Class Action Complaint Filed Against Regence BlueCross BlueShield of Oregon for Violating Non-Profit Status

Regence holds more than $150 million in excess profits

Today a class action complaint was filed in Multnomah County Circuit Court against Regence BlueCross and BlueShield of Oregon, one of the state’s largest healthcare insurance providers, for amassing and retaining profits beyond what it needs to operate as a non-profit entity.

A PDF version of the complaint can be found here: http://bit.ly/1nkmnZw

Specifically, the complaint notes that, as of December 31, 2013, Regence retained approximately $627 million in total adjusted capital. Non-profit Blue plans typically retain three months of claims payments, which, for Regence, is approximately $474 million.  As a result, Regence is believed to be sitting on nearly $153 million in excess profits.

Darian Stanford, a lawyer with the Portland-based firm Slinde Nelson Stanford, said:  

“As a non-profit, public benefit corporation, Regence is required by Oregon law and its own rules to put policyholders ahead of profits.  That simply isn’t happening.  This lawsuit is about holding Regence accountable to its policyholders, and making certain that the definition of ‘non-profit’ comports with common sense.”

Regence’s own articles of incorporation clearly state, “This corporation is a public benefit corporation.”  Furthermore, on its website, Regence states, “Being a nonprofit means we put people first. We don't sell stock, and we don't have to maximize profit to pay shareholders. But we do have to make just enough to pay members’ medical bills, cover our costs of doing business, and keep a rainy day fund in case of unexpected member demand.”  [http://news.regence.com/our-view/regence-is-a-nonprofit-organization]

The plaintiffs in the suit seek a declaratory judgment against Regence and an order by the court declaring that Regence violated its status as a non-profit, public benefit corporation and that it failed to used its excess profits for the benefit of its policyholders.

“Regence enjoys certain advantages as a non-profit that other, for-profit companies don’t get,” added Stanford.  “If Regence wants to continue to enjoy the advantages of being a non-profit, it should start acting like a non-profit and putting policyholders before profits.  Giant corporations do not get to make their own rules.”

The class action complaint against Regence was brought by the firms Slinde, Nelson, Stanford; Edelson PC; and Caroselli, Beachler, McTiernan & Conboy.

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Comments

I read the complaint and see no citation or study for why 3 moths of claims is the benchmark for reserves.  The state of Oregon has a threshold of a little less than 1 month of claims before they will take over an insurance company.  This happened to a company called Preferred around 2009 that was based out of Klamath.  Financial rating agencies generally have a minimum of 2 months of claims but prefer 4 months for highly rated companies.  Regence is not the only non-profit health insurance company in Oregon that has more than 3 months of claims in reserves.  The 3 months of claims standard is going to be tough to defend especially with the uncertainty of the ACA.

Otherwise, the complaint is from an orthodontist group and 3 other people on behalf of Regence policy holders about how Regence and executives make more money than they believe is appropriate.  At first, I thought this was going to be more about the question of what's an appropriate amount of reserves but it's not that interesting.