the national average. An examination of the details of the Blue Cross data reveals why: month by month, the company places several hundred thousand dollars worth of small C.D.’s in small Texas banks. The cumulative effect is a considerable reduction in total interest earnings. Shelton noticed the pattern and mentioned it in conversation with Blue Cross’ investment experts. They informed him that the practice was a sort of “loss-leader” technique for garnering group insurance business from the small banks. Shelton could understand the process well enough, but he was not sympathetic to the notion that Blue Cross’ interest losses should be charged off to public funds. Negotiations foundered not only on the interest arguments, but also on the two other issues related to Blue Cross’ profit margin. The first was related to “risk factor” payments, which presumably compensate Blue Cross for taking a chance that the actual costs of operating the program might exceed their negotiated contract price. Since 1967, Blue Cross has received about $6 million in risk factor payments, which Morris described as “pure profit” for the company. Matters of history notwithstanding, Blue Cross insisted that this year’s increasing cost spirals fully justified both the full 13 percent administrative cost increase which it was requesting and a quarter of a percent risk factor to cover administrative cost contingencies and the possibility that its interest earnings might fall below the prevailing treasury rate. The arguments did not wash with DPW, partly because Blue Cross had failed to convince DPW staff representatives that all of the elements of the projected administrative cost increases were real and justified. As a bartering strategy, DPW pointed out that half of the Medicaid administrative costs are fixed under the terms of a contract whereby Ross Perot’s Electronic Data Systems does all of the data processing. The terms of that contract provide for progressive decreases in per-claim costs as claims volume increases. Tying the risk factor and volume issues together, Morris gave Blue Cross a set of alternatives, neither of which proved acceptable. The offers went like this. Blue Cross could have 100 percent of their projected administrative costs on the full number of their projected premiums, and 75 percent of their projected administrative costs on all premiums in excess of their projections. In return for that administrative-cost concession, Blue Cross would receive only one-tenth of a percent of premiums as risk factor payments. Alternatively, the company could have an .18 percent risk factor payment, on the condition that when premiums reached 95 percent of their projected level, administrative cost on further premiums would be reimbursed at Table 2. Blue Cross Investments in Certificates of Deposit Blue Cross Investment Data from monthly Report to the Finance Committee Summary of Investment Transactions. National average C.D. rate range from U.S. Financial Data, 12/11/74, prepared by the Federal Reserve Bank of St. Louis. Month 9/73 10/73 11/73 12/73 1/74 2/74 3/74 4/74 Nat’l. Av. C.D. Rates N.A. 9.09.7 8.79.8 9.29.5 9.09.3 8.09.0 8.09.5 9.5-10.5 Blue Cross Av. C.D. Rates 9.92 8.75 8.7 8.73 8.87 6.125 8.14 9.684 75 percent of cost. When Blue Cross said no, acting Board Chairman H. G. Andrews was obviously miffed. The only agreement reached was By Doug Holley Dallas You’re tied down. You go to work. You leave work. Eight to five. Day in. Day out. Just once in a while you’d like a place where you do something different . . . a place where you’d learn something different. A place to break free. Sounds pretty good, right? Well, the “place” is in the National Guard. At least, that’s what the new brochure promises, the one that recruiters are distributing as they scramble to meet their quotas these days. Six years ago, for me and thousands of other young men, the National Guard was not a place to break free but a place to break into. I was 22, fresh out of college, and eager to duck the draft. Alternatives to being drafted to fight a war I didn’t believe in were, to say the least, limited. On the one hand, I could head for Canada or go to jail; on the other, I could give four years to the Air Force. I chose the National Guard instead. I drove to a Guard station in Austin, walked into a sterile office marked “Personnel,” and came face to face with a Doug Holley is a graduate of Columbia University Graduate School of Journalism and teaches at Richland College in Dallas. that company lawyers would contact DPW, and there was some talk of litigation. But an atmosphere of strained camaraderie was restored, and Blue Cross Vice-President Eugene Aune later expressed confidence that litigation would not be necessary. Which left everyone wondering what the numbers game had meant in terms of dollars and cents. According to Morris, his first proposal would have meant about $315,000 less in risk-factor payments than Blue Cross had requested. His second suggestion would have reduced risk-factor payments by only $195,000 as compared to the company proposal. but would have added the risk to Blue Cross that their administrative-cost payments would also decrease. There is the further question of what options are open to DPW. Under its basic contract with Blue Cross, the agency is committed to purchasing Medicaid services from the company until Aug. 31. It is unclear how a complete impasse in rate negotiations would affect payments in the intervening eight months, but clearly something will be worked out. Blue Cross depends on the contract for about a third of its business. And, in the absence of competitive bidders, they enjoy the advantage of having the only game in town. grizzled sergeant in starched green fatigues lounging behind his desk. Ashes from the frayed cigar stub clenched between his teeth dropped onto an ample stomach. “What do I have to do to join the National Guard?” I asked politely. For several seconds he said nothing, just looked at me. Finally he answered, “The first thing you gotta do, boy, is get that hair cut.” Since my hair didn’t even touch my ears, I thought the man was joking, but the bull-dog expression on his face quickly told me he was dead serious. He pushed a notebook across the desk, said it was a waiting list, and told me to sign my name and phone number. He warned me that I would probably be drafted before my January 31, 1975 9 MARTIN ELFANT SUN LIFE OF CANADA LIFE HEALTH DENTAL 600 JEFFERSON SUITE 430 HOUSTON, TEXAS 224-0686 A farewell to arms
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