Delaware Department of Insurance

The determination addresses the applications of Capital BlueCross, Highmark Inc., Hospital Service Association of Northeastern Pennsylvania d/b/a Blue Cross of Northeastern Pennsylvania and Independence Blue Cross for approval of reserves and surplus. It includes findings of fact regarding the identity of the applicants, background information, and department procedures. The discussion covers relevant insurance concepts such as reserves and surplus, sources of risk, the rate process and surplus considerations, uses for surplus, and the appropriate use of Risk Based Capital (RBC) as a tool. It also introduces the analytical framework used, including proper corporate unit to review for capital adequacy determination, consolidation and RBC, and additional alternative models. Finally, it applies the framework by evaluating the relative risks of the four Blue Plans using RBC, consolidated risk factor analysis, and actuarial analysis of the Blue Plans' relative underwriting risk.

Attorney General Biden's statement focused on BCBSD's preferential treatment as a Delaware not-for-profit, including its state tax exemption. The DOJ's interest in the Affiliation stems from enforcing state consumer protection laws, protecting not-for-profit interests, and investigating matters involving public welfare. Concerns were raised about the potential for Highmark to divert BCBSD's reserves to purposes other than serving Delawareans. A condition was requested to guarantee that the public's investment in BCBSD remains in Delaware, to be held and protected for the benefit of Delawareans, in an amount no less than $45 million to be administered in an independent foundation. The Applicants argued that the purpose of the conditions is to protect the reserves and surplus of the company.

The board of directors meetings covered a range of strategic and operational topics. Discussions included national health care reform proposals, a strategic partner capability review by Deloitte, and considerations for potential strategic partnerships, including an impact assessment. The board also discussed public benefit proceeds, regulatory approval issues, and criteria for potential partnerships. The meetings further addressed long-range strategic planning, a valuation of BCBSD, a report from the Strategic Transaction Committee, and updates on negotiations with potential partners. Other topics included healthcare reform, potential partner alternatives, and executive compensation.

The meeting of the Board of Directors of BCBSD, Inc. involved a strategic planning session where The Boston Consulting Group (BCG) presented a long-range strategic plan for CareFirst, Inc. (CFI) and its subsidiaries, highlighting the health care finance and service environment, major forces impacting health care, and potential health care reform proposals. The discussion covered the Blues position in the national account business and strategies for maintaining a strong market position. Additionally, there was an analysis of Blue Cross Blue Shield (BCBS) mergers and affiliations, an overview of the Blue Health Care Bank, and a presentation on potential affiliation and conversion options for BCBSD with another Blue Plan. The board also discussed the sale of BCBSD's corporate headquarters facility, an interim administrative service agreement with CareFirst, and the process for accomplishing a partnership with another entity.

The BCBSD, Inc. Board of Directors meetings in December 2009 and July 2010 covered a range of strategic and operational topics. Key discussions included a strategic overview of the need for BCBSD to affiliate with a larger Blue plan due to environmental drivers, capabilities gaps, and past experiences. The board also considered strategic partnership options, particularly with Highmark, Inc., and reviewed the proposed Interim Administrative Services Agreement with Highmark to replace services previously provided by CareFirst, Inc. (CFI). The board approved seed funding to initiate the transition of services from CFI to Highmark. Additionally, the board discussed and approved resolutions related to the proposed affiliation with Highmark, including changes to draft affiliation documents, the valuation summary, and the overall benefits of the partnership for BCBSD, its employees, stakeholders, and the State of Delaware.