N.D. Attorney General Says Blues Premium Refunds Legal

September 18, 2006

Blue Cross Blue Shield of North Dakota may pay premium refunds to some policyholders, Attorney General Wayne Stenehjem said, concluding state law does not prohibit the idea.

Stenehjem’s legal opinion, issued last week, clears the way for the Fargo-based health insurer to make more than $26 million in payments, which it said it hopes to make by year’s end.

The company estimates the refunds will benefit more than 150,000 policyholders, including some employer plans and customers who sign up for health coverage through local banks. For bank depositor policyholders, they should equal about 80 percent of a monthly premium bill.

Insurance Commissioner Jim Poolman’s approval is still needed, but he has backed the idea, saying Blue Cross Blue Shield’s financial reserves are ample enough to handle the disbursements. Poolman requested the legal opinion.

Blue Cross Blue Shield tries to keep three to four months’ worth of expenses in reserve, and its current reserve of more than $220 million meets that standard, company spokesman Larry Gauper said.

Stenehjem’s legal opinion was needed for the refund plan to go ahead because of a state law, approved by the 1997 Legislature, that was meant to block the company from becoming a for-profit, stockholder-owned insurer. The law bars nonprofit mutual insurers from paying dividends or issuing stock.

The legal question, Stenehjem said last Thursday, was whether the refunds were dividends. The law’s legislative history showed it was intended to bar dividend payments to investors, rather than premium refunds to customers, the attorney general said.

“All they’re seeking to do is take some of the surplus funds
that they’ve collected, and return it to the policyholders,”
Stenehjem said. “That, I think, is permissible under the statute,
because it’s not really a true dividend, as was contemplated by the

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