The FACTS About Blue Cross

Blue Cross provides coverage to nearly one in four insured Californians, so in addition to having millions to spend to block reform, its practices and priorities affect the lives of 7 million Californians.

With $1 Billion "Withdrawal," Blue Cross Treats CA Consumers Like a Corporate "ATM Machine"

In May, Blue Cross sent $950 million to its parent company WellPoint's corporate headquarters in Indiana. This "dividend," as it was characterized by WellPoint, is being investigated by California's Department of Managed Health, whose director Cindy Ehnes expressed the concern that Blue Cross was treating "California as its ATM machine," even as "Californians are struggling to get healthcare for their families."

Ehnes characterized the payment as "out of the bounds of propriety and certainly the spirit" of an agreement made when Blue Cross' current corporate parent was formed through a merger of two companies, Anthem and WellPoint.¹

Blue Cross Reneges on Its Policyholders

In 2006, 10 former Blue Cross members sued the insurer, claiming Blue Cross had retroactively cancelled their coverage after illness or expensive medical conditions -- such as pregnancy -- surfaced.  These policies were cancelled after consumers had been paying premiums for months, even years.²   The class-action lawsuit against the insurer has grown to 6,000 former members who say the same thing happened to them.

Blue Cross employees, under oath, admit that insurance policies undergo additional scrutiny if a patient has an expensive claim. Against state law, the company rescinded coverage after mistakes on applications were discovered -- not fraud.³

Patients were often left with thousands, if not hundreds of thousands of dollars in unpaid medical bills for procedures that Blue Cross had previously approved before cancelling coverage.  Doctors and hospitals eventually joined the class action lawsuit against Blue Cross to recoup some of those claims.

This year, the Department of Insurance investigated BC Life, a Blue Cross Company, and its cancellation of policies. It found improprieties in over half of the cases it investigated. The Department slapped the company with 67 citations. Earlier this year, the Department of Managed Care looked at Blue Cross rescissions and, after evaluating 90 cases, issued citations in every one.⁴

Cherry Picking

Scouring a person's application to find an excuse to cancel policies is just one way that Blue Cross has managed to ensure its consumer base is relatively healthy and low cost.

In recent years, so-called "consumer-driven health plans"' have become a more prevalent and an effective tool used by health insurers to "cherry pick'' or skim healthier (read: cheaper to insure) consumers. These plans tend to be attractive to healthier consumers, because the monthly premiums are comparatively low in exchange for higher-deductibles and co-pays should medical attention be required.⁵

Since Blue Cross converted from a non-profit to for-profit in California a decade ago, critics have charged the company is the most "sophisticated'' of any insurer in California at sifting out the healthy from the unhealthy.⁶   The California Department of Insurance calls Blue Cross' Tonik health products the "poster child'' of the company's efforts to cherry pick the market.⁷

The website, dressed up in neon-colors and flashy silhouettes of snowboarders, encourages applicants to be "Thrill-Seekers,'' and buy a $5,000 deductible, "Part-Time Daredevils," with a $3,000 deductible or "Calculated Risk Takers,'' with a $1,500 deductible.  In spite of their market, the plans don't cover what young people would be most likely to need -- maternity coverage.⁸  Wellpoint, Blue Cross' parent company, introduced the Tonik line in 2004 in six states, including California. It plans to expand to five more in 2007.⁹

Highest profits: Blue Cross earns more than other large plans

Blue Cross California's HMO plans pay the least on patient care of any of the five largest health insurers, while earning the most profit.

In an annual report, the California Medical Association found Blue Cross spends 78.9 cents per premium dollar on health care. Meanwhile, their profits are about twice as much (or more) than any other large health plan.

Comparison of largest HMO plans¹⁰

HMO plans are only part of the story.  Enrollees can choose Health Maintenance Organization plans or Preferred Provider Organization plans. Compared to its PPO offerings, the HMO plans look downright generous.

Blue Cross benefits most from PPO plans that are purchased by people who cannot buy through their employer or in a group.

For enrollees who buy coverage on the individual market, Blue Cross spends 51 cents for every premium dollar on health care, while pocketing 27 cents.

Comparison of two PPO insurers (only two highlighted by Department of Insurance)¹¹

Highest Pay: Executives have best salaries among insurers

The extra profits help WellPoint-Blue Cross hire among the most expensive executives in the industry. WellPoint-Blue Cross' CEO Larry Glasscock was the highest paid health plan executive in 2006, earning $23.9 million in salary, stocks and other benefits, such as an "executive physical", travel for his wife, and use of the company jet.

On top of that, Glasscock earned $9.5 million from selling company stocks, and became vested in another $19 million in shares, bringing his total compensation to $52.4 million in 2006. (That's enough to provide about 29,000 California children with health insurance).
 
Glasscock isn't the only well-paid executive at WellPoint-Blue Cross. Officers at the company made a combined $74.2 million in salaries, bonuses, stock options and other benefits last year.  That is the most of any publicly traded health insurer in the country.¹²

Former executives have also benefited handsomely. Leonard D. Schaeffer, former chairman and CEO of WellPoint, walked away with $274 million worth of company stock. That's on top of his annual $12.5 million compensation package, plus $141 million in stocks to be cashed out.¹³