Blue Cross Blue Shield Execs Profited From Bogus Bonuses
BISMARCK, N.D. -- Blue Cross Blue Shield of North Dakota used premium payments to fund $15 million in employee bonuses, cover $35,000 for a retirement party and pay for other questionable expenses, according to a state audit released Tuesday.
Insurance Commissioner Adam Hamm said he ordered the company to make changes after insurance examiners found inappropriate or excessive expenses paid with policyholders' dollars. He said the nearly inch-thick report raised questions about compensation, travel policies, investments and severance packages.
Hamm said the report showed "a lack of judgment" by board members and senior management. It was the first audit of the nonprofit company since 2004.
"I expect and demand that those things won't happen again," Hamm said.
Company officials said Tuesday that changes were already being made when Hamm ordered the audit in March, following criticism of a sales managers' trip to the Grand Cayman Islands that cost $238,000. The company's chief executive at the time, Mike Unhjem, was fired later that month.
"The culture of this organization is very different than it was a few months ago," said board chairman Dennis Elbert.
The company provides health care coverage to more than 375,000 North Dakota residents and 75,000 nonresidents.
Hamm said that of the $418 million in the company's administrative expenses over the past five years, the audit found "millions and millions of dollars in excessive expenses."
The report said that premium payments funded nearly $15 million in employee bonuses that were almost assured regardless of performance, a $3.5 million investment in a hotel in Fargo and sales reward trips to resorts totaling $1.2 million.
In one case, the audit found that $34,814 was spent for a party for a retiring vice president.
"Health care premiums are for health care, they are not for expensive retirement parties, corporate jets, risky hotel investments or a compensation structure that rewards senior management regardless financial performance," Hamm said.
"The bottom line is there are changes that need to be made by the company," he said.
Elbert promised that the company board would better scrutinize the company's operation and spending. He said Blue Cross Blue Shield of North Dakota, which is the dominant insurer in the state, has among the lowest premiums and administration costs in nation. He also said it ranks among the highest for insurers in customer service.
The company's new president and chief executive, Paul von Ebers, took over in July.
"We appreciate the feedback," he said of the audit. "We certainly do find some room for improvement in certain areas.
Von Ebers said the company already has cut incentive trips for employees and reduced out-of-state travel and reimbursement expenses for executives. He said the company will compare executive compensation with similar positions in North Dakota instead of nationwide, as was done in the past.
He said charitable donations also will be reduced and investments in local economic development projects -- such as the hotel in Fargo -- likely won't be done in the future.
"We will correct areas that need to be corrected," von Ebers said.
The company has 30 days to officially respond to the audit and present a plan outlining changes the company will take, Hamm said.
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First Posted: 09- 9-09 05:59 PM | Updated: 09- 9-09 06:13 PM