Health Care

Blue Cross Blue Shield sues to recoup massive pension losses

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

A national benefits committee for Blue Cross Blue Shield has filed a lawsuit in federal court to recoup massive pension fund losses, including millions to Blue Cross Blue Shield of Vermont. 

In the suit, which was filed in a district court in New York last week, the committee argued that investment manager Allianz Global Investors lied about the pension investments and pursued an overly risky strategy that amounted to “a ticking time bomb.” 

As a result, the value of the fund plummeted during the Covid-related economic downturn in March and April. Blue Cross Blue Shield of Vermont lost $40 million, or 58%, of its employees’ pension over two months. A spokesperson, Sara Teachout, would not provide the current pension balance Wednesday, citing ongoing litigation. 

The 16 BCBS companies that invest through the benefits committee lost more than two-thirds of their combined pension funds, almost $2 billion. Now, that group has asked the courts to persuade Allianz to refund the lost money, as well as to cover accounting and legal fees. 

“BCBSVT is actively pursuing recovery of the recent losses sustained by our national pension plan, which were far in excess of general or reasonable market losses resulting from Covid-19,” said Teachout in a statement. Blue Cross Blue Shield is Vermont’s largest private health insurer, followed by MVP Health Care. 

Vermont’s Department of Financial Regulation is also investigating the losses and whether BCBS violated protocol in its investment decisions. That investigation should be wrapped up in the next few weeks, according to DFR Commissioner Mike Pieciak. 

The Allianz losses have sparked investigation and litigation across the country. The U.S. Securities and Exchange Commission has launched an investigation into the investment decisions. 

Other groups have also sued the company as a result of pension losses over the same period. The Arkansas Teacher Retirement System accused Allianz of pursuing a “reckless strategy” in a suit filed to recover $774 million. A teamster union has sued Allianz, as has the public pension of Fairfield, Conn. and Lehigh University’s endowment. All of the cases are ongoing.

The BCBS employee benefits committee alleged in the suit that both Allianz and investment adviser Aon Investments repeatedly lied about the “risk protections” in place which would minimize losses to companies’ portfolios. The companies had no such protections, according to the lawsuit. Allianz’s approach included investing in options, which can be a high-risk strategy. 

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According to the suit, Allianz told the committee the pension funds couldn’t drop below a certain level. The investments were supposed to “perform whether equity markets are up or down, smooth or volatile.” 

Instead, the trust plummeted from $2.9 billion at the end of January to less than $1 billion this spring. Allianz also sold the hedges that could have protected companies from additional losses and took even more risks, according to the suit. Aon failed to provide “active, ongoing monitoring” of the funds, BCBS alleged.

The losses are “staggering,” the suit read. “As a result of Allianz’s breaches, a substantial portion of plan assets meant to provide retirement security to thousands of employees and their beneficiaries was wiped out.”

The loss could affect the Vermont company’s pensions and reserves down the road, BCBS of Vermont CEO Don George wrote to the Green Mountain Care Board in June. “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,” he said.

The company has enough money to cover employee pensions for the near term, said Teachout. Blue Cross will wait to see what happens with a suit before making any new decisions about pension funding. “This is not a short-term issue,” she said. 

The company has been in communication with its approximately 420 current employees, and has since removed its investments from Allianz, said Teachout. Pension payments are required under federal law to continue at the same level, she assured.

Last month, Blue Cross Blue Shield of Vermont was granted a 4.2% increase in 2021 rates for Vermonters who get insurance through the health exchange. The company originally asked for a 6.7% increase, though the request wasn’t related to the pension losses, George said at the time. 

She said the company hopes to recoup the full $40.6 million. “That’s certainly our goal,” she said. 

Pieciak said the department had not heard from any current or former BCBS employees, but had encouraged the company to provide regular updates on the losses. 

For the foreseeable future, ratepayers should bear no responsibility for the pension losses, Pieciak said; BCBS keeps its ratepayer funds separate from the pension funds.  Nevertheless, the amount of money on the line in the lawsuit means “It’s pretty high stakes” for BCBS, Pieciak said. 

Ultimately, Blue Cross will have to build up their pension fund so they have at latest 80% of the anticipated pay-out, Piecak said. “Whether that’s through a settlement or whether that’s through paying up a little bit over time, they will have to figure that out.” 

Will that affect the amount Vermonters pay down the line? “I think it’s just too early to be determined,” he said.

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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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