Business & Economy

Blue Cross Blue Shield of Vermont pension fund takes $40.6 million hit

Blue Cross Blue Shield of Vermont headquarters in Berlin. VTDigger file photo

Blue Cross Blue Shield of Vermont has lost $40.6 million, or 58%, of its pension fund for employees in the financial downturn. 

The losses could have an impact on the company’s “solvency and reserves,” according to a letter that CEO Don George sent Monday to state regulators. The letter, which was obtained by VTDigger, noted that Blue Cross was “assessing potential remedies for this loss, including potential legal action” to recoup the money. 

George did not say why the company lost the money, but Blue Cross spokesperson Sara Teachout confirmed that the pension funds were managed by Allianz Global Investors, which reported a 75% decrease in the value of a particular strategic portfolio in late March, according to an article by Pensions & Investments. Sixteen of Blue Cross Blue Shield’s companies nationally had money managed by the company, said Department of Financial Regulation Commissioner Mike Pieciak.

The pension plan losses “appear to be distinct from and in excess of the general market losses resulting from Covid-19,” George said. The benchmark Dow Jones Industrial Average fell about 30% between February and March, but rebounded in June to within 2,000 points of its wintertime peak.  

Blue Cross Blue Shield notified the Department of Financial Regulation about the losses in March, Pieciak said. He vowed to continue investigating whether both Blue Cross had received accurate information from Allianz and whether the company had been transparent with Vermont regulators. “We want to understand how (the) investment decisions were made, whether investment policies were followed,” Pieciak said. 

He declined to comment on whether his department had made any findings so far. 

Don George
Don George, chief executive officer of Blue Cross Blue Shield of Vermont. File photo by Erin Mansfield/VTDigger

Pieciak said the losses are no risk to employees or to Vermont ratepayers in the immediate future. Blue Cross has an obligation to fund its pension for workers, and the losses aren’t included in the 6.3% rate increase that Blue Cross requested from the Green Mountain Care Board for 2021. 

But if BCBS can’t recoup the money through a lawsuit, the company will have to tap into reserves to address the losses. Ultimately, that could impact the financial sustainability of the company and the costs could trickle down to ratepayers. 

According to George’s letter, the pension losses cut into the company risk-based capital by 180 points, about 32% of its previous score of 567. Risk-based capital is an industry measure of an insurance company’s ability to take on risk based on how much money it has in the bank — an industry standard of solvency. Pieciak said such a large drop constituted “the most significant event that’s happened to one of our health insurers” during his four years on the job. 

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“Figuring out the extent and cause(s) of the loss and determining next steps will likely (and unfortunately) be a lengthy process measured in months and years, not days and weeks,” George wrote. He could not provide more detail about “the cause or causes of the loss, the potential for legal action, the timing of potential actions and their outcomes, or how the process may unfold more generally,” he added in the letter. 

Susan Barrett, executive director of the Green Mountain Care Board, declined to comment on the letter because of BCBS’s ongoing rate case before the board. Health Care Advocate Mike Fisher, who also received the letter, said he would ask about how the losses would impact the cost of insurance for Vermonters. 

Sara Teachout of Blue Cross/Blue Shield
Sara Teachout, Blue Cross Blue Shield of Vermont spokesperson. Photo by Glenn Russell/VTDigger

So far, Vermont health insurers, including Blue Cross, have not faced major losses due to the pandemic. As of last week, only 129 Vermonters had been hospitalized for Covid-19 since March. At the same time, patients have not been going to the doctor’s for other medical procedures, leading to savings for insurers. 

Blue Cross may face more Covid-related expenses, such as paying for a vaccine, said Pieciak. “There’s many things that have to sort of shake out before we can make a determination as to how this will ultimately impact the bottom line,” he said. 

George also said the long-term impact of the $40 million loss on the company remains unclear. “The process of investigating and assessing potential remedies for this loss, including potential legal action, is in its earliest stages,” he wrote. 

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Katie Jickling

About Katie

Katie Jickling covers health care for VTDigger. She previously reported on Burlington city politics for Seven Days. She has freelanced and interned for half a dozen news organizations, including Vermont Public Radio, the Valley News, Northern Woodlands, Eating Well magazine and the Herald of Randolph. She is a graduate of Hamilton College and a native of Brookfield.

Email: [email protected]

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