What is NC Blue Cross up to with an extra $1.2 billion and a new for-profit subsidiary?

By: - March 10, 2008 11:41 am

 And you thought posting the outsize compensation amounts in Blue’s executive suite raised questions.  Today I post key pages from nonprofit NC Blue Cross’s annual statement they are required to file with the NC Department of Insurance.  It’s a fascinating document for many reasons, but there are two things that particularly stand out.  The first is how much this nonprofit now has in surplus – $1.2 billion.  Second, the documents reveal a low-profile for-profit corporation Blue quietly created last year.

Last summer, Patrick Hogan in the Triangle Business Journal covered Blue’s huge jump in their surplus – money kept on hand to defray unexpected costs.  While the NC Department of Insurance says that Blue Cross needs to keep $248 million on hand, Blue’s bank account lin 2006 was $1.1 billion (it's well over $1.2 billion now).  Hogan reported that Blue’s surplus is greater than all but two similar Blue Cross companies nationwide.  This has drawn questions from some experts:

"Most (Blue Cross) companies have not been challenged over their build-up of capital," says Deborah Chollet, a health-care economist at Princeton, N.J.-based Mathematica Policy Research. "In the case of a nonprofit, a charitable, benevolent Blue Cross Blue Shield company, I think it should be investigated …"

Interestingly, also revealed in last week’s filing is that last summer nonprofit NC Blue Cross established a for-profit subsidiary called NobleHealth, Inc.  It’s got 10,000 shares of stock and is a wholly-owned subsidiary of nonprofit BCBS.  In the annual statement, Blue evasively says it was formed to participate in “various other ventures.”

Noblehealth isn’t mentioned on Blue’s public website or anywhere at all I can find for that matter.  The corporate filings with the NC Secretary of State are similarly mum on its purpose.  Blue can have for-profit subsidiaries without converting to a for-profit itself.  That point was one of the hardest-fought parts of NC’s groundbreaking Blue Cross conversion law passed a decade ago.  Advocates wanted a better boundary on the amount of money Blue could devote to for-profit ventures, but they had to settle for a 40% limit. 

So, what’s up here?  Have Blue’s executives found a way to bump up their paydays to Countrywide-style hundreds of millions without actually converting the company?  What is the purpose of the mysterious Noblehealth?  Blue created another for-profit subsidiary called Saegis, but that was back in the 1960s.  Could Blue be planning to invest some of that extra $1 billion in this new company and create new “opportunities” for top executives? 

The bottom line is that with NC’s tough conversion law, it’s hard to convert NC Blue to a for-profit corporation where top executives can be assured of massive new paydays.  Perhaps the build-up of such enormous amounts of surplus over the last few years combined with the creation of this new for-profit corporation are indicators that other avenues are being explored for tapping into Blue’s nonprofit assets without actually converting the company.

Use of nonprofit assets for for-profit ventures should bother advocates across the political spectrum.  From the conservative side, it's not fair to other competing for-profit companies in the same business who don't have a billion dollars in nonprofit capital to draw on to finance their ventures.  From the progressive side, if a nonprofit health insurer has enough extra money to be creating new for-profit companies, why aren't they lowering rates for their policyholders instead – or even issuing rebates?  

Blue's latest annual statement raises many more questions than answers about this nonprofit. 

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