go undetected with the
    elimination of the eye exam coverage.

    Money spent on finding medical problems and getting them
    addressed before they become more serious is the way to go.

    The PPO plan, with the two increased is still cheaper
    then the traditional plan that was offered in the past.

    If BCBS will not share the financial data with the state
    auditor, lets cut our payments to them in HALF.

    When they take the State to court then the contract will
    be public record.

  • xxxxxxxxxxxxx May 1, 2009

    And once again a budget deficit gets balanced on the backs of the state employees. What a surprise.

    On the subject of obesity, these "new" BMI charts seem to be nothing more than the old height/weight charts which did not take into consideration body composition, etc. Besides, I know plenty of people who are slim and trim but who have major health problems and I also know people who would be considered overweight or obese, according to the chart, but are perfectly healthy and fit. I don't think some bureaucrat (probably overweight) somewhere should be deciding who is healthy and who isn't, sight unseen.

  • whoami1969 May 1, 2009

    Unhealthy folks should have to pay a different share of the costs than those who are healthy, although it should not be so disproportionate as to make the coverage unaffordable. Just like car insurance...folks with tickets and accidents pay more than safe drivers, rightfully so. All this whining about benefits, when State Employees still get free coverage for themselves. Even BCBSNC does not offer free employee coverage (unless you take the high deductible HSA plan). And, ultimately, shouldn't the State want their employees to take advantage of the routine screening benefits offered in the PPO plan? Sorry if the State powers-that-be have buyer's remorse, but they have only themselves to blame.

  • fuzzjenmadison May 1, 2009

    The health plan is in such a horrible state that the deductibles are going up, copays are going up, out of pocket expenses are going up and yes, dependent coverage is going up 8.9%. All while us state employees are taking a pay cut. I'm sure there will be more furloughs once the new fiscal year starts.

  • Garnerwolf1 May 1, 2009

    "the feds were smart enough to outlaw such contracts back on the 40's. Looks like North Carolina has yet to "catch up". It's this kind of abuse that Obama is trying to get rid of."

    LOL. Obama is getting credit for something done 60 years ago!?

  • Mommyoftwo May 1, 2009

    vdub - if the state health plan is not a big profit maker for BCBS then I am sure they won't mind stepping aside when the contracts ends so NC can find a better health insurance carrier. I would think losing close to 700,000 people on an insurance plan mean serious losses for BCBS...look at the profits they posted last year alone.

    http://www.wral.com/news/local/wral_investigates/video/4680081/

    the video cast also has their financial statements if you don't think the state is big business.

    Next contract should be bid out and he who has the best plan within affordable premiums wins...we don't owe BCBS anything except a good swift kick in the...well you know.

    Boolittlek-having fair skin is not a choice I agree...BUT choosing to lay out in the sun for hours every day in the summer is a choice!! Bad correlation there. For almost every medical ailment there is prevention and treatment.

  • Zelda Apr 30, 2009

    How about transferring some of the responsibility to BCBS and requiring that their upper echelon staff take paycuts? These corporations take no responsibility for their malfeasance, but continue to pay their administrators incredible salaries. Meanwhile, state employees are getting laid off, paying more for health insurance, etc., etc. Totally one sided and unfair.

  • readerman Apr 30, 2009

    "The State Health Plan has agreed to a contract that requires the plan to reimburse (Blue Cross) its costs, but does not allow the plan to verify those costs or even know what they are," the audit states.

    Also, Blue Cross was reimbursed for its costs and received a percentage of its costs under the contract, which auditors said didn't encourage any savings effort by the insurer. The federal government outlawed such contracts in 1941, and auditors recommended that the General Assembly do likewise for state contracts."

    So state employees have to pay for the cozy relationship between BCBS and the General Assembly. Thanks for nothing!

  • boolittlek Apr 30, 2009

    I'll agree that this story is most importantly about the lousy contract, poor government oversight/decisions, and BCBSNC's greed (didn't they make a failed attempt to become for-profit a few years back? is this how they're trying to get around that failure?). But since several have commented on potential health guidelines for state employees, susanbradshaw1--there is a big difference between someone who smokes or is obese and someone who has fair skin (and is at risk for skin cancer) or a family history of diabetes. You can't choose your skin color or family history. Smoking and over-eating/eating poorly/not exercising are choices (granted, there are some who are obese due to legitimate medical reasons--e.g., glandular conditions--but these are hardly in the majority). Please don't start automatically shouting discrimination if people have to account for their poor decisions. Why should others be forced to subsidize such choices?

  • SS67 Apr 30, 2009

    jesmyopinion:
    My, that's quite a leap you took there.
    You see, the feds were smart enough to outlaw such contracts back on the 40's. Looks like North Carolina has yet to "catch up".
    It's this kind of abuse that Obama is trying to get rid of.

More...