New state health contracts are just healthier

August 16, 2012 

The contract for running the State Health Plan was quite the sweet plum for Blue Cross and Blue Shield of North Carolina, which had the contract for the job under a “cost-plus” deal that allowed the company to earn a profit based on a percentage of total costs. In fiscal 2012, BCBS got $118.3 million for running the plan. The state is self-insured, so the fees were for administration.

The new contracts, as there are three of them, will run $95.9 million, with no cost-plus deals. Flat fees will be the rule.

And just how did the state Treasurer’s Office manage such savings? For one thing, the contracts were put out to bid and will be disclosed to the public.

Previously, BCBS got the contract behind closed doors from a group of legislators. Republican leaders and lawmakers changed the process last year, and the oversight for the plan now rests with a board of trustees in the Treasurer’s Office.

The splitting of the contracts – with one handling billing, processing claims and providing a network of providers, another to deal with enrollment of active workers and retirees and a third to deal with those on COBRA for laid-off employees – was a big reason for the savings. Bidding has a way of lowering costs, as does openness. BCBS still will get the largest contract, and the company is well-equipped to handle the work of billing and claims processing.

The savings for the state will amount to more than $22 million a year, and this assumes the bids will not go up dramatically after the first year, as sometimes happens.

There was no question that the process of awarding the contract in the past was influenced by politics, and Blue Cross and Blue Shield, with the company’s long-time connections to the power brokers in the Capital City, was skilled at the political game. The company can’t be blamed for that.

But lawmakers are charged with looking out for the public’s interest, and now the benefits of actually doing that job have again been demonstrated.

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