report on examination of empire healthchoice assurance ... ?· report on examination of empire...

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    AS OF

    DECEMBER 31, 2006

    DATE OF REPORT JUNE 29, 2009




    1. Scope of examination 3

    2. Executive summary 4

    3. Description of Company 5

    A. Management and controls 6 B. Territory and plan of operation 9 C. Holding company system 10 D. Accounts and records 13 E. Internal controls 15 F. Facilitation of examination 17

    4. Financial statements 19

    A. Balance sheet 19 B. Statement of revenue, expenses and capital and



    5. Claims unpaid 22

    6. Compliance with prior report on examination 23

    7. Summary of comments and recommendations 24



    NEW YORK, NEW YORK 10004

    David A. Paterson Eric R. Dinallo Governor Superintendent

    June 29, 2009

    Honorable Eric R. Dinallo Superintendent of Insurance Albany, New York 12257


    Pursuant to the requirements of the New York Insurance Law and acting in accordance

    with the instructions contained in Appointment Number 22489, dated December 22, 2006,

    attached hereto, I have made an examination into the condition and affairs of Empire

    HealthChoice Assurance, Inc., an accident and health insurer, licensed pursuant to Article 42 of

    the New York Insurance Law, as of December 31, 2006 and submit the following report thereon.

    The examination was conducted at the Companys office located at 15 MetroTech Center,

    Brooklyn, New York 11201.

    Wherever the designations EHCA or the Company appear herein, without

    qualification, they should be understood to mean Empire HealthChoice Assurance, Inc.

  • 2

    A concurrent examination was made of Empire HealthChoice HMO, Inc. (EHC), a

    subsidiary health maintenance organization, licensed pursuant to the provisions of Article 44 of

    the New York Public Health Law.

    A separate examination into the manner in which the Company and its subsidiary, EHC,

    conduct their business practices and fulfill their contractual obligations to policyholders and

    claimants was conducted as of December 31, 2006. A separate report thereon has been submitted.

  • 3


    EHCA was previously examined as of December 31, 1999. This examination covers the

    seven-year period from January 1, 2000 through December 31, 2006. Transactions subsequent to

    this period were reviewed where deemed appropriate.

    The examination was conducted in accordance with the 2007 NAIC Financial Condition

    Examiners Handbook (the Handbook). The Handbook requires that the examiner plan and

    perform the examination to evaluate the financial condition and identify prospective risks of

    EHCA by obtaining information about the Company, including corporate governance,

    identifying and assessing inherent risks within the Company and evaluating system controls and

    procedures used to mitigate those risks. The examination also included an assessment of the

    principles used and significant estimates made by management, as well as an evaluation of the

    overall financial statement presentation, managements compliance with statutory accounting

    principles and annual statement instructions, statutes and regulations.

    All accounts and activities of the Company were considered in accordance with the NAIC

    Risk Surveillance approach as defined in the Handbook and the examination was conducted using

    a risk-focused examination approach. This examination approach was included in the Handbook

    for the first time in 2007, thus this was the first such type of examination for the Company.

  • 4

    A review or audit was also made of the following items:

    History of the Company Management and controls Corporate records Territory and plan of operation Growth of the Company Fidelity bonds and other insurance Pensions and employee benefits Loss experience Accounts and records

    A review was also made to ascertain what actions were taken by the Company with

    regard to comments and recommendations made in the prior report on examination.


    The results of this examination revealed certain operational deficiencies that directly

    impacted the Companys compliance with New York Insurance Laws and Regulations.

    Significant findings relative to this examination are as follows:

    It was determined that EHCA was in violation of Sections 1505(b) and (c) of the New York Insurance Law when it failed to obtain the Superintendents approval prior to enacting an agreement with its affiliates.

    It was noted that EHCA needs to improve upon its procedures necessary to facilitate examinations.

  • 5


    Effective November 7, 2002, Empire Blue Cross Blue Shield converted from an Insurance

    Law Article 43 non-profit health services corporation to an Insurance Law Article 42 for-profit

    accident and health insurer, and changed its name to Empire HealthChoice Assurance, Inc. (EHCA).

    Simultaneously with the conversion, Empire Blue Cross and Blue Shield merged with its Article 42

    subsidiary. EHCA continues to do business as Empire Blue Cross Blue Shield in downstate New York

    and Empire Blue Cross in upstate New York and is the owner of Empire HealthChoice HMO, Inc.

    (EHC), a for-profit health maintenance organization (HMO) licensed under Article 44 of the New York

    Public Health Law. As a result of the conversion, WellChoice, Inc. (WC) was established in addition

    to its wholly-owned subsidiary, WellChoice Holdings of New York, Inc. (Holdings). EHCA was a

    wholly-owned subsidiary of Holdings, which in turn was wholly-owned by WC, a for-profit, publicly

    traded holding company.

    On October 18, 2005, Wellpoint, Inc. (WellPoint) an Indiana corporation, and WellPoint

    Holding Corp., a Delaware corporation and a direct wholly-owned subsidiary of WellPoint,

    submitted an application for approval of the acquisition of control of WC. The application was

    submitted pursuant to Section 1506 of the New York Insurance Law and Part 80-1.6 of

    Department Regulation 52 (11 NYCRR 80). Concurrent with this submission was the request for

    the approval of the Commissioner of Health pursuant to Part 98-1.9 of the Administrative Rules

    and Regulations of the Health Department (10 NYCRR 98) for the acquisition of control of EHC,

    a wholly-owned subsidiary of EHCA. These transactions were approved by the Departments of

    Insurance and Health, respectively, on December 28, 2005, and WC, the parent of EHCA and

    EHC, merged with and into WellPoint Holding Corp.

  • 6

    As of the examination date, EHCA also wholly-owned WellChoice Insurance of New

    Jersey, Inc. (WCINJ). WCINJ was a credit, life and health insurance company licensed in eleven

    states, however, it was writing business only in New Jersey.

    EHC, which is wholly-owned by EHCA, is a health maintenance organization (HMO)

    licensed pursuant to the provisions of Article 44 of the New York Public Health Law, was, as of

    the examination date, also licensed to operate in the state of New Jersey as WellChoice HMO of

    New Jersey.

    Subsequent to the exam date, WCINJ was dissolved on October 28, 2008, and WellChoice

    HMO of New Jersey surrendered its certificate of authority from New Jersey on July 7, 2008.

    The Company issued dividends of $75 million and $300 million in 2005 and 2006,

    respectively. The Companys gross paid-in and contributed surplus totaled $77,982,137 as of

    December 31, 2006.

    A. Management and Controls

    The following individuals were members of the board of directors of the Company as of

    December 31, 2006:

    Name and Residence Principal Business Affiliation

    Angela Braly Indianapolis, IN

    Executive VP, General Counsel and Chief Public Affairs Officer, WellPoint, Inc.

    David Colby Lake Sherwood, CA

    Executive VP and CFO, WellPoint, Inc.

    William A. Corrigan Deer Park, NY

    Underwriting, Empire HealthChoice Assurance, Inc.

  • 7

    Name and Residence Principal Business Affiliation

    Christopher Fallon Morristown, NJ

    Sales, Empire HealthChoice Assurance, Inc.

    Jason Gorevic New York, NY

    Senior VP and Chief Marketing and Product Officer, WellPoint, Inc.

    William Hartman Slingerlands, NY

    Customer Care/Claims, Empire HealthChoice Assurance, Inc.

    Gloria M. McCarthy Blauvelt, NY

    Senior VP and Chief Marketing and Product Officer, WellPoint, Inc.

    Nancy Purcell Carmel, IN

    VP and Corporate Secretary, WellPoint, Inc.

    Mary E. Soul Newton, NJ

    Actuary, Empire HealthChoice Assurance, Inc.

    Chrystal Veazey-Watson West Caldwell, NJ

    Associate General Counsel, NY Market, WellPoint, Inc.

    Mark Wagar New York, NY

    President, Chairman and CEO, WellPoint, Inc.

    John Whitney, M.D. Rensselae


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