FARGO — Executives and managers at Blue Cross and Blue Shield of North Dakota weren’t awarded incentive pay last year in light of large financial losses and other performance shortfalls.
The rare decision by the state’s largest private health insurer not to award incentive pay was disclosed in year-end financial documents filed with the North Dakota Department of Insurance.
Last year was financially bruising for Blue Cross Blue Shield, which had to take a write-off of $55 million for a subsidiary company that is embroiled in a dispute with Maryland over a botched health insurance exchange.
But the year-end financial report indicates that Blue Cross Blue Shield of North Dakota posted an increase in capital and surplus of $26.8 million in 2014 — reversing a loss the year before of $80.8 million, mostly from the Maryland exchange dispute.
“The $26.8 million represents a good, solid performance and is consistent with our financial objectives,” Dan LeClair, director of financial and risk management for Blue Cross Blue Shield of North Dakota, said Tuesday.
The North Dakota Blues’ capital and surplus improved to $225.3 million last year, up 13.2 percent from $199 million the year before.
The year saw a gain from insurance operations of $27.4 million, compared to a loss of $25.2 million the year before.
The decision not to award incentive pay to executives was based on benchmarks for a slate of “stretch goals,” including financial performance, said Dr. Dale Klein, a Bismarck physician who is chairman of the Blue Cross Blue Shield of North Dakota board.
“We like to set up true incentives,” he said, adding that he cannot recall a previous time when managers and executives did not receive incentive pay.
During some years, however, incentive payments were quite low, said Tim Huckle, who took over last year as Blue Cross Blue Shield’s president and chief executive officer. His predecessor, Paul von Ebers, was fired because of last year’s deep losses.
Huckle last year received base pay of $331,630. The year before, when he was chief operating officer the entire year, his base salary was $312,497 and his incentive pay was $107,635.
Von Ebers, who was fired last May, collected base pay of $176,526. The year before, his salary was $371,375 and his incentive pay was $201,351.
It is too soon to say whether any staff reductions will result from the Blues’ loss of the largest employer group in the state, the North Dakota Public Employees Retirement System, which covers about 65,000, Huckle said.
The public employees group will be covered by the Sanford Health Plan beginning July 1. However, because of significant enrollment growth in recent years, loss of the large group means Blue Cross Shield is basically back where it was at the beginning of 2012, Huckle said.
Growth in Blue Cross Blue Shield’s surplus reflects that it is rebuilding its reserves to levels before last year’s steep losses.
“It does give us some breathing room,” Klein said.
Although the loss of the North Dakota Public Employees Retirement System group will mean a loss of revenues, it also will mean a reduction of the health insurer’s exposure to risk, Huckle said.
Noridian Healthcare Solutions is trying to settle its dispute with the state of Maryland over the health insurance exchange without litigation, Tom McGraw, Noridian’s president and CEO, said in a statement.
Noridian remains in arbitration with its subcontractor on the exchange project, EngagePoint. Noridian said its contract with the subcontractor specifies that it “shares equally in the profits earned or losses incurred” by Noridian on the project.
Blue Cross Blue Shield has set aside $7.5 million for legal fees and expenses that could result from the dispute with Maryland, and also has set aside $5 million for “subsidiary credit risk” involving Noridian, which remains a profitable Medicare claims handler, Huckle said.
“Noridian Healthcare Solutions is performing very well in their core business,” he said.
Among highlights from disclosures involving its subsidiary companies in 2014, Blue Cross Blue Shield of North Dakota reported:
– The sale of MDdatacor, a health information analytics firm in a deal that will bring in payments of $16.5 million, with another $12.5 million possible based on potential revenues.
– It received $527,761 from Discovery Benefits, compared to $612,000 the year before.
– Took a write-down of $7.3 million in the value of its investment in Twenty First Century Information Solutions, based on an accounting determination that the investment’s fair market value was $5 million.
Date: March 3, 2015