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Subcontractor claims N.D. Blue Cross Blue Shield subsidiary ‘financially distressed’

FARGO – North Dakota insurance regulators are keeping an eye on a potentially costly legal dispute involving a subsidiary of Blue Cross Blue Shield of North Dakota.

In a recent quarterly statement, Noridian Mutual Insurance Co., which does business as Blue Cross Blue Shield of North Dakota, disclosed that an unidentified wholly owned subsidiary faces projected losses of $17.8 million.

Noridian Healthcare Solutions, which provides software for government and industry, is a wholly owned subsidiary that is entangled in a federal lawsuit with a former subcontractor involving the health insurance exchange for Maryland the two firms built.

“We’re monitoring the situation,” said Adam Hamm, North Dakota’s insurance commissioner, adding that his chief financial examiner is in frequent contact with Noridian and Blue Cross Blue Shield of North Dakota.

“He has been in almost daily contact with the Blues for a number of weeks now on this issue.”

Because regulators are performing an examination of Noridian, Hamm said he could not comment in detail about any possible financial concerns.

Hamm did say, however, that any costs or losses Noridian is incurring from the Maryland exchange and litigation would not be allowed as costs covered by health insurance premiums paid to Blue Cross Blue Shield.

Similarly, citing pending litigation, representatives of Noridian and Blue Cross Blue Shield would not provide specific comments and declined to be interviewed.

Noridian’s dispute is with a firm called EngagePoint, based in Fort Lauderdale, Fla., that served as a subcontractor on the project until Noridian Healthcare Solutions, the prime contractor, severed its contract last October.

EngagePoint, in documents filed in U.S. District Court in Maryland, claims that Noridian is “financially distressed” and that its parent company is “deeply exposed” financially because of the troubled exchange.

As part of its argument to take the dispute into arbitration, EngagePoint highlights a recent quarterly report from the parent company, Noridian Mutual Insurance Co.

The report for the quarter ending Sept. 30, 2013, the most recent on file with the North Dakota Insurance Department, shows that the parent company is owed $39.3 million in receivables from subsidiaries.

EngagePoint contends that the “vast majority” of the money owed is by Noridian, and suggested Noridian last year was in “significant financial distress” that “deeply exposed” its parent company.

To address “financial hemorrhaging” from the Maryland project, EngagePoint contends that Noridian improperly charged for expenses and tried to “extract financial concessions” from EngagePoint.

“We have reviewed the most recent filings by EngagePoint and those filings contain a number of statements that are false, unsupportable and will be contradicted by evidence that we present in court and arbitration,” Tom McGraw, president and chief executive officer of Noridian Healthcare Solutions, said in a statement.

Although declining to provide details because of the pending litigation, McGraw added: “The final financial outcome in Maryland has not been determined and, again, due to the ongoing litigation we can’t comment.”

In its quarterly statement, Noridian Mutual Insurance Co. said it hired an independent accounting and consulting firm to help it determine accurate estimates for revenues and expenses behind losses the company projected in late 2013 would total about $17.8 million.

In his statement to The Forum of Fargo-Moorhead, McGraw said the Noridian Healthcare Solutions board of directors decided to hire KPMG as a financial consultant.

In the statement to regulators, Noridian also said it expected additional revenues under a modified contract requested by an unspecified client.

Hamm said his department started its examination of Noridian before the dispute over the Maryland health insurance exchange surfaced last fall.

“There were a number of issues that came up that triggered a financial examination,” he said. When the problems with the Maryland exchange became known, and raised possible financial concerns, the focus of the examination broadened.

“By law there’s confidentiality requirements that apply to an ongoing financial examination,” Hamm said. There is no target date for completing the examination, he said.

In its most recent public financial statements, as of Sept. 30, 2013, Noridian Mutual Insurance Co. listed assets of $554.9 million, net income of $13.9 million and a surplus of $234.7 million.

The health insurance company’s financial reserves increased to $153.4 million from $141.4 million as of the end of 2012.

Patrick Springer

Patrick Springer first joined the reporting staff of The Forum in 1985. He can be reached by calling 701-241-5522. Have a comment to share about a story? Letters to the editor should include author’s name, address and phone number. Generally, letters should be no longer than 250 words. All letters are subject to editing. Send to