This story has been updated to include reaction from legislators.

By Rose Hoban

North Carolina state Treasurer Dale Folwell announced his decision Tuesday to continue contracting with Blue Cross Blue Shield of North Carolina to administer the health plan for more than 700,000 teachers, state employees, retirees and their families.

Folwell said he and his staff made the choice despite BCBSNC’s competition with three national companies for the contract, which last year netted Blue Cross $83 million in fees.

“This announcement is not a renewing of our vows with Blue Cross, or with the medical community of North Carolina, or the providers, or to some degree our pharmacy services. This is a resetting of our priorities and our relationship,” Folwell said. “It’s not emotional, it’s not political, it’s mathematical.”

Folwell said that during the bidding and contracting process, his team had pushed Blue Cross on being more transparent with data.

“Previously, I think there’s been frustration in the entire medical community about the fact that we are not using data to the benefit of the participants of this plan or the taxpayers,” he said.

Folwell holds up a paper with writing on it as he speaks
During Tuesday’s press conference, state Treasurer Dale Folwell held up an Explanation of Benefits form and encouraged state employees to read their EOBs to check for accuracy. Photo credit: Rose Hoban

Folwell also called on participants in the plan to be more vigilant in making sure they are not charged for services they did not receive and to “take personal control over their health care.”

Blue Cross will take on most of the responsibility for cost-cutting. In the request for proposal for the contract, the state Treasurer’s office wrote it was seeking “a Contractor that can reduce the Plan’s claims cost by an average of $300 million per year over the course of a five-year contract.”

“Our need to cut $300 million out of this $3 billion operation is not something we just thought of, it’s a necessity in order for us to sustain this plan,” Folwell said.

Big hole

The contract came despite the fact that Blue Cross remains in a standoff with the Mission Health System, the largest provider of health care services in the western part of North Carolina. Unless the conflict is resolved, as of early October Mission providers will no longer be in network for about a quarter million BCBSNC customers. That includes about 9,700 state employees who work in the 19 westernmost counties, along with their family members.

“We understand we have a lot of participants who live in that part of the state and that their choices are limited, based on geography,” Folwell said, noting that he has spoken to the leaders of both Mission and Blue Cross. “They have their business to run and so do I.”

“We would be happy if Mission rescinded their termination notice,” said Susan Murray, vice president for the state book of business at BCBSNC. “There are other alternatives other than Mission Health in the western part of the state.”

Duke University health economist Kevin Schulman explained that one of the main tasks of an insurance company is to negotiate prices. He argued that with the massive consolidation of hospital systems underway in North Carolina, the real market power has shifted from insurers to providers.

When an insurer is negotiating over prices, “it’s not going to be very helpful if every potential provider in a 20 mile radius is owned by the same hospital,” he said.

Which insurers cover North Carolinians?

Population: 10,146,788 (2016)

BCBSNC: 3,740,000
Medicaid: 2,008,538
Medicare: 1,770,000 (2015 data)
Tricare (Active military + families): 504,505
Other insurers: Approx. 1,085,745 (the rest)
Uninsured (estimate): 1,038,000

“It doesn’t matter who the insurer is, they’re generally going to be price takers rather than having any leverage in negotiations,” he said, arguing that Mission has a near monopoly in western counties. That makes it harder for an insurer to throw its weight around.

Murray noted that the health care environment is quite fluid and she said she didn’t think the current Mission situation played a significant part in the state’s decision-making.

“This contract start date is [January 1, 2019], and by [January 1, 2019] we could be in… who knows?” Murray said. “I would hope that we never make a decision based on a single situation that’s happening at a given time. You have to look at it more broadly.”

Finding leverage

During the press conference to announce the decision Folwell emphasized that state employees are not insured by Blue Cross, they are insured by the state, and Blue Cross is only the administrator of the state plan. That’s common among large companies to be “self-insured” but to also leverage the negotiating and purchasing power of large insurers to get the best deal from hospitals and providers.


“It’s literally going door to door to every provider and hospital in a state to negotiate a contract,” Schulman explained.

At the same time, Schulman explained that it may have been an existential necessity for Blue Cross to win the SHP contract. With more than 700,000 beneficiaries, that one contract comprises about 19 percent of the covered lives that BCBSNC manages, providing consistent income in the form of management fees.

Blue Cross lost about $440 million over the past three fiscal years on patients covered by the Affordable Care Act overall and operated in the red during the 2014 fiscal year. However, the ACA marketplace has stabilized somewhat, and according to company statements, Blue Cross had “a $38 million loss on ACA plans in 2016, compared to a loss of more than $400 million in 2014-2015 time period.”

The company posted an overall income of $185 million in 2016.

Schulman argued that had BCBSNC lost the State Health Plan contract, the company may have had to pull out of offering ACA plans in many counties.

“They need to be able to leverage a big book of enrollment to make that work,” he said.

State lawmakers, as well as two state auditors, have expressed frustration that the legislature has not had more leverage over Blue Cross during contract periods.

Data is key

House Health Committee chairman Donny Lambeth (R-Winston-Salem) expressed hope that Folwell and the State Health Plan’s board of trustees were able to extract concessions from BCBSNC over data transparency.

“We have to have a way to get the data to manage the State Health Plan,” Lambeth said. “The data is absolutely critical if they’re going to change the plan to be more self-sufficient and viable. Otherwise, we’ll just get three more years of the same old thing where all we’ve got as an option to make changes is to raise premiums or cut benefits.”

“I think that’s a formula for disaster,” he said.

It’s a point that Folwell emphasized, noting that better data management is key to cutting costs.

“We need to be doing a better job of rationalizing and cutting costs in the State Health Plan,” he said.

headshot of older white man with mustache and glasses
Rep. Donny Lambeth (R-Winston-Salem) Image courtesy of the NC General Assembly website

Schulman said because there were other bidders for the contract and because Blue Cross needed the business, it was likely the state was able to extract concessions from the insurer.

Lambeth said he hoped that was the case.

“They need to fundamentally change the way the plan is administered,” he said. “To do that, they need the data that will manage disease categories, high-cost providers, frequency and over-utilization of tests, and move the plan more to a risk-based model where providers accept that they have some responsibility to manage patients.”

While she was not willing to talk about the contract negotiations or what concessions the company may or may not have had made, Murray did say that winning the contract was not a sure bet.

“We did not take anything for granted,” she said after Folwell’s press event. “We took it extremely seriously throughout the entire process and we knew we had to put our best foot forward.”


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Rose Hoban is the founder and editor of NC Health News, as well as being the state government reporter. Hoban has been a registered nurse since 1992, but transitioned to journalism after earning degrees...

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