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New documents show better State Health Plan oversight

Posted April 8, 2011

Raleigh, N.C. – Previously unreleased documents show State Health Plan officials have taken steps to more closely control the plan’s administrative contract with Blue Cross Blue Shield of North Carolina. 

Blue Cross handles administrative and claims processing services for the State Health Plan, which provides health coverage for more than 667,000 state workers, teachers and retirees. In the 2009-10 fiscal year, the insurer processed nearly $1.8 billion in claims for the plan, and the state paid the insurer almost $108 million. 

The contract limits Blue Cross’s profit margin to 0.625 percent of the cost of the claims. But critics have long accused the insurer of padding its profits by charging the state too much for administrative overhead.

For years, Blue Cross has refused to release some information about its dealings with the state on the grounds of business confidentiality. It first released its contract with the State Health Plan in 2009, but some information was blacked out.

Blue Cross on Friday released the full contract it signed with the state in 2006. It also released amendments to the contract signed after the 2009 release. Several of them give the state more power to manage the contract’s costs.

One amendment limits the types of overhead costs for which the insurer can bill the state. As of July 2010, Blue Cross could no longer bill for a share of what it spent on lobbying, advertising, bonuses for its top executives or events and entertainment.

“Really, what we were trying to do was exclude costs that would be excluded in federal contracts,” explained State Health Plan Chief Financial Officer Mona Moon. The original contract didn’t exclude anything.

Another amendment caps the growth of year-over-year cost. The original contract allowed Blue Cross to adjust its rate for inflation and add 4 percent every year.

“It essentially grew off itself every year,” said Moon. “That cap would grow regardless what was happening with the underlying cost.”

Under the 2010 agreement, each year’s estimated cost is based the past two years, with a 5 percent buffer for unanticipated needs, Moon said. There is no guaranteed growth.

Two other amendments set up monthly monitoring of administrative spending, and allow the state to call in an independent auditor to verify Blue Cross’s reported costs.

“We certainly recognized when we joined the plan in 2008 that there was a fair amount of risk in the agreement,” said the plan’s Deputy Executive Administrator Lacey Barnes. “These amendments have been our way of limiting the risk and increasing our ability to mange the plan and its costs effectively.”

But even before those changes took effect, the new documents show that Blue Cross was already starting to lower its base price.

In 2008, Blue Cross charged the state $15.15 per month per member for processing and support. In 2009, the figure dropped to $14.56. Last year, it fell to $14.

Blue Cross spokesman Lew Borman said Friday’s release confirms the company has followed through on its pledge to control state costs for overhead spending.

“Our administrative costs are less than 6 percent of the cost of the State Health Plan,” Borman said. “Our profits are literally less than a penny on the dollar.”

“What’s the big elephant in the room? Health care costs,” said Borman. “That’s what’s breaking the back of the State Health Plan.”

One of Blue Cross’s most outspoken critics, the State Employees Association of North Carolina, applauded the document release, noting that a bill on the governor’s desk would likely require it soon, anyway.

“All that’s great,” said SEANC spokeswoman Cary Edgar. “But it’s just a drop in the bucket in terms of reforming the State Health Plan.”

Edgar says the biggest problem is Blue Cross’s no-bid contract. “Taxpayers and state employees are never going to know if they’re getting a good deal until they have something to compare it to.”

1 Comment

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  • james27613 Apr 8, 7:30 p.m.

    They need to put the contract out to competitive bidding,
    get at least three companies to choose from.

    It is crazy that BCBS was billing NC for lobbying and other costs that have nothing to do with the health plan.