North Dakota Scandal Raises Concerns About Health Co-op Route

Major players in health insurance in North Dakota include Paul Von Ebers, president of Blue Cross Blue Shield; state Insurance Commissioner Adam Hamm; and Blue Cross Blue Shield board Chairman Dennis Elbert.
Major players in health insurance in North Dakota include Paul Von Ebers, president of Blue Cross Blue Shield; state Insurance Commissioner Adam Hamm; and Blue Cross Blue Shield board Chairman Dennis Elbert. (Michael Vosburg - AP)
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By Karl Vick
Washington Post Staff Writer
Saturday, October 10, 2009

BISMARCK, N.D. -- For the North Dakota insurance sales reps, March may have been the ideal time to enjoy the swim-up bar at a resort on Grand Cayman Island. But back on the northern Plains, where temperatures were below zero, policyholders at Blue Cross Blue Shield of North Dakota were less delighted when they learned about the trip for 66 staff members and guests.

Word of the $238,000 Caribbean retreat broke last winter, compounded by news of other perks: $15 million in executive bonuses over five years, $400,000 for charter flights and $35,000 for a vice president's retirement party. And when the ensuing uproar cost Michael Unhjem his job as chief executive, his landing was softened by a $2.5 million severance payment. The golden parachute had been added to his contract after his 2006 drunken-driving arrest, a state audit pointed out.

In an era in which stories of corporate excess have become common, the drama of North Dakota's dominant insurer resonated deeply here, largely because the state's nonprofit Blue Cross Blue Shield is essentially a cooperative, owned by policyholders. It is an arrangement close to the model promoted by powerful lawmakers as an alternative to the "public option" that would put the federal government in the insurance business. The legislation that the Senate Finance Committee will probably approve Tuesday calls for the creation of health insurance cooperatives in all 50 states and the District.

A liberal group here argues that the North Dakota scandal illustrates the danger of assuming that the cooperative model would assure virtuous behavior, especially in an industry awash in money.

"Call it cooperative, call it mutual, call it private insurance," said Don Morrison, executive director of "If what we want is to have quality health care at a price people can afford, it's not coming from the culture of private insurance. If this is a model, let's get real."

As an existing company, the Blues would not be allowed into the ranks of new co-ops envisioned by Sen. Kent Conrad, the North Dakota Democrat who is also the Finance Committee's most zealous promoter of the model. Conrad, who grew up in Bismarck, declined to comment on the controversy surrounding the Blues. But he cites the success of the electrical, farm and even commercial cooperatives that rose out of the same tradition of prairie populism that produced the original Blue Cross seven decades ago.

"The co-op plan aims to achieve the same benefits for consumers as a public option without government control of health insurance," Conrad said in a statement this month. "It does so by creating private, consumer-driven, nonprofit health plans. Because these plans will be owned by their members, they will focus on getting the best value for consumers, rather than maximizing revenues or profits."

Not much is known about health- care cooperatives on a large scale because there are only a few in the country. Timothy S. Jost, who studies health-care policy at Washington and Lee University, said they tend to provide good service to members but have not made "any tremendous difference in terms of cost or price."

For the Blues, which have common roots in the cooperative model, controversies over executive compensation have not been limited to North Dakota. Maryland's insurance commissioner halved an $18 million severance payout last year for the chief executive of CareFirst Blue Cross Blue Shield, calling it "simply too much money to pay the departing CEO of a nonprofit company."

In Massachusetts, where residents are required to carry health insurance, the attorney general last month launched an inquiry into executive and board compensation at health-care nonprofits after the chairman of the state's Blue Cross Blue Shield retired with a $16 million lump sum.

"Our office is concerned about the generally high cost of health care. This is a part of that," said David Friedman, first assistant attorney general in the office headed by Martha Coakley, a Democrat running for the Senate seat of the late Edward M. Kennedy.

In North Dakota, which has a $1 billion state budget surplus, residents wear their parsimony proudly. And all of the spending excesses, said state Insurance Commissioner Adam Hamm, came roughly at the time the company was seeking premium increases of 15 to 20 percent.

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