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Blue Cross NC deregulation bill moves forward, as candidates for governor weigh in

A proposal that supporters say would cut regulations on the state’s largest health insurer, allowing it to compete, and detractors say will allow the insurer to move billions of policyholder money to a new deregulated company, took a step forward in the North Carolina Senate on Wednesday.

House Bill 346 would allow Blue Cross Blue Shield of North Carolina, classified in the state as a nonprofit medical service corporation, to transfer assets into a holding company which would become the “ultimate controlling company.”

This holding company would be exempt from many regulations, allowing it and any subsidiaries created to move assets, invest and spend with much greater flexibility than allowed under the current structure.

Critics of the bill say it would allow the insurer to move its assets out of the flagship company and, with the new holding company, cut deals with for-profits, buy out companies and transfer nonprofit value to for-profit use with little supervision.

The insurer would also skirt the state’s 1998 conversion law, critics say. That law requires Blue Cross, if it ever went for-profit, to leave its value in a nonprofit charitable foundation created to promote the health of North Carolinians.

Republican Rep. John Bradford, a primary bill sponsor, said Wednesday that the proposal is “really a business regulatory reform bill that just works to level the playing field for our two hospital service corporations in North Carolina.” Delta Dental of North Carolina is also classified as a nonprofit medical service corporation, though it hasn’t been actively involved in bill debates.

These companies don’t “have the same flexibility as other companies in their space, both for-profit companies and even other not-for-profit organizations, such as hospitals,” Bradford said. “Obviously, health care is a very competitive space. It’s changing quickly. And this bill really just attempts to give them a chance to be able to make investments and create jobs here in North Carolina.”

It passed the Senate Commerce and Insurance committee Wednesday on a voice vote, with some audible “no” votes.

The bill, a priority for the state’s largest health insurer, previously passed the House in late April by a margin of 86-26, with bipartisan support. Of those who voted in opposition, 11 were Republicans and 15 were Democrats.

NC insurance commissioner vs. Blue Cross

While the bill has drawn support in the legislature, top state officials aren’t all on board.

Republican state Insurance Commissioner Mike Causey, who is running for reelection and who has been adamantly against the bill throughout its progress through the legislature, told The News & Observer that Blue Cross NC should first “address their customer service problems rather than trying to force this legislation through the General Assembly that’s going to, I believe, further erode the rights of patients.”

He also said a “big difference” between Blue Cross NC and its competitors, such as United Healthcare and CVS Health Corporation, is that those companies use stockholder or private-equity money, while Blue Cross NC uses money from state policyholder premiums.

According to Causey, as a nonprofit, Blue Cross NC’s $7.7 billion in assets and $4.6 billion surplus is, either directly or indirectly, North Carolina policyholder money.

“You can argue well, they made some investment returns right? They have some federal tax dollars in the mix. Primarily they have earned their assets over the years with people paying their hard-earned premium dollars every month, to pay those monthly health insurance premiums, and people really struggle to do that,” he said.

Under the bill, Causey said policyholders may see premiums increase, as assets from the flagship insurance company, moved to the holding company, would no longer be available as investment income.

Blue Cross NC has said that the bill would not increase premiums and that insurance rates are approved by the Department of Insurance. Causey told The N&O he has “limited authority” on his approval of health insurance rates.

He also said funds in the deregulated holding corporation may be invested out-of-state. Blue Cross NC has also parried this point. The current bill version says that the net worth of the holding corporation “shall be invested in insurance companies or other affiliates or subsidiaries” that “contribute to the health needs of customers, subscribers, or the people of this State, including those in rural communities of this State, or promote affordability, access, better health, or customer experience.”

During the committee, Chris Evans, vice president of public affairs with Blue Cross NC, said they did not take “for granted that in an increasingly competitive market, North Carolinians have other options that they can choose their health insurance.”

Evans said the bill would provide BCBS more flexibility and that it is “in direct support of our goals for affordability and access which are at the center of everything we do. Any claims to the contrary are just patently false.”

She also highlighted that under the bill the holding company must report the types of investments made, as well as as report the compensation for its highest-paid executives.

David Wheeler, a Democratic contender for insurance commissioner, told The N&O he supported the legislation and that Blue Cross NC “will still have some oversight by its own management and board, which are accountable under the law.”

“My feeling is, I trust Blue Cross and Blue Shield to do the right thing,” Wheeler said. “They have done well in this state, during the decades that they’ve been in North Carolina. And why would we regulate or overregulate an organization that’s doing great things in North Carolina and is looking for a little more flexibility on how they run their organization.”

Candidates for governor weigh in

Democratic Attorney General Stein, who is running for governor, issued a statement Tuesday saying that his “top priority is always to protect North Carolinians – including their health care. I had serious reservations about early drafts of this bill and raised them both with BCBS and legislators.”

“I appreciate BCBS’s willingness to work with my office to improve the legislation to better protect the people of North Carolina. Last week, my office reached agreement with BCBS on a series of amendments to HB 346 that, if passed, would enable me to support the amended legislation,” he wrote.

The amendments, Stein wrote, would maintain the state’s conversion law, protect policyholders and preserve the insurance commissioner’s authority.

Republican State Treasurer Dale Folwell, who is also running for governor, said he trusted Causey and not Stein “to protect the consumers of this state,” and “keep premiums low.”

The reorganization bill came after Blue Cross NC lost its state contract as administrator of North Carolina’s State Health Plan to one of those national insurance companies, Aetna.

Folwell, whose office oversees the health plan, said “any notion that this legislation is necessary because they lost the State Health Plan business after 44 years is inaccurate. They lost the business like they’re losing other businesses across the state because of customer service and people’s frustration with their computer system.”

Asked by The N&O about Stein’s proposed amendments, Bradford said he hasn’t “heard from the AG’s office about any changes. It’s not to say that they’re not talking to other folks.”

The primary sponsors of the bipartisan House version of the bill include the majority and minority leaders of the chamber, Reps. John Bell and Robert Reives. The Senate version’s primary sponsors are Republicans.