Blue Cross of California's $1 billion leak
WellPoint dividend is questioned
By Lisa Girion
Los Angeles Times
May 26, 2007
State regulators are investigating whether a $950-million dividend Blue Cross of California sent to its Indianapolis-based parent violates an agreement the companies made to limit such payments to keep premiums down and maintain the quality of healthcare benefits, officials said Friday.
Officials said the parent, healthcare giant WellPoint Inc., should have taken no more than $141 million out of California. They called the higher amount excessive, particularly as Blue Cross, which serves more than 7 million state residents, has continued to raise premiums.
The state Department of Managed Health Care also is considering expanding its probe to determine whether there are any other potential violations of the three-year agreement, part of a deal to win the agency’s approval for a corporate marriage that created the nation’s largest health benefits provider.
The merger came about when an Indianapolis-based company then known as Anthem Inc. purchased Thousand Oaks-based WellPoint, which used the Blue Cross license in California, and adopted its name.
Cindy Ehnes, director of the Department of Managed Health Care, said she was shocked to learn of the $950-million payday for WellPoint, whose total profit last year was $3.1 billion on $57 billion in revenue.
“We are concerned that it reflects a viewpoint of California being its own ATM machine, while, at the same time, Californians are struggling to get health insurance for their families,” Ehnes said in an interview.
“Health insurance is a competitive industry that does not exhibit excessive profit margins,” WellPoint spokeswoman Shannon Troughton said.
http://www.latimes.com/business/la-fi-wellpoint26may26,0,3060723.story?coll=la-home-business
The agreement (Undertakings):
http://www.dmhc.ca.gov/library/reports/news/BCCunder112404.pdf
Comment:
By Don McCanne, MD
If you read the “Undertakings” agreement you will see that it reflects an appropriate distrust of the private insurance industry, that it might not fulfill its responsibilities to its beneficiaries to see that they receive adequate coverage at a reasonable value. No such document would need to be created in a publicly-funded and publicly-administered insurance program. It represents yet more administrative waste resulting from keeping the private plans in play.
By law, the for-profit, private insurance corporations have a primary responsibility to maximize shareholder value. For Blue Cross of California, that means not only do profits need to be maximized, but they also need to be transferred out of the state to the parent corporation, WellPoint, where the funds are used for additional administrative functions, capital acquisitions, or distributed as dividends. None of these provide any benefit for the beneficiaries of the Blue Cross of California plans.
Regardless of what WellPoint does with the funds, nearly $1 billion is being sucked out of Blue Cross of California thereby causing either an increase in premiums or a reduction in benefits, or both. This only increases the financial burden for patients at a time that health care affordability is rapidly diminishing.
Why do our politicians continue to insist that we need employer mandates and/or individual mandates to purchase private insurance plans when this industry is serving us so poorly? Shouldn’t reform be designed to take care of the health of patients rather than the health of superfluous, middleman private insurance corporations? Why on earth do we need to keep asking this question?