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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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"They're owned by the policyholders," said Hamm, whose powers would have been curtailed under legislation the company was pushing when the scandal erupted. "Every dime they're spending is the policyholders' dime."

Paul von Ebers, who took over as the Blues' CEO in the scandal's aftermath, said the current scrutiny is both inevitable and frustrating, given the company's overall record. It spends just 7 percent of premiums on overhead. Last year, only eight official complaints were filed against the company, up from six the year before.

"Nationwide, the attacks on insurance companies are a concerted attempt to distract discussion from the real issues of what's going on in health care," von Ebers said from the company's Fargo headquarters. "In Washington, we're focusing on insurance companies as evil entities, while anyone who understands health care realizes that utilization rates and technology are the major cost drivers."

Critics, however, find a timely lesson in the transformation of the North Dakota insurer from its populist origins.

Conceived in the late 1930s by a bishop as a "benevolent and charitable corporation," the Blue Cross co-op rose from the same egalitarian impulse that produced a state-owned bank and grain elevator. In the late 1980s, it merged with another nonprofit, Blue Shield, and grew into a major player in the political establishment.

"They have more clout than anyone in the state," said state Sen. Tim Mathern of Fargo, the 2008 Democratic candidate for governor.

Along the way, board members' salaries rose along with executive pay; they quadrupled in two years to $12,000 annually, plus $1,200 per meeting.

"It's a self-perpetuating board," said Morrison of, noting that a 1998 effort by consumer advocates to nominate two directors was rebuffed in favor of candidates selected by incumbents. "The people on the board who supposedly had the people's interests were the power elite of North Dakota."

The board's coziness with executives was clearest in the severance package for von Ebers's predecessor, Unhjem, who acknowledged at the time that he should have realized the public relations problem the Cayman Islands trip would cause. State auditors were also puzzled that the board paid severance to two other executives whose contracts required none. Bonuses for "performance" were paid even when underwriting showed a loss.

Board Chairman Dennis Elbert did not return calls seeking comment.

"The premiums keep going up and up. It makes me angry that the top CEOs and so on would reward themselves. And for what? For what?" said Pat Swanson, 68, who during her time in an insurance broker's office sold policies for "the Blues," as the nonprofit is known. She now works at a Hallmark store at Kirkwood Mall.

Though the Blues' premiums are among the lowest in the country, they have risen 87 percent since 2001 for group policies, far faster than income has. "When they pay, they pay out of their minds. That's why their policies are so spendy," said Lisa Marchus, 47.

Marchus works on the frontier of the service economy, taking orders in her Bismarck home from McDonald's drive-throughs in distant states, then typing them onto a screen that appears before fry cooks inside the restaurants. The pay is $7 an hour without benefits, and she said when she saw a surgeon about a knee replacement, he "made me out to be an idiot" because she relied on Medicaid.

Hamm, a Republican elected in November, thinks the Blues' virtual monopoly stands at the core of the scandal. But in the quest for competition on the national level, he worries that a public option might use federal subsidies to undercut private competitors unfairly. Still, he was loath to recommend co-ops, either.

"One of the main things you see in health-care cooperatives in this country is the board hasn't always acted in the best interests of the membership and cut down on waste," Hamm said. "It hasn't been able to achieve in the health-care economy what it's been able to achieve in agriculture and other areas."

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