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Pennsylvania nonprofit HMO accused of stashing away more than $613 million

Independence Blue Cross (IBC) of Pennsylvania, an independent licensee of the Blue Cross and Blue Shield Association, has amassed a $613 million surplus — not to fulfill its social mission, "but to compete against other insurers in order to make money," according to a lawsuit filed in Philadelphia.

It is a "common misunderstanding that IBC is somehow a charitable organization."

According to the lawsuit, filed Aug. 2, 2001, IBC took advantage of its tax-exempt status as a nonprofit organization to build a corporate "war chest" for acquisitions, mergers, and excessive compensation to its officers and directors, at the expense of its policyholders and the charitable purposes required of it by state law.

The lawsuit, which seeks class action status, alleges that IBC accumulated huge surpluses in reserves, which the insurer claimed was to provide security in the event of financial or public health crises, but were in fact far higher than the guidelines set by the National Blue Cross and Blue Shield Association.

IBC's excess surplus
2000 claims and expenses incurred


$699,524,586

Surplus recommended by BCBS Association
25 percent ($174,886,147)
Actual surplus (reserves)
$613,085,053
Excess surplus under BCBS Association standard

$438,203,906
Source: Ciamaichelo vs. Independence Blue Cross

According to Gregg Mackuse, one of the attorneys suing IBC, the health insurer built a surplus of $613 million last year, an increase from $433 million in 1995. By contrast, during the same period, IBC's total claims and expenses actually decreased from $1.1 billion to $699.5 million. The lawsuit contends IBC's reserves increased from nearly 38 percent of claims and expenses in 1995 to nearly 88 percent of claims and expenses in 2000.

IBC is required under Pennsylvania law to provide the best insurance coverage at the lowest possible rates, and to insure those who can't afford health insurance, in return for their nonprofit status, says Mackuse. Despite this statutory mandate, the lawsuit says that as recently as September 2000, G. Fred DiBona Jr., IBC's president and chief executive officer, stated that it is a "common misunderstanding that IBC is somehow a charitable organization."

IBC says it has not received a copy of the lawsuit and does not comment on pending litigation.

The lawsuit against IBC was brought on behalf of Jules Ciamaichelo, a Bucks County, Pa., appliance company owner whose employees are insured by IBC. Mackuse wants to have the judge certify the lawsuit as a class action to expand the number of plaintiffs to more than 2 million Pennsylvania Blue Cross customers.

Mackuse is also involved in similar litigation against Capital Blue Cross and Highmark Inc., parent of Pennsylvania Blue Shield. A lawsuit with almost identical charges seeking class action status was filed against the two health insurers on June 29, 2001, in York, Pa. The plaintiffs named in that case are all chiropractors, chiropractic clinics, or their employees, and are all covered under insurance plans operated jointly by Capital Blue Cross and Highmark.

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