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Blue Shield's union ties raise concerns about conflicts

Experts say close ties between Blue Shield and key labor unions may give the health insurer undue influence over multimillion-dollar insurance contracts for public employees.

October 09, 2012|By Chad Terhune, Los Angeles Times

At a time when public-sector unions across the country are fighting to hold on to generous retirement and health benefits, one of the loudest voices standing up for their rights is Dave Low.

A longtime labor activist, Low carries considerable clout as executive director of the California School Employees Assn., a 215,000-member union that represents bus drivers, custodians and other school workers. He also leads a broader group of 1.5 million government employees, including firefighters, police and teachers, called Californians for Health Care and Retirement Security.

But Low had another job as well until recently. He was a consultant for Blue Shield of California, which has secured lucrative health insurance contracts that cover many of the same public workers that Low represents. His contract shows he was to be paid up to $125,000 a year for his work, which went from 2004 until Aug. 31.

Low isn't the only person with union ties pulling double duty for Blue Shield. One of the insurance company's senior executives also works as a lobbyist for the Service Employees International Union, which represents nearly 300,000 government workers statewide.

Experts say those close ties between Blue Shield and key labor unions may give the nonprofit company undue influence over multimillion-dollar insurance contracts for public employees. It's common in California for a joint panel of labor and management officials to pick the winning insurance bidders and set many of the terms.

"This raises red flags about conflicts of interest and self-dealing," said Jessica Levinson, a Loyola Law School professor who studies public corruption. "It really starts to feel offensive when the public money at stake is so huge."

A spokesman for the school union said it had approved of Low's contract with Blue Shield, and Low said he always put the interests of the union ahead of the insurer.

Blue Shield and Low said there was nothing inappropriate about their relationship and that they've done nothing illegal or unethical. After The Times began asking questions about their relationship, the company ended Low's contract Aug. 31.

Public employee benefits are coming under increasing scrutiny as municipalities, school districts and state governments face severe fiscal pressures and debates over what they can afford to offer rank-and-file workers. Health insurers compete vigorously for public-sector contracts because governments still provide some of the richest benefits among employers.

One of the biggest prizes for any company is a contract with the California Public Employees' Retirement System, the country's third-largest healthcare buyer after the federal government and General Motors Co. It spends $7 billion annually on medical care for active and retired state and local government workers.

CalPERS is a crucial customer for Blue Shield, which serves about 400,000 of CalPERS' 1.3 million members. Overall, the San Francisco company has about 3.3 million customers and nearly $10 billion in annual revenue.

In August, CalPERS began the process for choosing new healthcare companies, and it plans to award three-year contracts next year that take effect in 2014. Many of the industry's biggest players — UnitedHealth Group Inc., WellPoint Inc. and Aetna Inc. — are competing with Blue Shield.

Blue Shield's contracts with Low, obtained by The Times, show that it was paying him for information and advice about dealing with CalPERS' board members and agency staff. Low was hired to "advise and assist Blue Shield in gaining CalPERS board and constituent support for key initiatives and proposals" and to "assist Blue Shield in its efforts to expand interactions with key decision makers and influencers of other non-CalPERS contracting public agencies."

In an interview, Low described his duties differently. Low, 55, said his primary role with Blue Shield was to monitor its service to union members and to alert the company about any problems CalPERS board members shared with him. He said he wasn't privy to any inside information about healthcare contracts and that it wasn't his job "to sell their product."

"I will challenge anybody to come up with a single instance in which I acted in an unethical manner," he said. "I've never had inappropriate conversations or contacts with Blue Shield or CalPERS."

Tom Epstein, vice president of public affairs for Blue Shield, said the company employed Low to provide "strategic political consulting." Epstein declined to comment further on Low's work or his recent departure.

"Blue Shield has worked closely with CalPERS and the unions that represent much of CalPERS' membership to deliver nearly $850 million in savings over the past eight years," Epstein said.

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