Blue Shield of California is poised to take a lucrative health insurance contract for city workers away from rival Anthem Blue Cross.
The proposed three-year deal is still subject to approval by L.A. Mayor Antonio Villaraigosa. Under Blue Shield’s offer, the city would pay 2% more, or $112 million, in premiums next year for these HMO and PPO plans.
That was nearly $9 million less than Anthem’s $121-million bid, which represented a 10% increase over the current year. Despite those initial savings, city staff and their outside advisors twice recommended Anthem’s bid as the better choice.
But last week a benefits committee of city officials and labor leaders overruled the staff’s recommendation and voted 8 to 1 in favor of Blue Shield’s bid.
About 27,000 city workers and their families with Anthem coverage face a change if the city goes forward with Blue Shield. It’s estimated 7% of Anthem’s members would lose access to their current doctor because of the switch.
An additional 32,000 city employees and dependents who have coverage with Kaiser Permanente aren’t affected because the city plans to renew its Kaiser contract. Most Los Angeles police officers, firefighters and employees at the Department of Water and Power are covered by separate contracts.
The city pays 98% of its employees’ health insurance costs, and the proposed contract with Blue Shield reduces the likelihood that workers will be asked to pay more for their healthcare next year.
That was a major reason the Service Employees International Union Local 721, which represents 10,000 city workers, heavily promoted Blue Shield. And an SEIU leader who sits on the city’s benefits panel voted in favor of Blue Shield. “Give Blue Shield’s cost-efficient proposal the fair consideration it deserves. Don’t rush to hand costly Anthem our business,” SEIU said in a flier last week.
SEIU has close ties with Blue Shield. The union’s state office employs a Blue Shield executive, Mark Weideman, as a lobbyist, paying him $376,000 since 2011. That same Blue Shield executive worked previously as a lobbyist for the city’s Department of Water and Power.
The Los Angeles City Ethics Commission is investigating these potential conflicts of interest stemming from a complaint filed last year by Consumer Watchdog, said Jerry Flanagan, a staff attorney at the Santa Monica advocacy group. Flanagan said investigators from the Ethics Commission have contacted him several times about this matter, most recently about a month ago.
He said the mayor’s office should thoroughly review these issues before awarding Blue Shield a contract.
“When it comes to winning or losing a taxpayer-funded contract, it should be decided on the merits and not influenced by an insurance lobbyist who’s sitting on all sides of the table,” Flanagan said. “The mayor’s office should look closely at who was involved here and make sure the appearance of impropriety is stamped out.”
Vicki Curry, a spokeswoman for the mayor’s office, declined to comment on the contract or the complaint. A spokesman for the commission couldn’t be reached for comment.
Both Blue Shield and SEIU Local 721 deny there is any conflict.
“Blue Shield came in with a very aggressive proposal and we chose them because it was a better deal,” said David Sanders, a regional director for SEIU Local 721 and a member of the city’s joint labor-management benefits committee. “There is no conflict.”
Blue Shield said Weideman’s outside work for SEIU doesn’t pose a conflict with potential government contracts because his duties pertain to legislative issues at the state level. Weideman serves as Blue Shield’s top lobbyist and vice president of government affairs.
The company added that his previous work for the city dealt with the Department of Water and Power, which isn’t covered by these healthcare contracts.
Weideman “represents the SEIU state council,” company spokesman Steve Shivinsky said. “That is distinct from any SEIU Local such as 721. He has had no contact with the city or SEIU regarding this procurement.”
Weideman formed his own Sacramento lobbying firm called Weideman Group Inc. in 2010 with the insurance company’s consent. According to state records, Weideman has received $375,935 from the SEIU for his lobbying work since 2011. His lobbying firm earned $85,510 from the city of Los Angeles in 2011 and 2012.
Blue Shield also employs the law firm of Mayer Brown to lobby city officials, but the company said Weideman is not involved in those efforts. The company said it hasn’t been contacted by the Ethics Commission.
Miguel Santana, the city’s administrative officer and top budget advisor to the mayor, has often been at odds with union leaders. In this instance, he joined with organized labor in voting for Blue Shield.
Last year, the city adopted a new plan from Anthem that excluded doctors affiliated with Cedars-Sinai Medical Center and UCLA Medical Center in order to save $7.6 million in annual premiums. In response to complaints from some workers, the city added a full network option that employees could pay more for. Fewer than 100 employees opted for the more expensive option.
That issue of access to certain doctors came up again because Blue Shield told the city last week that it hadn’t finalized contracts with Cedars-Sinai’s medical group. In the end, Blue Shield guaranteed employees would not incur additional costs if it didn’t have agreements in place with physician groups affiliated with Cedars-Sinai and UCLA.
The city’s move marked a boost for Blue Shield after its biggest customer, the California Public Employees’ Retirement System, recently took away some of its business. In April, CalPERS voted to break up Blue Shield’s statewide HMO contract for public employees and opted for four new companies alongside Blue Shield.