Who should provide health care for North Carolina state workers? Trial kicks off over multibillion-dollar dispute
A trial over which company should be in charge of the North Carolina State Health Plan kicked off Tuesday morning. At stake: Billions of dollars and potentially hundreds of jobs — as well as the future of health care costs and availability for teachers and other state employees around the state.
More than 700,000 current and retired state government workers, and their family members, are members of the state health plan. For decades it has been run by Blue Cross Blue Shield of North Carolina, but last year the board in charge of the plan voted to give the contract to Aetna starting in 2025. Blue Cross sued, claiming the decision was made due to errors and an unfair scoring process used by the state.
"Because of the errors, the state is going to pay more for the plan, and the members are going to get less," Blue Cross attorney Matt Sawchak said Tuesday at the start of oral arguments, adding that the state used an overly subjective processes that biased the state's analysis against Blue Cross.
State Treasurer Dale Folwell, whose office oversees the state health plan, has been a longtime critic of Blue Cross. Folwell, a Republican, is running for governor this year and has defended the decision to switch to Aetna. On Tuesday he criticized Blue Cross for bringing the legal challenge, noting that other government units have also dropped contracts with the insurance giant.
"This is about what's in the best interest of those that teach, those that protect, those that serve, and taxpayers like them," Folwell said in an interview during a break in the legal proceedings Tuesday.
Aetna denies that it received the contract because of errors or bias. Even if there were errors, the company argues, they weren't significant enough to force the state to give the multibillion-dollar contract back to Blue Cross.
The state health plan was also in court Tuesday, defending its choice to switch insurers. "While Blue Cross might disagree with some of those decisions, they were fairly and carefully considered," Marcus Hewitt, a lwayer for the health plan, said Tuesday. "They weren’t in error. They weren’t mistakes.”
Lee Whitman, an attorney for Aetna, said that in years past Blue Cross has had to pay millions of dollars in fines for over-billing, dropped coverage and more. Between that history and Aetna winning on the state's new scoring process, he said, it's clearly time for a change. "Blue Cross lost this contract fair and square," he said.
The arguments between the state health plan and the warring insurance companies are expected to last for two weeks in a trial at the Office of Administrative Hearings, which hears disputes involving state government agencies. Each side has hired high-powered legal teams; Sawchak is the state's former solicitor general and Aetna's legal team includes former state Supreme Court Justice Bob Edmunds.
Many of the legal arguments revolve around the process the health plan used to score insurance companies on their ability to guarantee some technical issues with administering the plan, as well as how low they agreed to keep costs.
Aetna scored higher on the technical side. And although its bid was higher than the bid Blue Cross submitted, the scoring process gave the two companies a tied score on costs. That allowed Aetna to have the best-scoring bid on paper, and the state health plan's board of directors voted unanimously to give it the contract.
Blue Cross contends that the state put its thumb on the scale by incorrectly scoring the cost side of the equation and also putting too much weight on the technical side. If the scoring had been done fairly, Blue Cross contends, its final score would've been tied with Aetna, or in the lead. Regardless, it says, it should be keeping the contract.
"Our proposal would save tens of millions of dollars and provide the strongest network with more providers, especially in our rural communities," Blue Cross wrote in a statement to WRAL. "Serious errors were made in a procurement with significant ramifications for state health plan members. Those who serve our state every day — teachers, law enforcement officers and health care workers — will pay the price for the state health plan’s errors."
Should money be the only consideration?
On both the technical and the cost factors, the differences between the two companies were minor.
Aetna scored a 100% on the technical factors, compared to 98% for Blue Cross. And while both Aetna and Blue Cross bid just under $10 billion to hold the contract from 2025 though 2029, Blue Cross' offer was $25 million cheaper, evidence in Tuesday's hearing showed.
Blue Cross also argues it should've gotten more credit for promising to cap its cost increases at 6% annually; Aetna's bid ranged from 6.5% to 7.5%
Aetna contends that even though its bid will be slightly more expensive for the state, it also offered to pay higher penalties for missing financial goals than Blue Cross. That should give the state added assurances that the state health plan doesn't have to worry about unexpected cost overruns, the company's argument goes.
Hewlitt, the health plan's attorney, agreed: “Blue Cross put very little money at risk, which means they have little skin in the game," he said.
Blue Cross also argued that it should be credited for offering more providers in suburban and rural areas of the state, raising concerns that if it loses the contract, some people in those areas could lose their doctors.
Aetna, however, offers more providers in urban areas — where state employees tend to be clustered.
In general, Aetna argues, it deserves the chance to take over the plan.
"The previous carrier’s performance failures, and the associated large penalties it was forced to pay, were well documented in 2021," Aetna wrote in a statement to WRAL. "Aetna has invested tens of millions of dollars to ensure it’s ready to serve North Carolina’s public servants on Jan. 1, 2025, and this lawsuit will not distract from that mission."
Aimee Forehand, an associate vice president in charge of handling the state health plan for Blue Cross, was the first witness up on Tuesday.
She testified that some of the technical requirements that cost Blue Cross points were, in her opinion, impossible to accomplish. But she didn't go as far as directly accusing Aetna of lying about being able to deliver on what the company has promised to deliver for the state, acknowledging that she doesn't have knowledge of Aetna's internal operations.
Forehand also acknowledged the frustration the health plan has had with Blue Cross in recent years, related in large part to problems with a new claims processing system Blue Cross started using that led to numerous complaints. But she said Blue Cross still offered the best financial deal for the state, even though the contract is now — unless its lawsuit succeeds — going to go to Aetna instead.
"We had the broadest network," Forehand said. "We had the lowest cost. So we were surprised to see this is how it all ended."
