Regulators Didn’t Question $56 Million Payout by Regence BlueCross BlueShield

Five months before Regence asked for a 22.1 percent rate increase, the insurer paid a $56 million dividend to its holding company; some of those funds were used to launch Sprig Health
The Lund Report

November 10, 2011 – When state regulators approved a 12.8 percent rate increase for Regence BlueCross BlueShield earlier this year, they were aware that the insurer had dipped into its surplus account and given a $56 million dividend to its holding company just five months earlier.

But they may not have known that some of those investment dollars were intended to develop a subsidiary company for Regence – known as Sprig Health – whose mission is “to change the U.S. health system by introducing a common sense alternative to insurance coverage,” according to its website. Sprig – which is available to people without health insurance – allows them to book a medical appointment online, and pay using their credit card.

“I was contacted by Jared Short (president of Regence), and he gave me a heads up about the dividend,” said Teresa Miller, Oregon’s insurance commissioner. “He didn’t get too much into the details, but said they planned to spend the money on some wellness activities.”

State regulators have no jurisdiction over Regence’s holding company – which recently changed its name from The Regence Group to Cambia Health Solutions -- yet posed no objection and approved the dividend payment, according to Cheryl Martinis, spokesperson for the Insurance Division.

“We only have authority over insurance entities,” Miller said.

It’s unknown whether any of the $56 million was used to bail out Kinetix Living Corporation, a customized fitness and nutrition company purchased by The Regence Group in March 2010 for $15 million – while its fair market value was assessed at $8.5 million.

Then, the company spent another $4.3 million trying to keep it alive. Recently, Regence announced it was shutting down Kinetix because it didn’t generate enough sales to corporate clients in Oregon and Washington. 

After making the purchase, Mark Ganz, president and CEO of The Regence Group, had said in a written statement, “Kinetix is a company with a unique vision for advancing the health and wellness of our employees, members and communities. We believe this acquisition will strengthen our ability to engage and empower consumers to improve their overall health.”

Regence Rate Increase Approved

Last April, Regence requested a 22.1 percent rate increase for more than 59,000 individual policyholders after the company projected it would lose 5.53 percent on this business over the next year.

Miller determined the insurer had more than adequate capital and surplus, and only approved a 12.8 percent hike, which took effect October 1.

Responding to the $56 million dividend when she made that decision, Miller said, "I would have a hard time explaining (a big profit margin) to consumers when they’re having a hard time paying their bills."

Although the dividend played a role in reducing Regence’s proposed rate increase, Miller never considered denying it outright.

“I don’t want to have health plans underpriced,” she said. “If that were to happen, policyholders in the future could experience large rate increases, and it forces the company to bleed money year after year, and I don’t know how many companies would stay in that market. No company is required to provide health insurance if they’re just losing money.”

The 12.8 percent increase represented a balance, she said. “It was less than what they said they needed to break even.”

After Miller’s decision, Regence’s surplus actually grew to its highest level since 1998 – reaching $594.1 million in June compared to $544.2 million at the end of 2010 – while its minimum surplus requirement was only $112.2 million, according to Martinis.

Those surplus dollars accumulate from the company’s investment portfolio and its health insurance profits from large group accounts. “The surplus has actually been paying for the losses from the individual line of business,” Miller said.

Regence’s Investment Dollars

Last year was the first and only time Regence actually paid dividends to its holding company, according to Georganne Benjamin, spokesperson for Regence Strategic Communications -- $56 million from Oregon and another $10 million from its health plan in Utah.

“As a nonprofit organization, we do not have ready access to external capital sources – instead, we must generate capital internally,” she told The Lund Report. “These investments are not just simply to start new companies, but are also used to bring to our community new creative services, innovative products, and technologies which we believe will have a long term value and benefit to changing healthcare and building a sustainable system. We conduct a rigorous analysis and thorough board review process regarding any potential investments. Although the distributions were made in 2010, our investments have been modest.”

Cambia Health Solutions is a non-profit entity that provides operational, administrative and management services such as legal, finance, human resources, communications, information and technology and oversees the insurance company’s board of directors in Oregon, she added.

 

Review Other Articles

To read about the leadership shake-up at Regence click here.

To read about the investigation of Regence by Washington’s insurance commissioner, click here

To read about Regence BlueCross BlueShield’s losing its status as the leading insurer in Oregon, click here

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Comments

Anyone else notice how The Regence Group just changed their name to Cambia Health Solutions after all of the good press they've been getting lately? Same garbage, different can.

One must note: Not long ago, charitable contributions stopped coming from the company directly, and the Regence Foundation was created. Now, dividends are paid to be invested in side businesses (which can be for-profit, in some cases). The Regence Group moves further from its nonprofit BlueCross and BlueShield companies' roots by changing its name to Cambria; is that only to "reflect a new focus", or is it partly to decrease public consciousness of regulatory or other issues, or is there also a plan in the works to enrich a short list of top executives with a minimum required contribution to the Foundation, and a for-profit conversion someday not too far in the future? If so, it should properly run into the same sort of buzz saw as did that move by BlueCross of Washington (Premera), when it tried to do so a few years ago. The largest (or soon, once-largest?) private health insurer in Oregon has, historically, been an important non-profit contributor to both health coverage and health policy in Oregon. It causes a bit of dismay to observe the sequence of events we have seen.

I don't know who would pay alot for Regence right now: their profitable lines of business are individual and small group, which won't fetch a good price per member with health care reform and the exchange right on the horizon. I don't think a for-profit conversion is likely. I think it is HIGHLY likely that whatever they are doing will enrich a short list of top executives including the incompetent Mr. Ganz.

Regence' primary business model appears to be to invest the reserves of their not-for-profit entity into for-profit companies. Health and insurance appear to be their secondary concerns. How that is legal is beyond me. Their ownership stake in Trizetto, the for-profit software company to whom they pay tens of millions in 'fees' annually is AT LEAST sketchy, perhaps more.

As long as the "free market" controls sick care in this nation, costs will continue to rise for those lucky enough to afford insurance coverage. The rest of us? We’ll gradually augment the *101, 000 amenable mortalities occurring annually in our nation each year. For-profit medical care [avoidance] entities must go! Single payer is the solution. Go to laborforsinglepayer.org for more information. *Health Affairs 27, no. 1

Oh, please. We do not have a free market; we have the opposite of a free market: incredible corruption and conflict of interest, facilitated by the government giving these companies monopolies, virtually. Single payer is just one huge gift to big insurance and big labor. Who do you think will administer single payer??? Health care is so special that it deserves the benefits of true competition for value. That is the opposite of what happens when government gets involved. Big insurance, big labor, big government are all in bed with each other, and everyone's hands are in the big pot of money. Single payer is all about power. What a myth that someone else pays for it! We ALL pay for it, and way too much! Profit is not a dirty word; if you are unprofitable, you are losing money and you are unsustainable, like our Federal government. Small businesses must be profitable, or they will die. That is reality. Small businesses must achieve value, and then have something left over for the owner to live on, or invest in capital, or both.

I hope you are well. I [redacted] at The Regence Group and I am tired of working at a company that champions a culture of intimidation and brutality. When is the board of TRG going to hold Mark Ganz accountable for everything going on? Mark espouses that he is the most ethical person and yet he continues to use members' money in irresponsible ways. When Bill Barr was demoted to interim CEO of Regence Life, the finance person had to keep Joe Wilds, Janae Sorenson and Nathan Sanow's incomes in the budget and add $400,000 to the budget to make room for Bill's compensation. Does that make sense? When Mohan Nair got demoted, his income got frozen but he did not take a pay cut. He is running a group of 8 people and is making the same amount of money. How ethical is it that Mark Ganz tried to hide his total compensation for so long? He talks about transparency being a core value and yet he never divulged his total compensation until the Henry Warns Congressional Oversight Committee forced him to a year and a half ago. They had to threaten subpoenaing TRG for it to be released. For years, he thought he was so clever because you only saw the portion of his income that was attributable to the Oregon plan. Mark Ganz uses company funds to take trips to places he wants to go (saying that he is meeting with people as an excuse to be near events). He forced the marketing department to sponsor the Umpqua Bank Challenge so he could play host at his personal club (Portland Golf Club), hang out with Arnold Palmer, allow his brother to walk with him inside the ropes and have his son play in the pro-am. I am [redacted] retirement age and when I retire, I will have much more to share. At the last board meeting, the board talked with Mark behind closed doors for 45 minutes. When he came out, he admitted that they were holding the top executives accountable for the membership loss and service problems. He had tried to deflect any accountability by making the major changes before he came. He told them that he demoted Bill Barr (Bill is a scape goat for the admin problems) and made other massive changes but the board saw through him - for the first time. Fortunately, they read your report and knew all the discussions going on. Please keep up the good work. Best of luck.

You mention the Henry Warns Congressional Oversight Committee (or is that Henry Waxman?) Is there a report that you can point us to that will show the salary totals for health insurance executives, including Mr. Ganz. You have peeked my interest. Thank you.

It will be interesting if in March '2012 if all employees at Regence will still get their yearly incentive pay for company performance and financial goals being met. News internally at Regence is that they will still receive this incentive pay which in past years has averaged 3% to 7% of an employee's yearly salary....... and the Feds came marching in hooray, hooray!!!

The 7% bonus pool is for the frontline workers. Regence managers and directors are eligible for bonus of about 35%, and VPs and the executives are eligible for much more-- in some cases up to 100%+. But not to worry, these folks are worth every penny.

While Regence's business decisions are questionable, I don't think the dividend really is. PacifiCare gave a dividend to United at the end of last year. ODS dental gave money to its ODS medical division to cover OEBB (or someone did) losses. Health Net Oregon sends some of its reserves somewhere at the end of each year, probably to Health Net HQ in California. Providence gave some of its surplus to someone this year, probably its hospitals. The point is that the insurance companies have been sending their reserves to parent companies for a long time for a variety of reasons. The actual act of giving away some reserves is not noteworthy. The information that some of the commenters have shared about Regence is very interesting.

I think it is obscene that state regulators approved a 12.8% rate increase. The sad thing is there are few alternatives, Pacific Source, Lifewise, Providence and the handful of others will ask for rate increases as well and get them. I live in Clark County and I am not allowed to buy an individual policy from Premera Blue Cross of WA because it has been deemed that Clark County be part of Oregon's territory. This is insane. There are many problems in healthcare but one of them is the fact that there is no transparency or meaningful competition. I wish I could shop and buy a policy from Humana from Chicago but it is against the law. Insurance companies pad state regulators pockets by lobbying our government representatives to keep it this way. Maybe we need to look carefully at our "nonprofit" laws because it seems like there is a lot of profit going on with a virtual monopoly and a captive audience with no other choices.

As a former employee of this less-than-ethical company, I am amazed it has taken this long for the truth to come out. The executives at Regence, especially Mohan Nair and Mark Ganz, are obviously incompetent and have run what use to be a very well respected organization into the ground. Mohan, in particular, destroyed the individual product lines with his over reaching focus on Health Savings Accounts and high deductible health plans. These are typical, greedy corporate executives that should have been fired long ago. It is a shame what has been done to Bill Barr; he was the only member of the executive team who cared about the members they are serving. Perhaps if they had given him the budget he needed to keep operations going strong instead of giving money to morons like Mohan, the operational problems encountered could have been avoided. There was a battle every year over budgets and Mohan always seemed to win over Bill's operational concerns. I saw the writing on the wall well over a year ago when it was clear Regence had no intention of being a major player in the reformed health insurance environment; that's why they are forming all of these subsidiary companies - to maintain the over-the-top income levels the incompetent bozos Mohan and Mark Ganz feel they deserve. And all of this at the expense of those policyholders who have put their trust in Regence. Thank you for staying on top of all this and keep up the good work!

Absolutely correct. The system will not only remain corrupt, but will fail. Health care is about humans, not the dollar. The Healthcare system itself is a significantly larger driver of costs vs. the human end user in need. There is no healthcare systems incentives to be sure the human is healthy. If we were all healthy, healthcare systems would be out of work. Healthcare and Healthy are terms often in oppostion .

I echo the comments of current and former Regence employees. I was a Director when I left after ten years; during my tenure, the culture and tenor of the organization changed into a corrupt, incompetent and unethical empire designed to enrich and empower Mohan and Mark. I was there when the *first* Facets implementation bought poor little Idaho to its knees. I was also there a HALF BILLION dollars later, when they were still, still trying to work out the Alpine/Meadow product and CP-SS launch. "We'll fix it on the back end" was such a common refrain that it became an "in joke". Finally, for some commenters that aren't in the health care industry, it isn't the not-for-profit model that is broken here. It is Regence that is broken; similar Blues in their service area provide outstanding customer service, member-oriented product design, and a coherent strategy to contain health care costs.