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