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Florida Blue Cross, Blue Shield Policyholders Get Few Details About Vote

Posted on: Thursday, 28 July 2005, 15:01 CDT

Jul. 28--When Kenneth McNabb received a letter from the Blue Cross and Blue Shield of Florida asking him to authorize a proxy to vote on his behalf at the health insurer's annual meeting, the policyholder saw a problem.

The company offered scant detail of the issues being voted on at the meeting.

"When they ask me to sign a proxy without telling me what I'm signing up for," McNabb said, "it raises a red flag."

The proxy card allows policyholders to vote without having to attend the annual meeting. By signing the card, McNabb allows a substitute appointed by the company to represent him at the annual meeting and vote on his behalf.

Publicly traded companies typically enclose detailed information, including executive compensation and names of board members up for re-election when mailing out proxy statements. Shareholders in those companies, who are different from policyholders, also get to vote by proxy each year.

Blue Cross policyholders, however, sign the proxy card just once -- after enrolling. They can withdraw their proxy vote in writing at any time prior to the board meeting or by being present at the meeting.

A Blue Cross executive acknowledges McNabb's concerns and said more disclosure might be appropriate.

The health insurer has received a few similar complaints this year and in the past, said Randy Kammer, vice president of regulatory affairs and public policy at Blue Cross Florida.

"It just reinforces we have to make this a better process," she said.

McNabb, a stock market trader and Jacksonville resident, provided The Times-Union with two documents -- a cover letter from Charles S. Joseph, senior vice president, general counsel and corporate secretary of Blue Cross Florida, and a proxy card, which McNabb was asked to sign and return to the company. The primary purpose of the annual meeting is to elect nominees to the board, Joseph's letter states.

If the vote involves electing directors, McNabb said he wants to know the names and backgrounds of the nominees.

Over the last few years, added scrutiny and new SEC requirements have pushed most public companies to change the mix of their boards of directors and be more upfront about those who have insider ties. Again, non-profits are not bound by many of the new requirements.

But "we have strict conflict of interest restrictions for our board members and employees," Kammer said.

Blue Cross will consider listing names and their affiliations at the time the proxy card is mailed, the executive said.

"Probably more information on the proxies is the way to go," she said. "We have been doing this since 1982. It's an evolving process and we're looking to improve it as we do all our business processes."

Transparency is not an issue at Blue Cross, Kammer insists. The public can get access to a wealth of information about the company including names and affiliations of board members from the Office of Insurance Regulation.

Policyholders receive the proxy card within two to four weeks of enrolling. While Blue Cross does not identify the nominees with the proxy card, it does mail the names and affiliations of the nominees to policyholders in early August of each year prior to the board meeting in September.

"What you're pointing out is a timing issue," Kammer said. "We probably shouldn't solicit the proxy until we give [policyholders] the information. So maybe we just wait and everybody gets the [proxy] in August."

Seeking a proxy vote without listing the nominee names and other issues to be voted on is not unusual for not-for-profits, said Stephen Prom, a corporate and health care attorney with Akerman Senterfitt law firm.

In some cases, the slate of nominees to the board might not have been determined at the time the proxy statement is mailed, Prom said.

Board elections are usually procedural with all nominees typically elected to the board, Kammer said. While policyholders can suggest their own nominees at the annual meeting, she said it rarely happens.

Still, after a spate of corporate scandals where boards of directors, and their audit committees in particular, are accused of failing to detect widespread fraud, increased scrutiny placed on board oversight has led to a number of shareholders, and even retirees, of public companies waging public fights over board elections.

As for Blue Cross, about 50 percent of policyholders return their proxy cards. And few policyholders actually show up at the annual meeting to cast their votes, Kammer said.

Unlike shareholders in a publicly traded company, it is harder for policyholders in a mutual company like Blue Cross to effect change, said Mike Ryngaert, professor of finance at the University of Florida.

The reason: Institutional shareholders, such a mutual funds, own significant chunks of a public company and leverage that ownership to trigger change if they disagree with management.

They've got money in the game and have more incentive to pressure for change, Ryngaert said.

Blue Cross policyholders, in contrast, own a miniscule financial interest in the company.

"You don't have a lot of sway there," Ryngaert said.

But policyholders do have leverage, insists Kammer. They can walk away and take their business to a competitor.

"If they are not happy with us, they have many other places they can go," Kammer said. "It's not as if we are the only health insurer in the state of Florida. Their leverage is to make a choice on who they want their coverage with."

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Source: The Florida Times-Union

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