Commissioner Causey sounds the alarm on the dangers of the Blue Cross Blue Shield NC Bill
Insurance Commissioner Mike Causey holds a news conference to voice concerns about the dangers of the Blue Cross Blue Shield of North Carolina-backed legislation.
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- Comisionado de Seguros Mike Causey
- Opinion: Proposed bills threaten affordable health insurance in North Carolina
House Bill 346 – The Reorganization & Economic Development Act.
Commissioner Causey's biggest concerns with this proposed Act are four items:
- It will allow Blue Cross NC to transfer policyholder surplus from the hospital service corporation (the insurer) to an unregulated holding company;
- It allows Blue Cross NC to circumvent a statutory limit on its reserves that would otherwise require money to be returned to policyholders or reduce rates;
- It gives the Department of Insurance no oversight over the holding company;
- It has no limits on how policyholder money is invested by the holding company to ensure that benefits North Carolina policyholders and citizens.
Blue Cross NC is fundamentally different from the for-profit insurers it wants to compete with, - because it was created and organized as a nonprofit corporation to offer health insurance to North Carolina citizens.
Blue Cross NC’s nonprofit status, and how the proposed reorganization impacts that, are at the heart of my concerns.
Unlike for-profit companies, nonprofit corporations cannot raise capital through stock offerings. All of Blue Cross NC’s $7.7 billion in admitted assets and $4.6 billion surplus is, either directly or indirectly, North Carolina policyholder money.
The investment of policyholder money should be for the benefit of North Carolina policyholders and citizens, consistent with Blue Cross NC’s mission.
I do not believe that Blue Cross NC has a problem competing with for-profit companies.
Blue Cross NC is already the largest health insurer in the state:
- In the individual market, Blue Cross NC’s market share was nearly 83 percent (82.8%).
- In the group comprehensive market, its market share was nearly 80 percent (79.6%).
Blue Cross NC also says that the reorganization is necessary because it is limited in how it can invest in other companies by existing statutes that do not apply to for-profit insurers that are part of a holding company system. As a North Carolina nonprofit, Blue Cross NC should not be able to invest policyholder money with the freedom of a for-profit company using investor money.
There is already a path available if Blue Cross NC wants to compete with for-profit companies and pursue investment opportunities the same as the for-profits do.
This is not the first time that Blue Cross NC has come to the Department and the Legislature arguing that changes were needed to allow it to better compete.
In the late 1990s, Blue Cross NC wanted to become a for-profit company. This resulted in our conversion statutes. These statutes created a way for Blue Cross NC to become a stock accident and health insurance company.
This proposed Act (H346) will allow Blue Cross NC to transfer the entire ownership interest in the hospital service corporation (HSC) to the holding company, a new and separate legal entity, without having to provide a benefit to the people of North Carolina equal to the fair market value of the company, as would otherwise be required by the conversion statutes.
The holding company created pursuant to HB346 would not be regulated by the Department of Insurance or any other entity.
For-profit stock companies, like those that Blue Cross NC mentions as competitors, are subject to oversight by the Securities and Exchange Commission (SEC) and must answer to their shareholders.
Once the holding company is established and controls Blue Cross NC, transactions between the two companies will be governed by G.S. § 58 19 30.
- Under the statute, the Department can only disapprove a transfer of funds from the insurer to the holding company IF it found that the insurer’s surplus was no longer reasonable in relation to its outstanding liabilities and adequate to its financial needs.
- Currently Blue Cross NC’s surplus and contingency reserve is $4.6 billion. BCBS could transfer billions of dollars of policyholder money to the holding company before its surplus reached the point of being unreasonable in relation to its liabilities.
HB346 also allows Blue Cross NC to avoid limits on how much reserves the insurer may hold.
- General Statute § 58-65-95 limits Blue Cross NC’s contingent reserves to no more than six times its average monthly expenditures.
- Currently if that threshold is reached, Blue Cross NC would be required to return the excess amount to policyholders, either as a refund or reduced rates.
- Under the proposed Act, Blue Cross NC would be able to reduce its reserves by transferring money up to the holding company, instead of returning it to policyholders. This is expected to cause a potentially significant increase in premium rates for policyholders.
Under HB346, once funds are transferred to the holding company, the Department has no regulatory authority over how the holding company invests those funds.
- Because the holding company is exempted from the limitations of the conversion statutes, it also doesn’t have to comply with those investment limitations.
- My concern is that North Carolina policyholder money will be used for investments that do not benefit North Carolina, like the purchase of an insurer in Oregon or Washington State.
- There should be limits on how the holding company can invest its policyholder dollars to make sure they are invested in furtherance of Blue Cross NC’s current mission or it should be subject to the limitations in the conversion statutes.
- It is my understanding that with the proposed reorganization, Blue Cross NC would like to invest more in rural healthcare in North Carolina, which may be the reason for “economic development” is in the name of the proposed Act. I think that’s great. Let’s spell out in the bill to make it clear the funds are invested in North Carolina and to give the Department regulatory authority over the holding company.
I also believe that the proposed Act, in its current form, is missing many provisions necessary to protect the interest of policyholders.
The proposed act does not provide for a meaningful review of the reorganization.
- The reorganization is simply the creation of a new and separate legal entity, the holding company, that will become the ultimate controlling person of Blue Cross NC, the insurer, meaning that there is a change in control of the insurer.
- But even with simple corporate transactions, the devil is in the details.
- For any insurer, this type of change is reviewed through a Form A filing pursuant to G.S. § 58 19 15.
- However, the proposed act exempts the reorganization from this regular process and essentially requires my approval of the reorganization without allowing for the review required for any other insurer in this situation.
- To the extent that the proposed act and the PCS require my review of the reorganization to be done pursuant to G.S. § 58-19-30, that is not the appropriate standard.
- Like any other insurer, review and approval of this transaction should be pursuant to G.S. § 58 19 15.
I have been told, and it has been stated publicly, that what Blue Cross NC is asking to do is just a reorganization because the new holding company will have the same mission and the same board of directors as the current hospital service corporation. If this were true – and were to remain true in the future – I can understand exempting the proposed reorganization from triggering the conversion requirements.
I have requested these assurances be added to the proposed Act and, so far, my requests have not been accepted.
There need to be clear requirements that the holding company will have and keep the same mission that Blue Cross NC currently has, the same board of directors (not just at the time of reorganization), and will always be the direct parent of the hospital service corporation.
The proposed Act must give the Department of Insurance jurisdiction over the holding company and there should be reporting requirements for the holding company, beyond just requiring financial statements as well.
- Without stronger reporting requirements, we will not know certain things about the holding company that currently is reported by Blue Cross NC, like what it pays its directors and executives.
- Publicly traded companies are required by the SEC to file a Form 10-K annually.
- The holding company should at least have to make a public filing with the same information required to be filed by for-profit companies in their Form 10-K filings.
I am fully committed to supporting Blue Cross NC’s mission to provide accessible and affordable health insurance to North Carolina consumers. As I said initially, I question why the proposed changes are needed.
Despite this, my staff and I have spent many hours trying to work with Blue Cross NC on a compromise bill.
I have shared with Blue Cross NC and the bill sponsor a draft that, while it does not do everything I might want, I could support.
The PCS I have seen addresses only one of my concerns, regarding assets of the holding company being subject to a receivership proceeding involving the hospital service corporation, which I appreciate. However, it does not address the other issues that I have raised and I cannot support a bill that does not address my most important concerns.
As a nonprofit company, Blue Cross NC is very much an asset of North Carolina. The General Assembly recognized this by enacting the conversion statutes. Any request to reorganize without being subject to the conversion statutes must be considered carefully to make sure our state’s best interests are being met.