Within the next month, Blue Cross Blue Shield of Vermont will appear before the Green Mountain Care Board to present its proposed budget and to, most probably, defend a request for a rate increase. Wrapped inside that request will be last week’s news that the company lost $40.6 million, or 58 percent, of its pension fund, something that could threaten the company’s solvency.

To the pension fund debacle, the Green Mountain Care Board should have a three word response: Not our problem. To the rate increase, another three word reply: Not this year.

As we have noted before, when the health care system was shut down in March for the better part of three months, there had to have been a sharp drop in claims. The hospitals weren’t doing elective surgeries. The hospitals were operating their emergency rooms and taking care of a few Covid-19 patients, but little else. Meanwhile, policy holders kept paying their premiums. To the insurance companies like BCBS, that means the same amount of money coming in, but far less going out.

That in and of itself should be enough for the GMCB to reject the insurer’s request for any increase in premiums.

As for the insurer’s $40.6 million loss in its pension fund, that’s astounding. It borders on the inexplicable. If a company pays attention to its investments and abides by the normal rules that govern how pension funds are invested, it’s almost impossible. In short, something stinks.

The company says it lost 58 percent of its pension funds. But the market dropped by about 35 percent, not 58 percent, and the loss is never experienced unless the investments have been sold. A general investment portfolio would show that much of the March loss would have been recovered by the end of the next quarter. It’s almost an iron-clad rule when investing pension fund money [which, by definition, is the money set aside for the employees’ retirement] that it’s invested conservatively. You never experience windfalls, but you don’t report 58 percent losses when the market loses 35 percent, and then regains all that it’s lost in the following quarter.

The only way the insurer could have lost that much money was through an ill-advised asset allocation made by the investment company, Allianz Global Investors. When the bottom of the market dropped out in mid-March, the carnage was legion. There were investments reporting losses in excess of BCBS’s 58 percent. And there were investors who incurred big losses who tried to recoup their losses through puts and calls, which are essentially bets on what will happen to the market next. But that’s more speculation than it is investing. It’s gambling with the client’s money. And companies almost habitually refrain from speculating with their employees’ pension funds. At least knowingly.

BCBS has indicated it may pursue legal action against the investment company to recoup its loses. That’s typically a long, drawn out process. And success is far from guaranteed. It also costs money.

Which gets us back to the Green Mountain Care Board. Whatever BCBS’s issues, Vermonters can’t be tagged for its lack of oversight, or for the eggregious bets a financial advisor made with its employees’ pension fund. That cannot be made to be our problem. The board needs to make it crystal clear that our premiums will not be used to make the insurer whole. Additionally, BCBS should be asked to show why Vermonters aren’t due a rate decrease.

by Emerson Lynn

Recommended for you