Blue Cross Blue Shield of Michigan fraudulently collected hidden administrative fees

Court case shows how health insurers rip off you and your employer

By Wendell Potter
The Center for Public Integrity, May 11, 2015

It turns out that one of the reasons workers have been paying more for their coverage is allegedly a common practice among insurers:  charging their employer customers unlawful hidden fees.

The fees came to light when Hi-Lex Controls, an automotive technology company, took Blue Cross Blue Shield of Michigan (BCBSM) to court in 2013 after becoming suspicious that the company had been systematically cheating it over 19 years. After reviewing evidence in the case, a judge ordered that BCBSM stop charging the hidden fees and pay Hi-Lex $6.1 million.

Documents filed in the case showed that in 1993 BCBSM implemented a scheme through which it would collect additional revenue by adding certain mark-ups to hospital claims paid by its self-insured customers. Self-insured companies hire firms  like BCBSM to do the paperwork. It is the employer’s money—not the insurance company’s—that is “at risk” in such arrangements.

After suing and getting documentation from BCBSM, attorneys for Hi-Lex were able to show the court that BCBSM marked up hospital claims by as much as 22 percent. BCBSM didn’t disclose the markups, however. As part of the scheme, regardless of the amount BCBSM was required to pay a hospital for a given service, it reported a higher amount to Hi-Lex and pocketed the difference.

The hidden fees were listed in internal BCBSM documents under a variety of names:  provider network fees, contingency/risk fees, retiree surcharges, and—my personal favorite—other-than-group subsidy fees. Internal company emails showed that BCBSM knew customers were unaware of the markups and that the company actually trained its employees to downplay the hidden fees should customers suspect they were being gouged.

After rumors began circulating in the early 2000s that BCBSM was charging hidden fees, the company told insurance brokers, falsely, that its customers got 100 percent of the hospital discounts it negotiated.

The Court of Appeals affirmed the $6.1 million fraud judgment, agreeing with the lower court that “BCBSM committed fraud by knowingly misrepresenting and omitting information about the disputed feeds in contract documents.”

BCBSM hoped the U.S. Supreme Court would take the case but the high court refused, meaning the lower courts’ rulings stand.  As a consequence, as many as 50 of BCBSM’s other customers also filed suit.

Lest you think this scheme was something BCBSM dreamed up on its own, an actuary from the consulting firm Milliman Inc. testified under oath that many other insurers engaged in the same practices.



By Don McCanne, MD

Wasteful administrative services are the private insurers’ primary product that they are selling us, and the only product when they administer the plans of our nation’s large, self-insured employers. The insurers have devised many devious methods of diverting risk pool funds into their own coffers, but this report shows us that they are truly nefarious to the core when they are fraudulently padding the bill for their administrative services alone.

Not only does this report show that the supposedly cleanest of the insurers - Blue Cross Blue Shield of Michigan - engages in this thievery, many other insurers engage in the same practices, according to the sworn testimony of a Milliman actuary.

Had enough? Time for our own publicly-administered single payer program.