Blue Cross is sitting on a huge pile of money. In some states, consumers would get it back.

by Isabelle Taft, Mississippi Today
April 25, 2022

Janah Garriga's 12-year-old daughter, Joshlyn, was diagnosed with T-cell leukemia in February. Joshlyn loves her doctors and nurses at the University of Mississippi Medical Center. 

But when Garriga took her daughter to an appointment in early April, she was asked to sign a letter accepting full financial responsibility for all the costs of her daughter's treatment because the hospital recently went out of network with Blue Cross and Blue Shield of Mississippi, her insurance company. 

The letter turned out to be a mistake on the hospital's part. Because Medicaid is her daughter's secondary insurer, Garriga fortunately won't be on the hook for out-of-pocket cancer treatment — unlike many other families across the state.  

But after so much confusion, she still worries something could go wrong, complicating her daughter's cancer treatment. 

As the stalemate between the state's largest hospital and its largest insurer drags on, some of the most gravely ill Mississippians are reaping the consequences, forced to delay needed care, travel out of state and leave doctors with whom they've built relationships over years.

Blue Cross of Mississippi is refusing to pay UMMC more for its services. Meanwhile, the for-profit mutual insurance company is sitting on an enormous reserve of money, a Mississippi Today investigation shows, hiding its top leaders' compensation amounts and transferring its members' power to longstanding company executives.

Most policyholders caught in the middle of the insurer's dispute with UMMC are unaware that they have signed away their right to participate in the board's decisions and are surprised to learn that Blue Cross holds a surplus of hundreds of millions of dollars.

When Garriga learned about the size of Blue Cross of Mississippi's surplus, she was speechless for a moment. 

“It's greed,” she said. “… And it's sad that it's people's life at stake.”

Financial records show the company has accumulated far more than what regulators require to protect consumers, and perhaps the largest such surplus by percentage of any Blue Cross company in the country.

The value of the company's surplus stands at about $750 million, about eight times the level that would trigger regulators to take action and about four times the level Blue Cross sets as the floor for companies with its trademark. 

“That is extraordinarily high for a company of that size,” said Brendan Bridgeland, an attorney and director of the Boston-based Center for Insurance Research, which advocates on behalf of insurance consumers. “It seems like (policyholders) are probably paying more than they should for their health insurance.”

Bryan Lagg, senior vice president of consumer markets and sales at Blue Cross of Mississippi, said the reserves are a “critical component” of the company's financial security and its ability to pay for future health care services.

“This is even more important today due to the cost of health care services,” Lagg said in a statement. “We take great pride in knowing payments for health care services (for our Members and Network Providers) will continue even in the event of a natural disaster, economic crisis or the uncertainties of a pandemic.”

The surplus has attracted little public scrutiny in part because of a governance structure that curtails oversight.

As a mutual insurance company, Blue Cross of Mississippi is supposed to be owned by its policyholders, who can participate in meetings and hold company executives accountable. But policyholders give up that right when they sign up for coverage and can earn it back only by mailing a written request to the company's headquarters. That means a handful of board members have been making decisions that affect hundreds of thousands of Mississippians with almost no oversight from either investors or policyholders.

Blue Cross officials did not answer questions about the structure of the company, including how many members have filed written requests or what the process is after a request is filed.

Consumer advocates say the size of the surplus means the company could afford to pass savings on to consumers by reducing rates. Instead, Blue Cross has raised premiums for many of its consumers in recent years. 

In January 2020, for example, it hiked fees for small business plans by 13%, affecting 55,000 Mississippians. Premiums for two types of individual health plans were also increased 16% in the same time frame. The company cited a significant underwriting loss, which occurs when a company has to pay more in claims than it expected. 

Chuck Bell, programs director at the advocacy organization Consumer Reports, has studied health insurance surplus levels around the country. After reviewing the surplus level held by Blue Cross of Mississippi, he said he sees a role for state oversight. As a for-profit insurer, the company could return excess surplus to the community by lowering rates. 

“We think it's appropriate for the state to put some guardrails around how much surplus can be accumulated, and not leave it to the boards and managements of the health plans, who may or may not take action,” he said.

After raising rates in 2020, the insurance company went on to triple its profits that same year, according to its annual statement. The insurer made over $60 million that year compared to around $20 million in 2019. 

Officials with the company said the increase was due primarily to stock investment performance and a delay in the impact of COVID-related claims. The company's 2021 net income was just under $17 million with a “significant underwriting loss,” said Cayla Mangrum, manager of corporate communications for the company.

Lagg said the company uses the vast majority of customers' premiums to pay their health care costs, meeting and often exceeding federal requirements for that metric. Instead of relying on premiums to make money, the company says it profits through “administrative efficiency and investments.” 

When an individual signs up for insurance with Blue Cross of Mississippi, a seldom-noticed part of the policy states the person transfers that power to company executives. 

If the policy holder wants to challenge the proxy, he or she must file a “written revocation” with the company.

Officials at Blue Cross of Mississippi declined to answer Mississippi Today's questions about this policy.

Typically, Bridgeland said, a mutual company will notify policyholders each year about an annual meeting or upcoming vote and request a proxy designation – not require customers to appoint the executives as proxies in perpetuity when they sign up for coverage. 

Bridgeland said he had never seen a mutual insurance company with such strict limits on policyholder participation. 

“It runs against any sort of corporate governance recommendations I've seen and is very much out of line with best practices,” he said. “And the reason is because you don't want to make management completely insulated, which this effectively does.”

In theory, a mutual company puts policyholders in charge of executives. But Bridgeland said things rarely work out that way, because it's difficult for individual policyholders to exercise power, so executives treat the company like a “personal fiefdom.” At Blue Cross Mississippi, the proxy policy has given the board total control and almost no oversight. 

The composition of the board of directors hasn't changed much this century, for example. From 2005 to 2017, there was just one addition: Mary Carol Pigott, the chief operating officer in 2005, became CEO and president and joined the board of directors by 2012. Richard John Hale, her predecessor as CEO, then became chairman of the board. 

When Blue Cross converted from a nonprofit to a for-profit mutual company in 1995, it had a 15-member board. By the mid-2000s, it had only seven or eight members. According to the rules established in 1995, board members vote to appoint new members.

“It's sort of like an old Soviet Russia election,” Bridgeland says. “The party tells you who to vote for. So there's gonna be zero change.”

Blue Cross officials also declined to answer questions about why its board membership has dwindled over the years.

In order to guarantee an insurance company can pay out all the claims that could come its way, regulators establish a certain amount of capital they must hold, similar to a rainy day fund. The size of a company's surplus is expressed as a percentage of the baseline requirement, called the risk-based capital ratio. 

Generally insurers try to hold at least three times as much capital as the minimum requirement– a ratio of 300%. 

If the ratio is too low – meaning the company has fewer assets and more liabilities – the company risks insolvency and its customers could get hurt. But if the ratio is too high, the company may be hoarding customers' cash with no benefit to them, especially if it raises their rates anyway. 

At Blue Cross of Mississippi, the ratio stood at 1,578% at the end of 2021. United, the next largest insurer in the state, held a ratio of 1,078%, according to financial documents Mississippi Today obtained. The ratio for Ambetter, which sells plans on the health insurance marketplace, was 745%. 

Officials at the state insurance department said there is no ceiling for the surplus, so Blue Cross of Mississippi  isn't violating any rules or laws. 

But the size of the company's surplus far outpaces industry averages. A 2019 report by the Vermont Department of Financial Regulation looked at surpluses held by 16 Blue Cross companies around the country. Mississippi's surplus was the largest, at 1700%. The second-largest, in Idaho, was 1321%.

Ten of the companies held a surplus below 1000%. The average was 937%. 

Blue Cross' unusually large surplus has held for years. From 2013 to 2017, Mississippi's surplus never dipped below 1600% and was consistently the highest in the group the Vermont report studied. 

Though Mississippi's regulations haven't stopped Blue Cross from amassing this rainy day fund, regulators in other states have imposed limits on insurers' surplus levels. 

The Pennsylvania legislature gave regulators the authority to review surplus levels at Blue Cross insurers, which are nonprofit, and require them to justify or reduce any surplus beyond a certain level. Most recently, that cap was set at 750% for larger plans or 950% for smaller plans, which experience more volatility and thus need a larger cushion. 

Blue Cross is by far the biggest private insurer in Mississippi, with about 56% of the market. United, the second-largest, claims only 17%. 

The size of the company's surplus “would suggest to me that there is available money here, that in the hands of good advocates, maybe ought to be addressed to health care needs,” said Walter Smith, executive director of the nonprofit group D.C. Appleseed. 

Smith's organization won a legal battle with a local nonprofit Blue Cross affiliate that had amassed “excessive” surpluses with a smaller pile of extra assets than what Blue Cross of Mississippi  currently holds. The settlement agreement required the company to set up a $95 million fund to support public health in D.C. 

Because Blue Cross of Mississippi is a for-profit company, it's not directly comparable to the D.C. case his organization spearheaded, which involved a nonprofit founded as a “charitable and benevolent institution,” Smith said. But consumer advocates say if a for-profit company has a huge surplus, it shouldn't need to raise rates, and in some states regulators could stop it from doing so. 

But in Mississippi, state law prohibits regulators from using an insurer's surplus level to justify approving or denying a rate increase. And moreover, the state insurance commissioner does not control rates on group and self-funded plans, according to Commissioner Mike Chaney.

“The only rate authority we have for Blue Cross and Blue Shield is for individual policies, and they have less than 30,000 people (with those plans) in the state,” said Chaney. 

This article first appeared on Mississippi Today and is republished here under a Creative Commons license.