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James MacPherson, Associated Press, Published October 16 2009

Hamm: Blues taking ‘positive step’

BISMARCK – Blue Cross Blue Shield of North Dakota’s promise to cut questionable expenses will help rebuild policyholders’ trust in the company, the state insurance commissioner said Thursday.

Blue Cross Blue Shield, the state’s dominant insurer, came under scrutiny earlier this year after a weeklong Caribbean trip. Insurance examiners subsequently found that the company used premium payments to fund $15 million in employee bonuses, cover $35,000 for a retirement party and pay for other inappropriate or excessive payments.

Insurance Commissioner Adam Hamm told the company to make changes, and Hamm said a response from the company earlier this month outlining spending reforms satisfied his order.

“I believe this response from them is a positive step to help them restore trust in the company,” Hamm said Thursday. “Now the department and I will work to ensure the company follows through on what they have said.”

President and CEO Paul von Ebers, who took over in July, said the company’s operation and spending is being better scrutinized.

“We did get a little self-centered about our needs and not focusing on the needs of our customers,” von Ebers said. “We know we are in the position of trying to rebuild trust.”

The corporate culture of a company “never changes overnight,” von Ebers said. “It takes a little time.”

The company provides health care coverage to more than 375,000 North Dakota residents and 75,000 nonresidents.

Hamm ordered the audit in March, after criticism of a sales managers’ trip to the Grand Cayman Islands that cost $238,000. The company’s CEO at the time, Mike Unhjem, was fired later that month.

It was the first audit of the nonprofit company since 2004. Hamm said it found “a lack of judgment” by board members and senior management.

Of $418 million in the company’s administrative expenses over the past five years, the audit found “millions and millions of dollars” in excessive or inappropriate expenses, Hamm said.

In its response to Hamm, Blue Cross Blue Shield said it has temporarily frozen executive salaries and that their earnings likely will be tied to performance in the future.

The company’s other measures include cutting back on retirement parties and gifts, as well as on travel and on the use of charter flights. The insurer says it also won’t buy alcohol for board members or employees at meetings, banquets or other functions.

Hamm said he has met several times with von Ebers to discuss the company’s changes.

“We definitely have an open line of dialogue back and forth,” Hamm said. “The tone of the conversations is completely different than it was before. The previous leadership had a much more antagonistic approach to these issues.”

Said von Ebers: “We know he will hold our feet to the fire. We expect him to keep very close tabs on what we’re doing.”

Hamm said no more audits of the company have been planned, although he did not rule out the possibility.

“The department has the ability to do it whenever we want,” Hamm said. “They need to keep in mind that their actions at all times must be in the best interest of the policyholders, who own the company.”