Health Care Service Corporation has been hoarding excess reserves of almost $5 billion to enrich its executives instead of reimbursing members, alleges a class-action lawsuit against the major insurer.
The lawsuit claims HCSC, which operates Blue Cross Blue Shield plans in Illinois, Texas, Oklahoma, New Mexico and Montana, has breached its contracts with members by maintaining a reserve of almost six months' worth of claims payments instead of the traditional three months' worth, the Chicago Tribune reported.
"As a nonprofit mutual company, [HCSC] is obligated to act for the mutual benefits of its members--the policyholders," the lawsuit states, reported the Courthouse News Service. "Over the past five years, [HCSC] has accumulated excess profits of almost five billion dollars, funds not necessary to protect against any unforeseen financial contingency."
Instead of spending the $4.9 billion additional profits to benefit members, Chicago-based benefits administration company Babbitt Municipalities, which filed the lawsuit, accuses HCSC of using the funds "to expand its business operations and pay its corporate executives millions of dollars in 'bonus' money."
HCSC allegedly paid almost $100 million in bonuses to its 10 highest earning executives from 2011 to 2013. In 2012 alone, the insurer brought in $1.2 billion in profit and provided $46.4 million in bonus payments to its execs, Crain's Chicago Business reported.
What's more, the accumulated additional funds "obliterates (the company's) purpose as a nonprofit mutual corporation and exceeds the bounds of the proper exercise of business judgment," the suit adds.