State regulator raises questions on Blue Cross rate hike request
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By Louis Porter Vermont Press Bureau - Published: December 15, 2009
MONTPELIER – In part because of the pricey retirement package its chief executive received, Blue Cross/Blue Shield Vermont is facing questions from state regulators about steep rate increases proposed in some of its products for small businesses.
The concerns were raised in a show cause order by the Vermont Department of Banking, Insurance, Securities and Health Care Administration (BISHCA).
BISHCA also continued to criticize the payment package given the former chief executive and questioned its impact on the rates.
"The commissioner also continues to be exceedingly troubled by the award to the company's former Chief Operating Officer of over $6 million upon his retirement in December of 2008," according to the regulators. "The commissioner concludes that there is cause to believe that this excessive monetary award is contrary to the insurance laws of this state, contrary to the laws regulating the company and its obligations to subscribers and contrary to the company's obligations to its subscribers as a non-profit corporation."
In an interview, BISHCA Commissioner Paulette Thabault was equally blunt. "The company may have violated some Vermont laws," she said by telephone last week.
The inquiry was prompted by what Thabault called "significant increases in rates" for certain classes of health insurance coverage, Thabault said. The increase was an average of nearly 35 percent for the line of Blue Cross/Blue Shield coverage being questioned by the department.
Kevin Goddard of Blue Cross said that the kind of insurance market that the rates increases are being written for have not benefited as much as had been hoped from reduction in expenses due to the advent of health savings accounts.
"The pricing is just not sufficient to cover the costs," in those lines of insurance that go predominantly to small businesses, Goddard said. That led to "significant under-funding" of those insurance pools.
"We tried to correct the pricing," Goddard said.
"We don't believe we have violated any Vermont statutes," Goddard added. But he did not disagree that the size of the retirement package for the company's outgoing chief, William Milne Jr., which was negotiated years ago when the company was in rocky financial waters, was large.
"We do understand the retirement package is something that in our current environment is excessive," said Goddard, who added that the company will put systems in place to prevent the same thing from happening again.
"That seems to be the most constructive activity we can engage in," he said.
"This is not a company that was mismanaged, taken into bankruptcy and the executives went off with huge windfalls," Goddard added. The company is also looking back at the retirement awarded as well, he said.
In any case, Thabault said her department will continue working to resolve the question of whether the increase in rates, or the retirement package for Milne was justified. "We will be expecting their response," she said.
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