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The Associated Press February 17, 2010, 8:05AM ET

Report: Blue Cross overhead method consistent

Blue Cross and Blue Shield of North Carolina charged the state employee health insurance plan overhead expenses to help pay for food for company trustee board meetings, the chief executive officer's salary and other indirect costs, according to an outside accountant's report released Tuesday.

The review of expenses, however, determined Blue Cross complied with its claims processing contract with the State Health Plan in what was charged as overhead and followed the standards the company uses to expense overhead it in other contracts.

Blue Cross points out often its profit on the contract is less than 1 percent -- an amount less than $500,000 in 2008. But a state audit last April said the contract language allows the state's largest health insurer to pass along almost any cost to the plan without explanation.

The Thomas & Gibbs accounting firm confirmed the State Auditor report's findings while revealing more details about what exactly Blue Cross passes along to the state plan.

"We did not note any instances of noncompliance," the executive summary said. But "under this definition, a share of virtually all (Blue Cross') costs that are not directly or indirectly charged, are allocable as overhead to the plan regardless of whether there is a direct link or benefit to the plan."

The summary, released to a legislative oversight committee, renewed frustrations by the state employees' union and health care advocates over the 2006 contract. The health plan covers 661,000 state workers, teachers, retirees and their dependents.

"It's just further evidence that the State Health Plan was taken to the cleaners in the contract," Adam Searing with the North Carolina Justice Center, which advocates for the poor.

Lew Borman, spokesman for Chapel Hill-based Blue Cross said the report shows that the company is "living up to the contract we have with the state and provide quality service at a fair cost." The per-patient expense associated with the line-item overhead categories cited are small when spread over every insured person in the plan, he said.

The issue of overhead arose last year when the Legislature approved premium increases and reduced benefits as part of a $675 million-plus bailout of the state employee health insurance plan. The State Employees Association and others complained that Blue Cross wasn't asked to share in the pain and pressured by legislative leaders to make financial concessions to the billing contract, which expires in 2013.

Sixty-two percent of the $165 million in administrative expenses for the plan goes to Blue Cross, according to plan officials.

"It's a sweetheart deal," said Dana Cope, executive director of the State Employees Association of North Carolina. "It's bad for taxpayers and it's bad for state employees."

The accountant's review, initiated by plan leaders but whose procedures had to be agreed upon by Blue Cross, examined the administrative expenses in more detail for the year ending June 30, 2009.

The accountants found Blue Cross sought payment for overhead such as Blue Cross trustee board retreats, food and retainers for board members. Other overhead expense accounts included items such as travel, "fringe benefits," company marketing, data networking hardware and the salary of the chief executive officer.

The multimillion-dollar salary of now-retired CEO Bob Greczyn made him a frequent punching bag for Cope's group.

Mona Moon, the plan's chief financial officer, told lawmakers the plan has initiated negotiations with Blue Cross about trying to limit which costs the company can forward to the plan to pay.

"We need to work very hard on the next contract," said House Majority Leader Hugh Holliman, D-Davidson, co-chairman of the health plan oversight committee. "Everything's on the table."

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