It is not our preference to resolve the current disagreements we have with the North Dakota Insurance Department through the use of public discourse and the media, but we believe it is incumbent on the company to publicly address the statements made about our company in the press release issued by the Insurance Department last Friday morning. We want to assure our 350,000-plus North Dakota members, our 2,000-plus employees working in 12 North Dakota locations, our providers, and the general public that Blue Cross Blue Shield of North Dakota has been thorough, efficient, accurate and timely in all interactions relating to our bank depositor rate filing with the Insurance Department.
Following is a summary of our communications with the Insurance Department concerning the bank depositor rate increase request, supported by relevant, written record.
On May 2, 2008, our vice president of Actuarial and Membership Services sent by e-mail all of the necessary information for the review of our requested bank depositor rate increase to the Insurance Department. On May 6, 2008, the same information was submitted through an electronic communication system maintained by the National Association of Insurance Commissioners called SERFF. Both of these communications were acknowledged by Insurance Department staff, and both contained exactly the same information regarding the claims payments and projections in exactly the same format that has been supplied to the department over the past several years.
Subsequent to these submissions, an independent actuarial opinion letter from Milliman, an internationally recognized actuarial consulting firm, was sent to the Insurance Department which concluded that "the rate filing was appropriate for the purpose for which it was prepared and that the rating methodology was actuarially sound." In addition, on May 7, an Insurance Department staff member agreed to review the filing within 30 days, as the department has in the past.
Subsequent to those filings, staff from Blue Cross Blue Shield of North Dakota met on May 20 and June 17 with senior Insurance Department staff charged with reviewing and making recommendations to the commissioner about the requested rate increase. No requests for further information or clarification of any of the information contained in the filings were made at either meeting.
On June 9, BCBSND e-mailed the Insurance Department for a progress update, and the Insurance Department responded June 11 with a question about provider reimbursement, to which BCBSND responded on the same day.
On June 13 and 16, BCBSND e-mailed the Insurance Department for a progress update and included updated trend information. The Insurance Department responded June 17 saying the commissioner would not make a decision on the bank depositor rate increase request that week. Then June 18, the Insurance Department sent a question about the proposed provider withhold, to which BCBSND responded on the same day.
There was no further communication in any format (telephone, fax or e-mail) from any Insurance Department staff either generally or specifically relating to the bank depositor filing.
On June 24, 2008, BCBSND received a letter from the insurance commissioner requesting information about the proposed provider payment withhold process that we communicated to our North Dakota contracted health care providers on May 31, 2008. The letter contained no reference to the bank depositor filing and only referred to the September 2007 employer group rate filing. The letter requested a response "within 7 calendar days from the date of this letter." BCBSND received the letter June 26, the second day of a three-day board of directors and executive staff retreat held at the BCBSND headquarters in Fargo. Because those days were already fully scheduled, I sent a letter dated June 30, 2008 informing the commissioner that our response would be delayed, but pledging to send the requested information to him within the coming week. On July 3, our letter with attachments was mailed to the insurance commissioner. We responded to all requests.
On July 1, BCBSND informed Insurance Department staff that the company had sent letters to our bank depositor members. The letters stated the Insurance Department was reviewing new rates and that members would be notified later about rate increases.
On July 18, we received a written denial of our bank depositor rate increase. Two reasons stated for the denial were that "assumptions underlying the rate increases are not reliable" and there was a "lack of information necessary to support the rate increase." As support for these two reasons, the department cited our proposed provider withhold as the specific issue that supported their denial, concluding, "the benefits provided would be unreasonable in relation to the premium charged." For the next 12 months the company projects that for each dollar of premium collected from bank depositor members the company will incur $1.034 of claims payments and $0.090 of administrative expense and taxes, for a combined ratio of 112.4 percent.
The Insurance Department did not request information about the impact the proposed provider payment withhold would have on our May 2 or May 6 rate filing submissions (i.e. how much the proposed 2.5 percent withhold would save the affected bank depositor members in health care claims expense). Additionally, the May 2 and May 6 rate filing submissions were made before the company contemplated a provider payment withhold, and information regarding such payment withholds could not possibly have been contained in those materials.
Because of this denial, BCBSND will lose nearly $950,000 per month in increased premium revenue at a time when the claims being paid by the company for our bank depositor members are increasing at a current annualized rate in excess of 15 percent. Therefore, we communicated with the Insurance Department this morning and formally requested a hearing regarding the bank depositor rate increase request, at which we will present our company-produced and independently-reviewed actuarial data and other evidence. We believe it is imperative that the department expedite the scheduling and conduct of the requested hearing.
I want to make one further statement regarding the proposed provider payment withhold. After receiving significant input from North Dakota health care providers about the serious financial implications such an action by the company would have on their remaining 2008 operations, we have decided that the company will not implement the proposed provider payment withhold. This will further exacerbate the serious financial losses the company will incur for the remainder of 2008, and in turn, necessitate even larger premium increases in 2009 and beyond for the company to achieve an operating "break even" financial result.
In closing, we regret that for the first time in corporate memory, we have no option but to request a formal hearing as provided for in North Dakota law. Given the fact that BCBSND's administrative costs are among the lowest in the country, and that our current reserves as measured by the industry standard risk-based capital (RBC) formula are also among the lowest in the country, continued losses resulting from inadequate premium increases will only further weaken BCBSND financially, and that is an outcome we do not believe is good stewardship of our fiscal responsibility to our members as we seek to provide them the best value in health insurance.