Despite a booming state economy, Blue Cross and Blue Shield of North Dakota is booking huge losses, with more potentially to come from a botched contract, leaving the board looking for fresh leadership to bring a turnaround.
The board of Noridian Mutual Insurance Company, the parent of Blue Cross and Blue Shield of North Dakota, voted to terminate the employment of president and CEO Paul von Ebers effective immediately on May 5, less than a week after the company disclosed a $72.8 million loss in 2013.
"The board felt it was necessary to make a change at the CEO position in order to ensure confidence in the future financial direction of our organization," board chair Ann McConn, a president at the banking services company Alerus Financial, said in a media release.
von Ebers came to Noridian in 2009 after two decades at Blues companies in Iowa and South Dakota and replaced Mike Unhjem, who led Noridian for 18 years before being ousted amid a public uproar over a Cayman Islands trip for top employees that coincided with rate increases.
Noridian COO Tim Huckle will replace von Ebers, who is departing on undisclosed financial terms, as the interim CEO. A 28-year veteran of the company, Huckle "is well positioned to serve in this role," McConn said.
Blue Cross and Blue Shield of North Dakota is the state's largest insurer, claiming a roughly 75 percent market share across insurance segments, according to an analysis by the Kaiser Family Foundation.
In 2013, BCBSND's combined membership increased by about 86,000 lives, with fee-for-service plans growing by about 120,000 and PPO plans declining by about 45,000. The company's membership now stands about 416,000 North Dakotans, including self-insured groups, and about 96,000 residents from neighboring states. Revenue also increased by about $89 million to total to $1.19 billion in 2013.
But even amid a bustling state economy -- a growth rate of 13 percent in 2012 and a current unemployment rate of 2.7 percent thanks to an oil drilling boom -- the company's revenue and membership increases did not translate into net income gains last year.
Heavy losses
Higher-than-expected medical and hospital expenses totalled $1.09 billion in 2013 and contributed to an underwriting loss of $25.2 million, the first since 2008.
The bulk of the annual loss stems from a terminated contract at the company's technology subsidiary, Noridian Health Solutions, which was hired to build Maryland's health insurance exchange in 2012 in a five year deal worth $193 million. As of February, when its contract was severed, the company had collected $68 million.
With Maryland leaving open the possibility of suing for Noridian or its subcontractors for damages, "No reasonable estimate can be made at this time regarding the potential liability, if any, or the amount or range of any loss that may result from the negotiated exit of the contract," the company wrote in its annual financial report.
BCBSND and its parent company's loss last year compares to $22 million in net income posted in 2012 and about the same in 2011. The company closed the year with $199 million in reserves, down from $271 million in 2012.
Late last year, BCBSND also withdraw from its bid to participate in the state's managed care program for Medicaid beneficiaries newly eligible under the Affordable Care Act, citing unacceptable financial risks.