Study: VT’s largest health insurance carrier has high administrative expenses

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(Host) A new study says Blue Cross and Blue Shield of Vermont has high administrative expenses, compared to other health insurance companies.

Blue Cross says that some of the expenses are for one time costs – including investments in a new computer system.

VPR’s John Dillon has more:

(Dillon) Blue Cross and Blue Shield is the state’s largest health insurance carrier. Late last year, the state rejected the company’s request to raise its administrative fees by 21 percent.

Blue Cross then agreed to hire an outside consultant to look at its salaries and administrative overhead. The report by Deloitte Consulting is now in, and it shows that the company’s administrative costs have grown at three times the rate of inflation over the last five years.

Paulette Thabault is commissioner of Banking Insurance Securities and Health Care Administration.

(Thabault) We’ve … looking forward to working with the company on developing an improvement plan that will address the areas that the report pointed out were areas where the administrative costs associated were higher than you would have expected when you look to similar type organizations across the country.

(Dillon) The consultant found that expenses for the Vermont insurer were 19 percent higher than an industry benchmark.

But the report said the benchmark comparison wasn’t really appropriate. It said 10 percent of the higher costs were from expenses unique to Blue Cross. 

For example, the company invested heavily in information technology over the last few years. And it said Blue Cross runs a sophisticated medical management program that helps subscribers control their health care costs.

Kevin Goddard is vice president for external affairs at Blue Cross. He says a big reason for the higher costs is the company’s small size. He says its administrative expenses are spread out over a relatively small subscriber base.

(Goddard) From our perspective, we’ve done a good job with that. We were named one of the top 50 health plans in America last year, for instance. Deloitte found that the money that we spend to manage the health costs of our members has put us in the front of the pack, not catching up, but at the front of the pack in terms of what health plans in this country are doing.

(Dillon) But Commissioner Thabault said the administrative expenses are still too high.

(Thabault) I think we should be looking for a company that is at benchmark. And I think the company would do well to look at all those areas in the report that are higher than benchmark and really target those.

(Dillon) Deloitte Consulting also looked at the salaries paid by Blue Cross. The company’s chief executive was paid about $850-thousand dollars two years ago, including a 440-thousand dollar bonus.

Deloitte said Blue Cross competes across the country for executives, and that its salaries were not out of line with its peers. The consultants said, however that Blue Cross could do a better job of structuring its incentive pay.

For VPR News, I’m John Dillon in Montpelier.



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