(Mark One)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-16751
ANTHEM, INC.
(Exact name of registrant as specified in its charter)
Indiana
(State or other jurisdiction of
incorporation or organization)
35-2145715
(I.R.S. Employer Identification Number)
220 Virginia Avenue
Indianapolis, Indiana 46204
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (800) 331-1476
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, Par Value $0.01
Trading symbol(s)
ANTM
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes x No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
x No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
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Accelerated filer
Smaller reporting company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (assuming solely for the purposes of this
calculation that all directors and executive officers of the registrant are “affiliates”) as of June 30, 2020 was approximately $66,230,779,383.
As of February 4, 2021, 244,905,689 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference information from the registrant’s Definitive Proxy Statement for the Annual Meeting of
Shareholders to be held May 26, 2021.
Anthem, Inc.
Annual Report on Form 10-K
For the Year Ended December 31, 2020
Table of Contents
BUSINESS
RISK FACTORS
UNRESOLVED SEC STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
CONTROLS AND PROCEDURES
OTHER INFORMATION
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
FORM 10-K SUMMARY
PART I
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
ITEM 15.
ITEM 16.
SIGNATURES
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References in this Annual Report on Form 10-K to the terms “we,” “our,” “us,” “Anthem” or the “Company” refer to Anthem, Inc., an Indiana
corporation, and, unless the context otherwise requires, its direct and indirect subsidiaries. References to the term “states” include the District of
Columbia, unless the context otherwise requires.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains
certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our views about
future events and financial performance and are generally not historical facts. Words such as “expect,” “feel,” “believe,” “will,” “may,” “should,” “anticipate,”
“intend,” “estimate,” “project,” “forecast,” “plan” and similar expressions are intended to identify forward-looking statements. These statements include, but are not
limited to: financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future
operations, products and services; and statements regarding future performance. Such statements are subject to certain risks and uncertainties, many of which are
difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the
forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. You are also
urged to carefully review and consider the various risks and other disclosures discussed in our reports filed with the U.S. Securities and Exchange Commission
from time to time, which attempt to advise interested parties of the factors that affect our business. Except to the extent otherwise required by federal securities
laws, we do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof. These risks and
uncertainties include, but are not limited to: the impact of large scale medical emergencies, such as public health epidemics and pandemics, including COVID-19,
and catastrophes; trends in healthcare costs and utilization rates; our ability to secure sufficient premium rates, including regulatory approval for and
implementation of such rates; the impact of federal and state regulation, including ongoing changes in the Patient Protection and Affordable Care Act and the
Health Care and Education Reconciliation Act of 2010, as amended (collectively, the “ACA”), and the ultimate outcome of legal challenges to the ACA; changes in
economic and market conditions, as well as regulations that may negatively affect our liquidity and investment portfolios; our ability to contract with providers on
cost-effective and competitive terms; competitive pressures and our ability to adapt to changes in the industry and develop and implement strategic growth
opportunities; reduced enrollment; unauthorized disclosure of member or employee sensitive or confidential information, including the impact and outcome of any
investigations, inquiries, claims and litigation related thereto; risks and uncertainties regarding Medicare and Medicaid programs, including those related to non-
compliance with the complex regulations imposed thereon; our ability to maintain and achieve improvement in Centers for Medicare and Medicaid Services Star
ratings and other quality scores and funding risks with respect to revenue received from participation therein; a negative change in our healthcare product mix; costs
and other liabilities associated with litigation, government investigations, audits or reviews; the ultimate outcome of litigation between Cigna Corporation, and us
related to the merger agreement between the parties and the potential for such litigation to cause us to incur substantial additional costs, including potential
settlement and judgment costs; risks and uncertainties related to our pharmacy benefit management (“PBM”) business, including non-compliance by any party with
the PBM services agreement between us and CaremarkPCS Health, L.L.C.; medical malpractice or professional liability claims or other risks related to healthcare
and PBM services provided by our subsidiaries; general risks associated with mergers, acquisitions, joint ventures and strategic alliances; possible impairment of
the value of our intangible assets if future results do not adequately support goodwill and other intangible assets; possible restrictions in the payment of dividends
from our subsidiaries and increases in required minimum levels of capital; our ability to repurchase shares of our common stock and pay dividends on our common
stock due to the adequacy of our cash flow and earnings and other considerations; the potential negative effect from our substantial amount of outstanding
indebtedness; a downgrade in our financial strength ratings; the effects of any negative publicity related to the health benefits industry in general or us in particular;
failure to effectively maintain and modernize our information systems; events that may negatively affect our licenses with the Blue Cross and Blue Shield
Association; the impact of international laws and regulations; changes in U.S. tax laws; intense competition to attract and retain employees; and various laws and
provisions in our governing documents that may prevent or discourage takeovers and business combinations.
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ITEM 1. BUSINESS.
General
PART I
We are one of the largest health benefits companies in the United States in terms of medical membership, serving approximately 43 million medical
members through our affiliated health plans as of December 31, 2020. We deliver a number of leading health benefit solutions through a broad portfolio of
integrated health plans and related services, along with a wide range of specialty products as well as flexible spending accounts. In the second quarter of
2019, we began using our pharmacy benefits manager called IngenioRx to market and offer pharmacy benefits management (“PBM”) services to our
affiliated health plan customers throughout the country, as well as to customers outside of the health plans we own. In addition, we are expanding our
business into integrated health services through our Diversified Business Group, which includes certain of our subsidiaries such as AIM Specialty Health,
Aspire Health, and Beacon Health Options, Inc. (“Beacon”) and other companies. At the time of its acquisition in 2020, Beacon was the largest
independently held behavioral health organization in the country. Our acquisition of Beacon aligns with our strategy to diversify into health services and
deliver both integrated solutions and care delivery models that personalize care for people with complex and chronic conditions.
We are an independent licensee of the Blue Cross and Blue Shield Association (“BCBSA”), an association of independent health benefit plans. We
serve our members as the Blue Cross licensee for California and as the Blue Cross and Blue Shield (“BCBS”) licensee for Colorado, Connecticut, Georgia,
Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (in the New York City
metropolitan area and upstate New York), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. In a majority of
these service areas, we do business as Anthem Blue Cross, Anthem Blue Cross and Blue Shield, and Empire Blue Cross Blue Shield or Empire Blue Cross.
We also conduct business through arrangements with other BCBS licensees as well as other strategic partners. Through our subsidiaries, we also serve
customers in numerous states across the country as AIM Specialty Health, Amerigroup, Aspire Health, Beacon, CareMore, Freedom Health, HealthLink,
HealthSun, Optimum HealthCare, Simply Healthcare, and/or UniCare. We are licensed to conduct insurance operations in all 50 states and the District of
Columbia through our subsidiaries.
For our insurance products, based on the level of risk we assume in the product contract, we categorize principal funding arrangements as fully-insured
and self-funded. Fully-insured products are products in which we indemnify our policyholders against costs for health benefits. Self-funded products are
offered to customers, generally larger employers, who elect to retain most or all of the financial risk associated with their employees’ healthcare costs.
Some self-funded customers choose to purchase stop loss coverage to limit their retained risk. For our fully-insured products, we charge a premium and
assume the risk for the cost of covered healthcare services. Under self-funded products, we charge a fee for services and the employer or plan sponsor
funds or reimburses us for the healthcare costs. In addition, we charge a premium to underwrite stop loss insurance for employers that maintain self-funded
health plans. We also generate revenues from providing PBM services including prescription drug fulfillment.
We offer a broad spectrum of network-based managed care plans to Large Group, Small Group, Individual, Medicaid and Medicare markets. Our
managed care plans include: Preferred Provider Organizations (“PPOs”); Health Maintenance Organizations (“HMOs”); Point-of-Service (“POS”) plans;
traditional indemnity plans and other hybrid plans, including Consumer-Driven Health Plans (“CDHPs”); and hospital only and limited benefit products. In
addition, we provide a broad array of managed care services to self-funded customers, including claims processing, stop loss insurance, actuarial services,
provider network access, medical cost management, disease management, wellness programs and other administrative services. We provide an array of
specialty and other insurance products and services such as PBM services, dental, vision, life and disability insurance benefits, radiology benefit
management and analytics-driven personal healthcare. We also provide services to the federal government in connection with our Federal Health Products
& Services business (“FHPS”) which administers the Federal Employees Health Benefits (“FEHB”) Program.
An ongoing focus on healthcare costs by employers, the government and consumers has continued to drive the growth of alternatives to traditional
indemnity health insurance. HMO, PPO and hybrid plans are among the various forms of managed care products that have been developed. Through these
types of products, insurers attempt to contain the cost of healthcare by
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negotiating contracts with hospitals, physicians and other providers to deliver high-quality healthcare to members at favorable rates. These products usually
feature medical management and other quality and cost optimization measures such as pre-admission review and approval for certain non-emergency
services, pre-authorization of outpatient surgical procedures, network credentialing to determine that network physicians and hospitals have the required
certifications and expertise, and various levels of care management programs to help members better understand and navigate the healthcare system. In
addition, providers may have incentives to achieve certain quality measures, may share medical cost risk or may have other incentives to deliver quality
medical services in a cost-effective manner. Also, certain plans offer members incentives for healthy behaviors, such as smoking cessation and weight
management. Members are charged periodic, prepaid premiums and generally pay co-payments, coinsurance and/or deductibles when they receive services.
While the distinctions between the various types of plans have lessened over recent years, PPO, POS and CDHP products generally provide reduced
benefits for out-of-network services, while traditional HMO products generally provide little to no reimbursement for non-emergency out-of-network
utilization, but often offer more generous benefit coverage. An HMO plan may also require members to select one of the network primary care physicians
(“PCPs”) to coordinate their care and approve any specialist or other services.
Economic factors, greater consumer and employer sophistication and accountability have resulted in an increased demand for choice in both
product/benefit designs and provider network configurations. As a result, we continue to offer our broad access PPO networks with multiple benefit
designs, but are also focused on leveraging our provider collaboration initiatives with our accountable care organization (“ACO”) partnerships to develop
both narrow and tiered network offerings. This array of network and product configurations allows both the employer and the employee to design and
select the combination of benefit designs (e.g., traditional PPOs, high deductibles, health reimbursement accounts, health savings accounts, PCP based
products, tiered copays) and networks (e.g., broad, narrow, tiered, closed or exclusive provider, and open) that optimize choice, quality and price at the
consumer, employer and market level. We believe we are well-positioned in each of our states to respond to these market preferences.
Our medical membership includes seven different customer types: Local Group, Individual, National Accounts, BlueCard , Medicare, Medicaid and
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FEHB. In addition, we also serve customers who purchase one or more of our other products or services that are often ancillary to our health business.
Our products are generally developed and marketed with an emphasis on the differing needs of our customers. In particular, our product development
and marketing efforts take into account the differing characteristics between the various customers served by us, as well as the unique needs of educational
and public entities, labor groups, FEHB program, national employers and state-run programs servicing low-income, high-risk and underserved markets.
Overall, we seek to establish pricing and product designs to provide value for our customers while achieving an appropriate level of profitability for each of
our customer categories balanced with the competitive objective to grow market share. We believe that one of the keys to our success has been our focus on
these distinct customer types, which better enables us to develop benefit plans and services that meet our customers’ unique needs. Further, IngenioRx was
built to simplify pharmacy care and focus on the whole person, and we expect it will make it easier for our customers to achieve better health outcomes at a
lower total cost of care.
We market our Individual, Medicare and certain Local Group products through direct marketing activities and an extensive network of independent
agents, brokers and retail partnerships. Products for National Accounts and Local Group customers with a larger employee base are generally sold through
independent brokers or consultants retained by the customer who work with industry specialists from our in-house sales force. In the Individual and Small
Group markets, we offer on-exchange products through state- or federally-facilitated marketplaces, referred to as public exchanges, and off-exchange
products. Federal subsidies are available for certain members, subject to income and family size, who purchase public exchange products.
Being a licensee of the BCBS association of companies, of which there were 36 independent primary licensees including us as of December 31, 2020,
provides significant market value, especially when competing for very large multi-state employer groups. For example, each BCBS member company is
able to utilize other BCBS licensees’ substantial provider networks and discounts when any BCBS member works or travels outside of the state in which
their policy is written. This program is referred to as BlueCard and is a source of revenue when we provide member services in the states where we are the
BCBS licensee to individuals who are customers of BCBS plans not affiliated with us. This program also provides a national provider network for our
members when they travel to other states. See “BCBSA Licenses” herein for additional information on our BCBSA licenses. We refer to members in our
service areas licensed by the BCBSA as our BCBS-branded
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business. Non-BCBS-branded business refers to members in our non-BCBS-branded Amerigroup, Freedom Health, HealthSun, Optimum Health Care and
Simply Healthcare plans, as well as Beacon, HealthLink and UniCare members.
For additional information describing each of our customer types, detailed marketing efforts and changes in medical membership over the last three
years, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of this Annual Report on
Form 10-K.
Our results of operations depend in large part on our ability to accurately predict and effectively manage healthcare costs through effective contracting
with providers of care to our members, product pricing, medical management and health and wellness programs, including service coordination and case
management for addressing complex and specialized healthcare needs, innovative product design and our ability to maintain or achieve improvement in our
Centers for Medicare and Medicaid Services (“CMS”) Star ratings. CMS Star ratings affect Medicare Advantage plan reimbursements as well as our
eligibility to earn quality-based bonus payments for those plans. See “Regulation” herein for additional information on our CMS Star ratings. For additional
information on our networks and provider relations, product pricing and healthcare cost management programs, see “Networks and Provider Relations”,
“Pricing and Underwriting of Our Products”, “Medical Management Programs”, “Care Management Programs” and “Healthcare Quality Initiatives”
herein.
Advances in medical technology, increases in specialty drug costs, increases in hospital expenditures and other provider costs, the aging of the
population, other demographic characteristics and the COVID-19 pandemic continue to contribute to rising healthcare costs. Our managed care plans and
products are designed to encourage providers and members to participate in quality, cost-effective health benefit programs by using the full range of our
innovative medical management services, quality initiatives and financial incentives. Our market share and high business retention rates enable us to realize
the long-term benefits of investing in preventive and early detection programs. Our ability to provide cost-effective health benefits products and services is
enhanced through a disciplined approach to internal cost containment, prudent management of our risk exposure and successful integration of acquired
businesses. In addition, our ability to manage selling, general and administrative costs continues to be a driver of our overall profitability.
The future results of our operations will also be impacted by certain external forces and resulting changes in our business model and strategy. The
continuing growth in our government-sponsored business exposes us to increased regulatory oversight. The Patient Protection and Affordable Care Act and
the Health Care and Education Reconciliation Act of 2010, as amended (collectively, the “ACA”), has changed and may continue to make broad-based
changes to the U.S. healthcare system. The ACA presented us with new growth opportunities, but also introduced new risks, regulatory challenges and
uncertainties, and required changes in the way products are designed, underwritten, priced, distributed and administered. We currently offer Individual
ACA-compliant products in 103 of the 143 rating regions in which we operate. Our strategy has been, and will continue to be, to only participate in rating
regions where we have an appropriate level of confidence that these markets are on a path toward sustainability, including, but not limited to, factors such
as expected financial performance, regulatory environment, and underlying market characteristics. Changes to our business environment are likely to
continue as elected officials at the national and state levels continue to enact, and both elected officials and candidates for election continue to propose,
significant modifications to existing laws and regulations, including changes to taxes and fees. In addition, the legal challenges regarding the ACA,
including a federal district court decision invalidating the ACA, which was argued before the U.S. Supreme Court in November 2020 and has been stayed
pending the U.S. Supreme Court’s decision, continue to contribute to this uncertainty. We will continue to evaluate the impact of the ACA as additional
guidance is made available and any further developments or judicial rulings occur. For additional discussion, see “Regulation” herein and Part I, Item 1A
“Risk Factors” in this Annual Report on Form 10-K.
In addition to the external forces discussed in the preceding paragraph, our results of operations are impacted by levels and mix of membership which
can change as a result of the quality and pricing of our health benefits products and services, aging population, economic conditions, changes in
unemployment, acquisitions, entry into new markets and expansions in or exits from existing markets. These membership trends could be negatively
impacted by various factors that could have a material adverse effect on our future results of operations such as general economic downturns that result in
business failures, failure to obtain new customers or retain existing customers, premium increases, benefit changes or our exit from a specific market. See
Part I, Item 1A “Risk Factors” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in
this Annual Report on Form 10-K.
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We believe healthcare is local and that we have the strong local presence required to understand and meet local customer needs with regard to any
product they are enrolled in with us. Further, we believe we are well-positioned to deliver what customers want: innovative, choice-based and affordable
products; distinctive service; simplified transactions; and better access to information for quality care. Our local presence, combined with our national
expertise, has created opportunities for collaborative programs that reward physicians and hospitals for clinical quality and excellence. We feel that our
commitment to health improvement and care management provides added value to customers and healthcare professionals. Ultimately, we believe that
practical and sustainable improvements in healthcare must focus on improving healthcare quality while managing costs for total affordability. We have
implemented initiatives driving payment innovation and partnering with providers to lower cost and improve the quality of healthcare for our members, and
we continue to develop new and innovative ways to effectively manage risk and engage our members. Further, we are expanding our financial
arrangements with providers to include payment models that encourage value-based care. We believe focusing on quality of care rather than volume of care
is the foundation for improving patient outcomes. Our value-based payment model supports patient-centered care by improving collaboration between
providers and health partners and delivering to our patients the right care, at the right time, in the right place. In addition, we are focused on achieving
efficiencies from our national scale while optimizing service performance for our customers. Finally, we expect to continue to rationalize our portfolio of
businesses and products and align our investments to capitalize on new opportunities to drive growth in our existing markets and expand into new markets
in the future.
We continue to enhance interactions with customers, providers, brokers, agents, employees and other stakeholders through digital technology and
improving internal operations. Our approach includes not only the sales and distribution of health benefits products through digital technology, but also
implementing advanced capabilities that improve services benefiting customers, agents, brokers, and providers while optimizing administrative costs.
These enhancements can also help improve the quality, coordination and safety of healthcare through increased communications between patients and their
physicians.
At Anthem, we strive to improve the health of humanity. We believe in working together to achieve our mission of improving lives and communities,
simplifying healthcare and expecting more. As we seek to accomplish these goals through a collaborative focus on execution and delivering for those we
serve, our vision is to be the most innovative, valuable and inclusive health partner. We focus on ensuring quality products and services that give members
access to the care they need. With an unyielding commitment to meeting the needs of our diverse customers, we are guided by the following values:
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Leadership – Redefine what is possible
Community – Committed, connected, invested
Integrity – Do the right thing, with a spirit of excellence
• Agility – Delivery today, transform tomorrow
• Diversity – Open your hearts and minds
In pursuing our vision, we intend to transform healthcare by providing trusted and caring solutions and delivering quality products and services that
give customers access to the care they need. At the same time, we will focus on earnings, organic membership growth, improvements in our operating cost
structure, strategic acquisitions and the efficient use of capital.
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COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus (“COVID-19”) a global health pandemic. The
COVID-19 pandemic continues to evolve, and the virus and mitigation efforts have continued to impact the global economy, cause market instability,
increase unemployment in the United States, and put pressure on the healthcare system, and it has impacted and will continue to impact our membership
and benefit expense. As the COVID-19 pandemic continues, we remain focused on increasing access and coverage for our members, making changes to
our membership benefits and business operations and adapting tools and policies to assist consumers and care providers, including:
• Waiving cost-sharing for COVID-19 diagnostic tests and treatment;
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Providing expanded telehealth coverage for our Medicare and Medicaid plans, where permissible, and waiving cost-sharing for in-network
telehealth visits, including telephonic visits and those for mental health;
Providing expanded telehealth coverage for our members in fully-insured employer plans and Individual plans (we also waived cost-sharing for
in-network telehealth and phone visits through September 30, 2020);
Encouraging the use of home delivery services to enable access to necessary medications and relaxing early prescription refill policies for
maintenance and specialty medications for our members in fully-insured employer plans and Individual plans at least through September 30, 2020,
and for Medicare and Medicaid plans in accordance with applicable regulations;
Providing a one-month premium credit to members enrolled in select individual plans and to fully insured employer group customers ranging from
10 to 15 percent of the monthly premium;
Providing a one-month premium credit of 50 percent of the monthly premium to individuals in stand-alone and group dental plans;
Leveraging data and advanced analytics to provide innovative solutions in response to the COVID-19 pandemic, and introducing a suite of digital
tools that serve various functions, including providing member data and updates related to COVID-19, aggregating real-time COVID-19 data to
present trends and predictions for our communities, and providing individuals with resources for mental health and free or reduced-cost programs
that provide food, transportation, childcare and more;
Providing support to care provider partners of our affiliated health plans to help them continue to focus on caring for patients, including funding
and financial assistance, working with care providers to accelerate claims processing for outstanding accounts receivables, resolve claims where
possible and appropriate, and accelerate payments to support state-specific Medicaid programs;
Simplifying access to care by temporarily suspending select prior authorization requirements for certain services and equipment critical to
COVID-19 treatment;
• Offering in-network dental providers a $10 personal protective equipment credit per patient, per visit, through December 31, 2020;
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Transitioning the majority of our employees to a remote work environment, expanding our employee benefits to provide additional support,
imposing travel limitations and implementing workplace modifications consistent with the Centers for Disease Control and Prevention guidelines
and social distancing protocols;
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Committing to lifting up our local communities through a variety of partnership and relief efforts, contributing $50 million to the Anthem
Foundation to support its COVID-19 response and recovery efforts to help areas of greatest need, including care provider safety, food insecurity,
and mental and behavioral health resources; and
Sponsoring and participating in collaborative efforts to promote innovative solutions related to COVID-19 and healthcare needs caused by the
pandemic.
For additional discussion see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations–COVID-19”
included in this Annual Report on Form 10-K. For information regarding our risks related to the COVID-19 pandemic and our other risk factors, see Part I,
Item 1A, “Risk Factors,” included in this Annual Report on Form 10-K.
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Competition
The managed care industry is highly competitive, both nationally and in our local markets. Competition continues to be intense due to aggressive
marketing, pricing, government-sponsored programs bid activity, business consolidations, new strategic alliances, new competitors in the market, a
proliferation of new products, technological advancements, the impact of legislative reform, increased quality awareness and price sensitivity among
customers and changing market practice such as increased usage of telehealth.
We believe that participants in the managed care industry compete for customers based on quality of service, price, access to provider networks, access
to care management and wellness programs (including health information), innovation, effective use of technology such as electronic data transfer, breadth
and flexibility of products and benefits, expertise and reputation (including National Committee on Quality Assurance (“NCQA”) accreditation status as
well as CMS Star ratings), brand recognition and financial stability. Our ability to attract and retain customers is substantially tied to our ability to
distinguish ourselves from our competitors in these areas.
We believe our exclusive right to market products under the most recognized brand in the industry, BCBS, in our most significant markets provides us
with greater brand recognition over competitive product offerings. Typically, we are the largest participant in each of our BCBS branded markets and, thus,
are a closely-watched target by other insurance competitors.
Product pricing remains competitive and we strive to price our healthcare benefit products and design our Medicare and Medicaid bids consistent with
anticipated underlying medical trends. We believe our pricing and bid strategy, based on predictive modeling, proprietary research and data-driven
processes, has positioned us to benefit from the potential growth opportunities available through entry into new markets, expansions in existing markets
and as a result of any future changes to the current regulatory scheme. We believe that our pricing and bid strategy, brand name and network quality will
provide a strong foundation for membership growth opportunities in the future.
Our provider networks give us a highly competitive unit cost position and provide distinctive service levels which allow us to offer a broad range of
affordable health benefit products to our customers. To build our provider networks, we compete with other health benefits plans for the best contracts with
hospitals, physicians and other providers. We believe that physicians and other providers primarily consider customer volume, reimbursement rates,
timeliness of reimbursement and administrative service capabilities along with the reduction of non-value added administrative tasks when deciding
whether to contract with a health benefits plan.
At the sales and distribution level, we compete for qualified agents and brokers to recommend and distribute our products. Strong competition exists
among insurance companies and health benefits plans for agents and brokers with demonstrated ability to secure new business and maintain existing
accounts. We believe that the quality and price of our products, support services, reputation and prior relationships, along with a reasonable commission
structure, are the factors agents and brokers consider in choosing whether to market our products. We believe that we have good relationships with our
agents and brokers, and that our products, support services and commission structure compare favorably to those of our competitors in all of our markets.
In addition, the PBM industry is highly competitive, and IngenioRx is subject to competition from national, regional and local PBMs, insurers, health
plans, large retail pharmacy chains, large retail stores, supermarkets, other mail order pharmacies, web pharmacies and specialty pharmacies. Strong
competition within the PBM industry has generated greater demand for lower product and service pricing, increased revenue sharing and enhanced product
and service offerings.
Reportable Segments
We manage our operations through four reportable segments: Commercial & Specialty Business, Government Business, IngenioRx and Other. We
regularly evaluate the appropriateness of our reportable segments, particularly in light of organizational changes, merger and acquisition activity and
changing laws and regulations.
Our Commercial & Specialty Business and Government Business segments both offer a diversified mix of managed care products, including PPOs,
HMOs, traditional indemnity benefits and POS plans, as well as a variety of hybrid benefit plans including CDHPs, hospital only and limited benefit
products.
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Our Commercial & Specialty Business segment includes our Local Group, National Accounts, Individual and Specialty businesses. Business units in
the Commercial & Specialty Business segment offer fully-insured health products; provide a broad array of managed care services to self-funded customers
including claims processing, stop loss insurance, provider network access, medical cost management, disease management, wellness programs,
underwriting, actuarial services and other administrative services; and provide an array of specialty and other insurance products and services such as
dental, vision, life and disability insurance benefits.
Our Government Business segment includes our Medicare and Medicaid businesses, National Government Services (“NGS”) and services provided to
the federal government in connection with our FHPS business. Medicaid makes federal matching funds available to all states for the delivery of healthcare
benefits to eligible individuals, principally those with incomes below specified levels who meet other state-specified requirements. Medicaid is structured
to allow each state to establish its own eligibility standards, benefits package, payment rates and program administration under broad federal guidelines.
Our Medicare customers are Medicare-eligible individual members age 65 and over who have enrolled in Medicare Advantage, a managed care alternative
for the Medicare program, or who have purchased Medicare Supplement benefit coverage, some disabled members under age 65, or members of all ages
with end stage renal disease. Medicare Supplement policies are sold to Medicare recipients as supplements to the benefits they receive from the Medicare
program. Medicare Supplement policy rates are filed with, and in some cases approved by, state insurance departments. Most of the premium for Medicare
Advantage is based on bids submitted to CMS and paid directly by the federal government on behalf of the participant who may also be charged a small
premium. Additionally, through our alliance partnership engagements with larger provider groups and BCBS plans, we offer a variety of Medicaid and
Medicare services that include joint ventures, administrative service offerings, and full-risk arrangements. NGS acts as a Medicare contractor for the
federal government in several regions across the nation.
Our IngenioRx segment includes our PBM business, which began its operations during the second quarter of 2019. IngenioRx markets and offers PBM
services to our affiliated health plan customers, as well as to external customers outside of the health plans we own. IngenioRx has a comprehensive PBM
services portfolio, which includes services such as formulary management, pharmacy networks, prescription drug database, member services and mail
order capabilities. In 2019, IngenioRx was included in our Other reportable segment.
Our Other segment includes our Diversified Business Group (“DBG”), which is our integrated health services business, and certain eliminations and
corporate expenses not allocated to our other reportable segments.
For additional information, see Note 20, “Segment Information”, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this
Annual Report on Form 10-K.
We experience seasonality in our Commercial & Specialty Business and Government Business segments. While our premium revenues are not
seasonal, our benefit costs typically increase during the year as our fully-insured members pay their annual deductibles and reach their out-of-pocket
maximum limits. However, this seasonality may change in the future as the COVID-19 pandemic continues and COVID-19 vaccines become widely
available. Our expenses associated with COVID-19, including testing and treatment and the actions taken to support our members in response to the
pandemic, accelerated in the fourth quarter of 2020 and exceeded the benefit we experienced during the quarter from the lower volume of healthcare claims
attributable to decreased utilization of non-COVID-19 health services.
Through our participation in various federal government programs, we generated approximately 20.3%, 20.7% and 19.8% of our total consolidated
revenues from agencies of the U.S. government for the years ended December 31, 2020, 2019 and 2018, respectively. These revenues are contained in the
Government Business segment. An immaterial amount of our total consolidated revenues is derived from activities outside of the U.S.
Product and Service Descriptions
A general description of our products and services is provided below:
Preferred Provider Organization: PPO products offer the member an option to select any healthcare provider, with benefits reimbursed by us at a
higher level when care is received from a participating network provider. Increasingly, customers are choosing our PPO products offered with an exclusive
provider organization, which eliminates coverage out of
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network. Coverage is subject to co-payments or deductibles and coinsurance, with member cost sharing usually limited by out-of-pocket maximums.
Consumer-Driven Health Plans: CDHPs provide consumers with increased financial responsibility, choice and control regarding how their
healthcare dollars are spent. Generally, CDHPs combine a high-deductible PPO plan with an employer-funded and/or employee-funded personal care
account, which may result in tax benefits to the employee. Some or all of the dollars remaining in the personal care account at year-end can be rolled over
to the next year for future healthcare needs.
Traditional Indemnity: Indemnity products offer the member an option to select any healthcare provider for covered services. Coverage is subject to
deductibles and coinsurance, with member cost sharing usually limited by out-of-pocket maximums.
Health Maintenance Organization: HMO products include comprehensive managed care benefits, generally through a participating network of
physicians, hospitals and other providers. A member in one of our HMOs must typically select a PCP from our network. PCPs generally are family
practitioners, internists or pediatricians who provide necessary preventive and primary medical care, and are generally responsible for coordinating other
necessary healthcare services. We offer HMO plans with varying levels of co-payments, which result in different levels of premium rates.
Point-of-Service: POS products blend the characteristics of HMO, PPO and indemnity plans. Members can have comprehensive HMO-style benefits
through participating network providers with minimum out-of-pocket expenses (co-payments) and also can go directly, without a referral, to any provider
they choose, subject to, among other things, certain deductibles and coinsurance. Member cost sharing is limited by out-of-pocket maximums.
Public Exchange and Off-Exchange Products: Individual and Small Group products cover essential health benefits as defined in the ACA along with
many other requirements and cost-sharing features. Individual and Small Group products offered on and off the public exchanges meet the definition of the
“metal” product requirements (bronze, silver, gold and platinum) and each metal product must satisfy a specific actuarial value with respect to essential
benefits. Health insurers participating on the public exchanges must offer at least one silver and one gold product.
Administrative Services: In addition to fully-insured products, we provide administrative services to Large Group, Small Group and National
Account employers that maintain self-funded health plans. These administrative services include claims processing, medical cost management, disease
management, wellness programs, underwriting, actuarial services and other administrative services for self-funded employers. Self-funded health plans are
also able to use our provider networks and to realize savings through our negotiated provider arrangements, while allowing employers the ability to design
certain health benefit plans in accordance with their own requirements and objectives. We also underwrite stop loss insurance for self-funded plans.
BlueCard : BlueCard is a national program that links participating healthcare providers and independent BCBS plans. BlueCard host members
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are generally members who reside in or travel to a state in which an Anthem subsidiary is the Blue Cross and/or Blue Shield licensee and who are covered
under an employer-sponsored health plan serviced by a non-Anthem controlled BCBS licensee, which is the “home” plan. We perform certain
administrative functions for BlueCard host members, including claims pricing and administration for which we receive administrative fees from the
BlueCard members’ home plans. Other administrative functions, including maintenance of enrollment information and customer service, are performed by
the home plan.
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Medicare Plans: We offer a wide variety of plans, products and options to individuals age 65 and older such as Medicare Supplement plans;
Medicare Advantage, including Special Needs Plans (“SNPs”), also known as Medicare Advantage SNPs; Medicare Part D Prescription Drug Plans
(“Medicare Part D”); and dual-eligible programs through Medicare-Medicaid Plans (“MMPs”). Medicare Supplement plans typically pay the difference
between healthcare costs incurred by a beneficiary and amounts paid by Medicare. Medicare Advantage plans provide Medicare beneficiaries with a
managed care alternative to traditional Medicare and often include a Medicare Part D benefit. In addition, our Medicare Advantage SNPs provide tailored
benefits to special needs individuals who are institutionalized or have severe or disabling chronic conditions and to dual-eligible customers, who are low-
income seniors and persons under age 65 with disabilities. Medicare Advantage SNPs are coordinated care plans specifically designed to provide targeted
care, covering all the healthcare services considered medically necessary for members and often providing professional care coordination services, with
personal guidance and programs that help members maintain their health. Medicare Advantage membership also
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includes Medicare Advantage members in our Group Retiree Solutions business who are related to National Accounts, retired members of Local Group
accounts, or retired members of groups who are not affiliated with our Commercial accounts who have selected a Medicare Advantage product through us.
Medicare Part D offers a prescription drug plan to Medicare and MMP beneficiaries. MMP is a demonstration program focused on serving members who
are dually eligible for Medicaid and Medicare, which was established as a result of the passage of the ACA.
Individual Plans: We offer a full range of health insurance plans with a variety of options and deductibles for individuals who are not covered by
employer-sponsored coverage and are not eligible for government sponsored plans, such as Medicare and/or Medicaid. Individual policies are generally
sold through independent agents and brokers, retail partnerships, our in-house sales force or via the exchanges. Individual business is sold on a fully-
insured basis. We offer on-exchange products through public exchanges and off-exchange products. Federal premium subsidies are available only for
certain public exchange Individual products. Unsubsidized Individual customers are generally more sensitive to product pricing and, to a lesser extent, the
configuration of the network and the efficiency of administration. Instability in the Individual market has resulted in a targeted approach where we offer
products in select geographies.
Medicaid Plans and Other State-Sponsored Programs: We have state contracts to serve members enrolled in publicly funded healthcare programs,
including Medicaid; ACA-related Medicaid expansion programs; Temporary Assistance for Needy Families (“TANF”); programs for seniors and people
with disabilities (“SPD”); Children’s Health Insurance Programs (“CHIP”); and specialty programs such as those focused on long-term services and
support (“LTSS”), HIV/AIDS, children living in foster care, behavioral health and/or substance abuse disorders, and intellectual disabilities and/or
developmental disabilities (“ID/DD programs”). The Medicaid program makes federal matching funds available to all states for the delivery of healthcare
benefits for low income and/or high medical risk individuals. These programs are managed by the individual states based on broad federal guidelines.
TANF is a state and federally funded program designed for a population consisting primarily of low-income children and their guardians. SPD is a federal
income supplement program designed for Supplemental Security Income recipients; however, states can broaden eligibility criteria. This population
generally consists of low-income seniors and people with disabilities. CHIP is a state and federally funded program that provides healthcare coverage to
children not otherwise covered by Medicaid or other insurance programs. LTSS is a state and federally funded program that offers states a broad and
flexible set of program design options and covers the delivery of long-term services and support for our members who receive home and community- or
institution-based services for long-term care. Our HIV/AIDS program is a state and federally sponsored program that provides services to those living with
HIV/AIDS. Our foster care program is a state and federally sponsored program serving children with complex needs within the foster care system. Our
behavioral health program is a state and federally sponsored program providing services to those with mental health and/or substance abuse disorders.
ID/DD is a state and federally sponsored program serving those living with limitations in intellectual functioning and adaptive behavior learning
disabilities. Our Medicaid plans also cover certain dual-eligible customers, as previously described above, who also receive Medicare benefits. We provide
Medicaid and other state sponsored services, such as administrative services, in Arkansas, California, Colorado, Florida, Georgia, Indiana, Iowa, Kentucky,
Louisiana, Maryland, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New York, South Carolina, Tennessee, Texas, Virginia, Washington, West
Virginia, and Wisconsin.
Pharmacy Products: In the second quarter of 2019, we began using IngenioRx to market and offer PBM services to our affiliated health plan
customers throughout the country, as well as to customers outside of the health plans we own. Our comprehensive PBM services portfolio includes features
such as formulary management, pharmacy networks, a prescription drug database, member services, and mail order capabilities. IngenioRx delegates
certain PBM administrative functions, such as claims processing and prescription fulfillment, to CaremarkPCS Health, L.L.C., which is a subsidiary of
CVS Health Corporation (“CVS Health”), pursuant to a five-year agreement (the “CVS PBM Agreement”). With IngenioRx, we retain the responsibilities
for clinical and formulary strategy and development, member and employer experiences, operations, sales, marketing, account management and retail
network strategy. From December 2009 through December 2019, we delegated certain PBM functions and administrative services to Express Scripts Inc.
(“Express Scripts”). Express Scripts managed the network of pharmacy providers, operated mail order pharmacies and processed prescription drug claims
on our behalf, while we sold and supported the product for our members, made formulary decisions, sold drug benefit design strategy and provided front
line member support. We began transitioning existing members from Express Scripts to IngenioRx in the second quarter of 2019, and completed the
transition by January 1, 2020.
Behavioral Health: We offer managed care and member services for behavioral health and/or substance use disorders under contracts with state
publicly funded healthcare programs, including Medicare and Medicaid, and through private health
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plans and ACOs. In addition, we provide management and member benefit services for employee assistance plans to private employers and the federal
government’s Military OneSource support services. Through our subsidiary, Beacon, we also provide direct behavioral health counseling services through
licensed clinicians in convenient and accessible locations, principally within a retail store environment.
Life Insurance: We offer an array of competitive individual and group life insurance benefit products to both Large Group and Small Group
customers in conjunction with our health plans. The life insurance products include term life and accidental death and dismemberment.
Disability: We offer short-term and long-term disability products, usually in conjunction with our health plans.
Dental: Our dental plans include networks in certain states in which we operate. Many of the dental benefits are provided to customers enrolled in
our health plans and are offered on both a fully-insured and self-funded basis. Our members also have access to additional dental providers through our
participation in the National Dental GRID, a national dental network developed by and for BCBS plans. The National Dental GRID includes dentists in all
50 states and the District of Columbia and provides multi-state customers with a national solution that offers in-network discounts across the country.
Additionally, we offer managed dental services to other healthcare plans to assist those plans in providing dental benefits to their customers.
Vision Services and Products: Our vision plans include networks within the states in which we operate. Many of the vision benefits are provided to
customers enrolled in our health plans and are offered on both a fully-insured and self-funded basis.
Medicare Administrative Operations: Through our subsidiary, NGS, we serve as a fiscal intermediary, carrier and Medicare administrative contractor
for the federal government by providing administrative services for the Medicare program, Parts A and B, which generally provides coverage for persons
who are 65 or older and for persons who are under 65 and disabled or with end-stage renal disease. Part A of the Medicare program provides coverage for
services provided by hospitals, skilled nursing facilities and other healthcare facilities. Part B of the Medicare program provides coverage for services
provided by physicians, physical and occupational therapists and other professional providers, as well as certain durable medical equipment and medical
supplies.
Radiology Benefit Management: We offer outpatient diagnostic imaging management services to health plans, which promote the most appropriate
use of clinical services to improve the quality of care delivered to members. These services include utilization management for advanced diagnostic
imaging procedures, network development and optimization, patient safety, claims adjudication and provider payment.
Personal Healthcare Guidance: We offer evidence-based and analytics-driven personal healthcare guidance. These services help improve the
quality, coordination and safety of healthcare, enhance communications between patients and their physicians, and reduce medical costs.
Networks and Provider Relations
Our relationships with physicians, hospitals and professionals that render healthcare services to our members are guided by local, regional and national
standards for network development, reimbursement and contract methodologies. While following industry standards, we are simultaneously seeking to lead
transformation efforts within our healthcare system, moving from a fragmented model premised on episodic intervention to one based on proactive,
coordinated care built around the needs of the patient. A key element of this transformation involves a transition from traditional fee-for-service payment
models to models where providers are paid based on the value, both in quality and affordability, of the care they deliver.
We establish “market-based” hospital reimbursement payments that we believe are fair, but aggressive, and among the most competitive in the market.
We also seek to ensure that physicians in our network are paid in a timely manner at appropriate rates. In many instances, we deploy multi-year contracting
strategies, including case rates or fixed rates, to limit our exposure to medical cost inflation and to increase cost predictability. We maintain both broad and
narrow provider networks to ensure member choice, based on both price and access needs, while implementing programs designed to improve the quality
of care our members receive. Increasingly, we are supplementing our broad-based networks with smaller or more
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cost-effective networks that are designed to be attractive to a more price-sensitive customer segment, such as public exchange customers.
Our reimbursement strategies vary across markets and depend on the degree of consolidation and integration of physician groups and hospitals. Under
a fee-for-service reimbursement methodology for physicians, fee schedules are developed at the state level based on an assessment of several factors and
conditions, including the CMS resource-based relative value system (“RBRVS”), medical practice cost inflation and physician supply. We utilize CMS
RBRVS fee schedules as a reference point for fee schedule development and analysis. The RBRVS structure was developed, maintained, and updated by
CMS and is used by the Medicare program and other major payers. In addition, we have implemented and continue to expand physician incentive
contracting, or “pay-for-performance,” which ties physician payment levels to performance on clinical measures.
While we generally do not delegate full financial responsibility to our physician providers in the form of capitation-based reimbursement, we maintain
capitation-based arrangements in certain markets where we determine that market dynamics result in it being a useful method to lower costs and reduce
underwriting risk.
Our hospital contracts provide for a variety of reimbursement arrangements depending on local market dynamics and current hospital utilization
efficiency. Most hospitals are reimbursed a fixed amount per day or reimbursed a per-case amount, per admission, for inpatient covered services. A small
percentage of hospitals, primarily rural, sole community hospitals, are reimbursed on a discount from approved charge basis for covered services. Our “per-
case” reimbursement methods utilize many of the same attributes contained in Medicare’s Diagnosis Related Groups methodology. Hospital outpatient
services are reimbursed by fixed case rates, fee schedules or percent of approved charges. Our hospital contracts recognize unique hospital attributes, such
as academic medical centers or community hospitals, and the volume of care performed for our members. To improve predictability of expected costs, we
frequently use a multi-year contracting approach with providers. In addition, the majority of our hospital contracts include a pay-for-performance
component where reimbursement levels are linked to improved clinical performance, patient safety and medical error reduction.
Our provider engagement and contracting strategies are moving away from “unit price” or volume-based payment models to payment models that
align compensation with the value delivered as measured by healthcare outcomes, quality and cost. Our Enhanced Personal Health Care program augments
traditional fee-for-service with shared savings opportunities for providers when actual healthcare costs are below projected costs and providers meet
specific quality measures. The quality measures are based on nationally accepted, credible standards (e.g., NCQA, the American Diabetes Association and
the American Academy of Pediatrics) and span preventive, acute and chronic care. We understand, however, that payment incentives alone are insufficient
to create the large-scale, system-wide transformation required to achieve meaningful impacts on cost, quality and member experience. Accordingly, we are
investing in care delivery transformation and population health management support structures to help providers succeed under value-based payment
models. This support includes our web-based population health management technology and teams of dedicated practice consultants who work alongside
providers, sharing best practices, and helping them leverage our data to the benefit of their patients. In some of these arrangements, participating physician
practices receive a per-member, per-month clinical coordination fee to compensate them for important care management activities that occur outside of the
patient visit (e.g., purchasing an electronic health record or hiring care management nurses), all of which have been shown to reduce healthcare costs and
improve care outcomes. Since the launch of our Enhanced Personal Health Care program, we now have arrangements with provider organizations covering
52% of our PCPs and have rolled this program out in each of the 14 states where we operate as a licensee of the BCBSA.
Medical Management Programs
Our medical management programs include a broad array of activities that facilitate improvements in the quality of care provided to our members and
promote cost-effective medical care. These medical management activities and programs are administered and directed by physicians and nurses. The goals
of our medical management strategies are to ensure that the care delivered to our members is supported by appropriate medical and scientific evidence, is
received on a timely basis and occurs in the most appropriate setting. The following is a general description of our medical management programs, which
are available to our members depending on the particular plan or product in which they participate:
Precertification: A traditional medical management program involves assessment of the appropriateness of certain hospitalizations and other medical
services prior to the services being rendered. For example, precertification is used to
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determine whether a set of hospital and medical services is being appropriately applied to the member’s clinical condition, in accordance with criteria for
medical necessity as that term is defined in the member’s benefits contract. All of our health plans have implemented precertification programs for selected
medical services including surgeries, major diagnostic procedures, devices, drugs and other services to help members maximize benefits and avoid
unnecessary charges or penalties. Through our American Imaging Management, Inc. subsidiary, doing business as AIM Specialty Health (“AIM”) we
promote appropriate, safe and affordable member care in the areas of imaging, sleep disorders, cardiac testing, oncology drugs and musculoskeletal
procedures. These expanded specialty benefit management solutions leverage clinical expertise and technology to engage our provider communities and
members in more effective and efficient use of outpatient services.
Care coordination: Another traditional medical management strategy we use is care coordination, which is based on nationally recognized criteria
developed by third-party medical specialists. With inpatient care coordination, the requirements and intensity of services during a patient’s hospital stay are
reviewed, at times by an onsite, skilled nurse professional in collaboration with the hospital’s medical and nursing staff, in order to coordinate care and
determine the most effective transition of care from the hospital setting. In addition, continued stay cases are reviewed with physician medical directors to
ensure appropriate utilization of medical services. We also coordinate care for outpatient services to help ensure that patients with chronic conditions who
receive care from multiple physicians are able to manage the exchange of information between physicians and coordinate office visits to their physicians.
Case management: We have implemented a medical management strategy focused on identifying the small percentage of the membership that will
require a high level of intervention and assistance to manage their healthcare needs. Case management identifies members who are likely to be re-admitted
to the hospital through claims analysis using predictive modeling techniques, the use of health risk assessment data, utilization management reports and
referrals from a physician or one of our other programs, such as the 24/7 NurseLine. Registered nurses, medical directors, behavioral health experts,
pharmacists and other clinicians focus on these members and help them coordinate their care through pharmacy compliance, post-hospital care, follow-up
visits to see their physician and support in their home. Increasingly, we collaborate with our providers and key health partners within the member’s
provider care team by providing actionable patient data insights, practice-coaching capabilities, technology and programs and products that help our
providers and health partners to successfully deliver the right care, at the right time, in the right place.
Formulary management: We have developed formularies, which are selections of drugs based on clinical quality and effectiveness. A pharmacy and
therapeutics committee of physicians uses scientific and clinical evidence to ensure that our members have access to the appropriate drug therapies and
receive these therapies through proper settings.
Medical policy: A medical policy committee determines our national policies and guidelines for the application of medical technologies, procedures
and services. This committee is comprised of internal and external physician leaders from various specialties and areas of the country. We also work in
cooperation with academic medical centers, practicing community physicians and medical specialty organizations. All guidelines and policies are reviewed
at least once a year or as new published clinical evidence becomes available.
Quality programs: We are actively engaged with our hospital and physician networks to enable them to improve medical and surgical care and
achieve better outcomes for our members. We endorse, encourage and incentivize hospitals and physicians to support national initiatives to improve the
quality of clinical care and patient outcomes and to reduce medication errors and hospital infections.
External review procedures: We work with outside experts through a process of external review to provide our members scientifically and clinically,
evidence-based medical care. When we receive member concerns, we have formal appeals procedures that ultimately allow coverage disputes related to
medical necessity decisions under the benefits contract to be settled by independent expert physicians.
Provider cost comparison tools: Through Estimate Your Cost, Care & Cost Finder, and other web-based tools, our members can compare cost
estimates, quality accreditation data and patient reviews for common services at contracted providers, with cost estimates for facility, professional and
ancillary services. These cost estimates bundle related services typically performed at the time of the procedure, not just for the procedure itself. Users can
review cost data for over 400 common, shop-able medical procedures in all states. Members can also estimate out-of-pocket costs based on a member’s
own benefit coverage, deductible, and out-of-pocket maximum. We also offer information on overall facility
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ratings and patient experience using trusted third-party data. We continue to work on enhancing and evolving our tools to assist members in making
informed and value-based healthcare decisions. In addition, we collaborate with an external independent vendor to support employers wanting to purchase
a consumer engagement solution with certain additional functionality.
Anthem Health Guide: Anthem Health Guide integrates the customer service experience with clinical and wellness coaching to provide easier
navigation of healthcare services for our members. Anthem Health Guide provides members with education on benefit options and digital opportunities that
fit member references, and makes recommendations for eligible clinical programs to ensure members are connected to the most appropriate care and
clinical resources. By allowing members to connect with us using voice, click-to-chat, secure email and mobile technology, we enhance our ability to
engage with our members.
Anthem Whole Health Connection: Anthem Whole Health Connection is a differentiated approach to whole person health that connects medical,
pharmacy, dental, vision, disability, behavioral health and supplemental health clinical and claims data to proactively identify health issues earlier and
engage our members with their health providers in new ways to support health, lower costs and deliver a better healthcare experience. Anthem Whole
Health Connection is included when Anthem health benefits are combined with one or more of the Anthem pharmacy, dental, vision, life, disability,
behavioral health or supplemental health coverage plans.
Care Management Programs
We continue to expand our 360º Health suite of integrated care management programs and tools. 360º Health offers the following programs, among
others, which are available to our members depending on the particular plan or product in which they participate, and have been proven to increase quality
and reduce medical costs for our members:
ConditionCare and FutureMoms are care management and maternity management programs that serve as adjuncts to physician care. Skilled nurse
professionals, with added support from our team of dietitians, social workers, pharmacists, health educators and other health professionals, help participants
understand their condition, their doctor’s orders and how to become a better self-manager of their condition. We also offer members infertility consultation
through our SpecialOffers@Anthem program, a comprehensive and integrated assembly of discounted health and wellness products and services from a
variety of the nation’s leading retailers.
24/7 NurseLine offers access to qualified, registered nurses anytime. This allows our members to make informed decisions about the appropriate level
of care and avoid unnecessary worry. This program also includes a referral process to the nearest urgent care facility, a robust audio library, accessible by
phone, with more than 600 health and wellness topics, as well as on-line health education topics designed to educate members about symptoms and
treatment of many common health concerns.
MyHealth Advantage utilizes integrated information systems and sophisticated data analytics to help our members improve their compliance with
evidence-based care guidelines, providing personal care notes that alert members to potential gaps in care, enable more prudent healthcare choices, and
assist in the realization of member out-of-pocket cost savings. Key opportunities are also shared with physicians through Availity at the time of
membership eligibility verification. Availity is an electronic data interchange system that allows for the exchange of health information among providers
over a secure network.
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MyHealth Coach provides our members with a professional guide who helps them navigate the healthcare system and make better decisions about their
well-being. MyHealth Coach proactively reaches out to people who are at risk for potentially serious health issues or have complex healthcare needs. Our
health coaches help participants understand and manage chronic conditions, handle any health and wellness related services they need and make smart
lifestyle choices.
HealthyLifestyles helps employees transform unhealthy habits into positive ones by focusing on behaviors that can have a positive effect on their health
and their employer’s financial well-being. HealthyLifestyles programs include smoking cessation, weight management, stress management, physical
activity, and diet and nutrition.
Behavioral Health Case Management is a comprehensive program supporting a wide range of members who are impacted by their behavioral health
condition, including specialty areas such as eating disorders, anxiety, depression and
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substance abuse. The program assists members and their families with obtaining appropriate behavioral health treatment, offering community resources,
providing education and telephonic support, and promoting provider collaboration.
Autism Spectrum Disorder Program is a specialized case management program staffed by a dedicated team of clinicians who have been trained on the
unique challenges and needs of families with a member who has a diagnosis of autism spectrum disorder. These clinicians provide education, information
on community resources to help with care and support, guidance on the appropriate usage of benefits, and assistance in exploring effective treatments, such
as medical services, that may help the member and their families.
Employee Assistance Programs provide 24/7 telephonic support for personal and crisis events. Members also gain access to many resources that allow
support within work and personal life by providing quick and easy access to confidential resources to help meet the challenges of daily life. Examples of
services available include counseling, referral assistance with child care, health and wellness, financial issues, legal issues, adoption and daily living.
Healthcare Quality Initiatives
Increasingly, the healthcare industry is able to define quality healthcare based on preventive health measurements, outcomes of care and optimal care
management for chronic disease. A key to our success has been our ability to work with our network physicians and hospitals to improve the quality and
outcomes of the healthcare services provided to our members. Our ability to promote quality medical care has been recognized by NCQA, the largest and
most respected national accreditation program for managed care health plans.
Several quality healthcare measures, including the Healthcare Effectiveness Data and Information Set (“HEDIS ”), have been incorporated into
NCQA’s accreditation processes. HEDIS measures range from preventive services, such as screening mammography and pediatric immunization, to
elements of care, including decreasing the complications of diabetes and improving treatment for patients with heart disease. In 2020, NCQA announced
that it was eliminating its then-existing status levels for health plans and moving to CMS Star ratings in order to make accreditation ratings more
transparent. Accredited plans earn ratings after they submit HEDIS/CAHPS reporting and can advertise the rating alongside their accreditation seal. Due to
the COVID-19 pandemic, NCQA did not release 2020-2021 Health Plan Ratings or Star ratings for any product line. CMS reported Star ratings for
Medicare; however, HEDIS/CAHPS utilized the scores from the 2018 measurement year.
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Even though the utilization of clinical data for scoring is uncertain, we continued to support our members by promoting health and wellness in a
variety of ways. In an effort to promote the importance of preventive screenings and chronic condition management, we conducted check-in calls to high-
risk Medicaid and Medicare members at the onset of the COVID-19 pandemic to address access to medication, adequate food supply and social isolation.
Outreach was also conducted to remind our members of overdue screenings and appointment scheduling assistance was provided, when requested by the
member. Additionally, to address our members’ concerns over potential exposure to COVID-19, we deployed home lab kits to members enabling them to
complete colon cancer screenings and manage their diabetes in the safety of their own homes.
Our wholly-owned health outcomes research subsidiary, HealthCore, Inc. (“HealthCore”) generates consistent and actionable evidence to support
decision making while helping to guide fresh initiatives for a range of stakeholders in the healthcare industry. By leveraging a rich array of medical and
pharmacy utilization data queried from administrative claims, patient surveys, medical charts and laboratory diagnostics, among other health records,
HealthCore’s multi-disciplinary research teams develop a broad spectrum of safety, clinical research trials, effectiveness, pharmacoepidemiology, and
health economics evidence. HealthCore’s real world evidence and comparative effectiveness research, among other data, have played roles in the product
planning and development campaigns of biotechnology and pharmaceutical companies and today it lists most of the leading biologics and drug
manufacturers as clients or alliance partners.
Our AIM subsidiary supports quality by implementing clinical appropriateness and patient safety solutions for advanced imaging procedures,
cardiology, sleep medicine, medical oncology, radiation therapy, rehabilitative, certain outpatient surgical and musculoskeletal services. These programs,
based on widely accepted and evidence-based clinical guidelines, promote the most appropriate use of clinical services to improve the quality of overall
healthcare delivered to our members and members of other health plans that are covered under AIM’s programs. To provide additional impact to its clinical
appropriateness program, AIM has also implemented a provider assessment program, OptiNet , which promotes more
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informed selection of diagnostic imaging and testing facilities by providing cost and facility information to physician offices at the point that a procedure is
ordered. We have also leveraged AIM’s provider network assessment information to proactively engage and educate our members about imaging providers
and sleep testing choices based on site capabilities and cost differences. This program is another example of how we facilitate improvements in the quality
of care provided to our members and promote cost-effective medical care.
Pricing and Underwriting of Our Products
We price our products based on our assessment of current healthcare claim costs and emerging healthcare cost trends, combined with charges for
administrative expenses, risk and profit, including charges for the ACA taxes and fees, where applicable. We continually review our product designs and
pricing guidelines on a national and regional basis so that our products remain competitive and consistent with our profitability goals and strategies.
Our revenue on Medicare policies is based on annual bids submitted to CMS. We base the commercial and Medicaid premiums we charge and our
Medicare bids on our estimates of future medical costs over the fixed contract period. In applying our pricing to each employer group and customer, we aim
to maintain consistent, competitive, disciplined underwriting standards. We employ our proprietary accumulated actuarial and financial data to determine
underwriting and pricing parameters for both our fully-insured and self-funded businesses.
In most circumstances, our pricing and underwriting decisions follow a prospective rating process in which a fixed premium is determined at the
beginning of the contract period. For our fully-insured business, any deviation, favorable or unfavorable, from the medical costs assumed in determining
the premium is our responsibility. Some of our larger groups employ retrospective rating reviews, where positive experience is partially refunded to the
group, and negative experience is charged against a rate stabilization fund established from the group’s favorable experience or charged against future
favorable experience. In addition, our ACA and government fully-insured contracts may include minimum medical loss ratio, risk adjustment, or risk
corridor arrangements, which also stabilize premiums based upon claims experience.
Our pharmacy pricing through IngenioRx is presented to market via discounts off the average wholesale price for drugs dispensed through the retail,
mail and specialty channels as well as through rebate projections. We utilize group-specific script data, formulary, network and clinical care program
selection combined with administrative expense, risk and profit guidance to set market competitive pricing discounts and rebate projections. Pharmacy
pricing guidelines guide the underwriting process and undergo an annual external review process to ensure market competitiveness.
BCBSA Licenses
We are a party to license agreements with the BCBSA that entitle us to the exclusive, and in certain areas, non-exclusive use of the Blue Cross and
Blue Shield names and marks in assigned geographic territories. BCBSA is a national trade association of Blue Cross and Blue Shield licensees, the
primary function of which is to promote and preserve the integrity of the BCBS names and marks, as well as provide certain coordination among the
member companies. Each BCBSA licensee is an independent legal organization and is not responsible for obligations of other BCBSA member
organizations. Although we have no right to market products and services using the BCBS names and marks outside of the states in which we are licensed
to sell BCBS products, in accordance with the subscriber settlement agreement and release (“Subscriber Settlement Agreement”) that was agreed to in 2020
by the BCBSA and Blue Cross and/or Blue Shield licensees, including us (the “Blue plans”), some large national employers with self-funded benefits plans
have a right to request a bid for insurance coverage from a second Blue plan in addition to the local Blue plan. We are required to pay an annual license fee
to the BCBSA based on enrollment and also to comply with various requirements and restrictions regarding our operations and our use of the BCBS names
and marks. These requirements and restrictions include, among other things: minimum capital and liquidity requirements; enrollment and customer service
performance requirements; participation in programs that provide portability of membership between plans; disclosures to the BCBSA relating to
enrollment and financial conditions; disclosures as to the structure of the BCBS system in contracts with third parties and in public statements; plan
governance requirements; cybersecurity requirements; a requirement that at least 80% (or, in the case of Blue Cross of California, substantially all) of a
licensee’s annual combined local net revenue, as defined by the BCBSA, attributable to healthcare plans and related services within its service areas must
be sold, marketed, administered or underwritten under the BCBS names and marks; a requirement that at least two-thirds of a licensee’s annual combined
national net revenue, as defined by the BCBSA, attributable to healthcare plans and related services must be sold, marketed, administered or underwritten
under the BCBS names and marks; a requirement that neither a plan nor any of its licensed affiliates may permit an entity other than a plan or
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a licensed affiliate to obtain control of the plan or the licensed affiliate or to acquire a substantial portion of its assets related to licensable services;
governance requirements such as a requirement that we divide our Board of Directors into three classes serving staggered three-year terms; a requirement
that we guarantee certain contractual and financial obligations of our licensed affiliates; and a requirement that we indemnify the BCBSA against any
claims asserted against it resulting from the contractual and financial obligations of any subsidiary that serves as a fiscal intermediary providing
administrative services for Medicare Parts A and B. In addition, a change of control or violation of the BCBSA ownership limitations on our capital stock,
impending financial insolvency or the appointment of a trustee or receiver or the commencement of any action against us seeking our dissolution could
cause a termination of our BCBSA license agreements.
We believe that we and our licensed affiliates are currently in compliance with these standards. The standards under the license agreements may be
modified in certain instances by the BCBSA. See Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K for additional details on the impact if
we were not to comply with these license agreements and Note 14, “Commitments and Contingencies - Litigation and Regulatory Proceedings – Blue
Cross Blue Shield Antitrust Litigation” of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-
K for additional information on the Subscriber Settlement Agreement.
Regulation
General
Our operations are subject to comprehensive and detailed state, federal and international regulation throughout the jurisdictions in which we do
business. These laws and regulations, which can vary significantly from jurisdiction to jurisdiction, restrict how we conduct our businesses and result in
additional burdens and costs to us. Further, federal and state laws and regulations are subject to amendments and changing interpretations in each
jurisdiction. The application of these complex legal and regulatory requirements to the detailed operation of our businesses creates areas of uncertainty. In
addition, there are numerous proposed healthcare laws and regulations at the federal and state levels, including single payer, Medicare for All and public
option proposals, some of which could materially adversely affect our businesses if they were to be enacted.
Supervisory agencies, including federal and state regulators and departments of health, insurance and corporation, have broad authority to:
•
•
•
•
•
grant, suspend and revoke licenses to transact business;
regulate our products and services in great detail;
regulate, limit, or suspend our ability to market products, including participation in Medicare and the ACA public exchanges;
determine through a procurement process our ability to participate in certain programs, including state Medicaid programs;
retroactively adjust premium rates;
• monitor our solvency and reserve adequacy;
•
•
scrutinize our investment activities on the basis of quality, diversification and other quantitative criteria; and
impose monetary and criminal sanctions for non-compliance with regulatory requirements.
To carry out these tasks, these government entities periodically examine our operations and accounts.
The health benefits business also may be adversely impacted by court and regulatory decisions that expand or invalidate the interpretations of existing
statutes and regulations. It is uncertain whether we could recoup, through higher premiums or other measures, the increased costs of mandated benefits or
other increased costs caused by potential legislation, regulation or court rulings. See Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K.
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COVID-19
Federal and state legislation has been enacted, and is likely to continue to be enacted, in response to the COVID-19 pandemic that has had, and we
expect will continue to have, a significant impact on all of our lines of business, including mandates to waive cost-sharing on COVID-19 vaccination,
testing, treatment and related services. The federal government enacted the Coronavirus Preparedness and Response Supplemental Appropriations Act, the
Families First Coronavirus Response Act and the Coronavirus Aid, Relief and Economic Security (“CARES”) Act in March 2020, the Paycheck Protection
Program and Health Care Enhancement Act in April 2020, and the Consolidated Appropriations Act of 2021 in December 2020 (the “Appropriations Act”).
These acts provide, among other things, prohibitions on prior authorization and cost-sharing for certain items and services related to COVID-19 tests,
reforms including waiving Medicare originating site restrictions for qualified providers providing telehealth services, financial support to healthcare
providers, including expansion of the Medicare accelerated payment program to all providers receiving Medicare payments, and funding to replenish and
administer small business loan programs to help small businesses keep their workers employed and healthcare benefits covered in the group market.
Regulatory changes have also been enacted, and are likely to continue to be enacted, at the state and federal level in response to the COVID-19
pandemic. Those changes, which could have a significant impact on health benefits, consumer eligibility for public programs, and our cash flows, include
mandated expansion of premium payment terms including the time period for which claims can be denied for lack of payment, mandates related to prior
authorizations and payment levels to providers, additional consumer enrollment windows, and an increased ability to provide services through telehealth.
We are providing extensions to premium payment terms in certain situations and working closely with state regulators that are mandating or requesting
such relief.
The Appropriations Act
The Appropriations Act contains a number of provisions that may have a material effect upon our business, including procedures and coverage
requirements related to surprise medical bills and new mandates for continuity of care for certain patients, price comparison tools, disclosure of broker
compensation and reporting on pharmacy benefits and drug costs. The various health plan-related requirements of the Appropriations Act will go into effect
on January 1, 2022, and our first report on pharmacy benefits and drug costs due on December 27, 2021.
State Regulation of Insurance Companies and HMOs
Our insurance and HMO subsidiaries must obtain a certificate of authority and maintain that license in the jurisdictions in which they conduct business.
The National Association of Insurance Commissioners (“NAIC”) has adopted model regulations that, where adopted by states, require expanded
governance practices, risk and solvency assessment reporting and the filing of periodic financial and operating reports. Most states have adopted these or
similar measures to expand the scope of regulations relating to corporate governance and internal control activities of HMOs and insurance companies.
Health insurers and HMOs are subject to state examination and periodic license renewal.
In addition, we are regulated as an insurance holding company and are subject to the insurance holding company acts of the states in which our
insurance company and HMO subsidiaries are domiciled. These acts contain certain reporting requirements, as well as restrictions on transactions between
an insurer or HMO and its affiliates, and may restrict the ability of our regulated subsidiaries to pay dividends to our holding companies. These holding
company laws and regulations generally require registration with applicable state departments of insurance and the filing of reports describing capital
structure, ownership, financial condition, certain intercompany transactions, enterprise risks, corporate governance and general business operations. In
addition, state insurance holding company laws and regulations require notice or prior regulatory approval of transactions including acquisitions, material
intercompany transfers of assets, guarantees and other transactions between the regulated companies and their affiliates, including parent holding
companies. Applicable state insurance holding company acts also restrict the ability of any person to obtain control of an insurance company or HMO
without prior regulatory approval. “Control” is generally defined as the direct or indirect power to direct or cause the direction of the management and
policies of a person and is presumed to exist if a person directly or indirectly owns or controls 10% or more of the voting securities of another
person. Dispositions of control generally are also regulated under the state insurance holding company acts.
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The states of domicile of our regulated subsidiaries have statutory risk-based capital (“RBC”) requirements for health and other insurance companies
and HMOs based on the Risk-Based Capital (RBC) For Health Organizations Model Act. These RBC requirements are intended to assess the capital
adequacy of life and health insurers and HMOs, taking into account the risk characteristics of a company’s investments and products. In general, under
these laws, an insurance company or HMO must submit a report of its RBC level to the insurance department or insurance commissioner of its state of
domicile for each calendar year. The law requires increasing degrees of regulatory oversight and intervention as a company’s RBC declines. As of
December 31, 2020, the RBC levels of our insurance and HMO subsidiaries exceeded all applicable mandatory RBC requirements. For more information
on RBC capital and additional liquidity and capital requirements for a licensee of the BCBSA, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations–Liquidity and Capital Resources–Risk-Based Capital,” included in Part II, Item 7 of this Annual Report on Form 10-
K.
Ongoing Requirements and Changes Stemming from the ACA
The ACA significantly changed the United States healthcare system. While we anticipate continued efforts to invalidate, modify, repeal or replace the
ACA, either through Congress or court challenges, we expect the major portions of the ACA to remain in place and continue to significantly impact our
business operations and results of operations, including pricing, minimum medical loss ratios (“MLRs”) and the geographies in which our products are
available.
The ACA prohibits lifetime limits, certain annual limits, member cost-sharing on specified preventive benefits and pre-existing condition exclusions.
Further, the ACA implemented certain requirements for insurers, including changes to Medicare Advantage payments and the minimum MLR provision
that requires insurers to pay rebates to customers when insurers do not meet or exceed the specified MLR thresholds. In addition, the ACA also required a
number of other changes with significant effects on both federal and state health insurance markets, including strict rules on how health insurance is rated,
what benefits must be offered, the assessment of new taxes and fees (including annual fees on health insurance companies), the creation of public
exchanges for Individuals and Small Groups, the availability of premium subsidies for qualified individuals, and expansions in eligibility for Medicaid.
Changes to our business environment are likely to continue as elected officials at the national and state levels continue to enact, and both elected officials
and candidates for election continue to propose, significant modifications to existing laws and regulations, including changes to taxes and fees. In addition,
the legal challenges regarding the ACA, including a federal district court decision invalidating the ACA in its entirety, which was argued before the U.S.
Supreme Court in November 2020 and has been stayed pending the U.S. Supreme Court’s decision, continue to contribute to this uncertainty.
In a separate development, in April 2020, the U.S. Supreme Court ruled that the federal government is required to pay health insurance companies for
amounts owed, as calculated under the risk corridor program of the ACA. In June 2020, the U.S. Court of Federal Claims entered a final judgment
stipulating that we are entitled to reimbursement for risk corridor amounts from 2014, 2015 and 2016. At the end of December 2020, the U.S. Department
of Health and Human Services (“HHS”) issued guidance on how to treat the risk corridor recoveries, which requires us to revise previously filed minimum
MLR reports and issue incremental MLR rebate payments. We recognized the net premium impact of the risk corridor recoveries in the fourth quarter of
2020. We will continue to review and evaluate the impact of the ACA as any further developments or judicial rulings occur.
In general, the Individual market risk pool that includes public exchange markets has become less healthy since its inception in 2014 and continues to
exhibit risk volatility. Based on our experience in public exchange markets to date, we have made adjustments to our premium rates and participation
footprint and continue to evaluate the performance of our public exchange plans. In addition, insurers have faced uncertainties related to federal
government funding for various ACA programs. These factors may have a material adverse effect on our results of operations if premiums are not adequate
or do not appropriately reflect the acuity of these individuals. Any variation from our expectations regarding acuity, enrollment levels, adverse selection, or
other assumptions utilized in setting premium rates could have a material adverse effect on our results of operations, financial position, and cash flows.
Further, implementation of the ACA brings with it significant oversight responsibilities by health insurers that may result in increased governmental
audits, increased assertions of False Claims Act violations, and an increased risk of other litigation.
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Federal regulatory agencies continue to modify regulations and guidance related to the ACA and markets more broadly. Some of the more significant
ACA rules are described below:
•
The minimum MLR thresholds by line of business for the Commercial market, as defined by HHS, are as follows:
Line of Business
Large Group
Small Group
Individual
%
85
80
80
New York state regulations require us to meet a more restrictive MLR threshold of 82% for both Small Group and Individual lines of business.
The minimum MLR thresholds disclosed above are based on definitions of an MLR calculation provided by HHS, or specific states, as applicable,
and differ from our calculation of “benefit expense ratio” based on premium revenue and benefit expense as reported in accordance with U.S.
generally accepted accounting principles (“GAAP”). Furthermore, the definitions of the lines of business differ under the various federal and state
regulations and may not correspond to our lines of business. Definitions under the MLR regulation also impact insurers differently depending
upon their organizational structure or tax status, which could result in a competitive advantage to some insurance providers that may not be
available to us, resulting in an uneven playing field in the industry.
The ACA also imposed a separate minimum MLR threshold of 85% for Medicare Advantage and Medicare Part D prescription drug plans
(“Medicare Part D plans”). Medicare Advantage or Medicare Part D plans that do not meet this threshold will have to pay a minimum MLR
rebate. If a plan’s MLR is below 85% for three consecutive years, enrollment will be restricted. A Medicare Advantage or Medicare Part D plan
contract will be terminated if the plan’s MLR is below 85% for five consecutive years.
In addition, state Medicaid programs are required to set managed care capitation rates such that a minimum 85% MLR is projected to be achieved;
however, states are not required to collect remittances if the minimum MLR is not achieved.
Approximately 54.8% and 20.2% of our premium revenue and medical membership, respectively, were subject to the minimum MLR regulations
as of and for the year ended December 31, 2020. Approximately 58.9% and 20.8% of our premium revenue and medical membership,
respectively, were subject to the minimum MLR regulations as of and for the year ended December 31, 2019.
The ACA created an incentive payment program for Medicare Advantage plans. CMS developed the Medicare Advantage Star ratings system,
which awards between 1.0 and 5.0 stars to Medicare Advantage plans based on performance in several categories, including quality of care and
customer service. The Star ratings are used by CMS to award quality-based bonus payments to plans that receive a rating of 4.0 or higher. The
methodology and measures included in the Star ratings system can be modified by CMS annually. As of December 31, 2020, all of our Medicare
Advantage plans have received a rating of 3.0 or higher.
Regulations require premium rate increases to be reviewed for Small Group and Individual products above specified thresholds, and may be
adjusted from time to time. The regulations provide for state insurance regulators to conduct the reviews, except for cases where a state does not
have an “effective” rate review program or in federal enforcement states, in which cases HHS will conduct the reviews for any rate increase.
The ACA precludes health insurers from using health status and gender in the determination of the insurance premium.
The ACA imposed an annual Health Insurance Provider Fee (“HIP Fee”) on health insurers that write certain types of health insurance on U.S.
risks, which has been permanently eliminated effective January 1, 2021. The HIP Fee was allocated to health insurers based on the ratio of the
amount of an insurer’s net premium revenues written during the preceding calendar year to the amount of health insurance premium for all U.S.
health risk for those certain lines of business written during the preceding calendar year. The HIP Fee was non-deductible for federal income tax
purposes. Our affected products were priced to cover the increased selling, general and administrative and income
•
•
•
•
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tax expenses associated with the HIP Fee when it was in effect. The total amount due from allocations to health insurers was $15.5 billion for
2020 and was suspended for 2019.
• Medicare Advantage reimbursement rates will not increase as much as they would otherwise due to the payment formula promulgated by the ACA
that continues to impact reimbursements. We also expect further and ongoing regulatory guidance on a number of issues related to Medicare,
including evolving methodology for ratings and quality bonus payments. CMS is also proposing changes to its program that audits data submitted
under the risk adjustment programs in a way that would increase financial recoveries from plans.
Drug Benefit and Pharmacy Benefit Manager Regulation
Pharmacy benefit managers are regulated at both the federal and state levels and must comply with federal and state statutes and regulations governing
labeling, packaging, advertising and adulteration of prescription drugs, dispensing of controlled substances, and licensing. In recent years the federal
government has banned certain business practices, including “gag clauses,” which prohibited pharmacists from informing patients when a lower cost drug
was available as a substitute, and “clawbacks,” which occurred when pharmacy benefit managers sought to recoup the difference between the reimbursed
cost of the drug and the patient’s copay and the drug itself was less expensive than the copay paid by the patient. Regulation in the states varies
dramatically and ranges from licensure of PBMs as third-party administrators, licensure specifically as a pharmacy benefit manager, and licensure
accompanied by additional disclosures and limitations of business practices to varying degrees. The NAIC is working on a PBM model law that, if adopted
widely, could result in a more standardized approach to PBM regulation in the states in the future. However, in December 2020, the U.S. Supreme Court let
stand an Arkansas law regulating PBMs, which could be a precursor to greater state regulation of PBMs in the future.
A number of proposals are being considered at the federal and state levels that would increase regulation of drug benefits and pharmacy benefit
managers. Such proposals under consideration include (1) regulation of rebates from drug manufacturers that would require rebate dollars to be applied at
the point-of-sale, (2) federal policy changes to set the prices for a subset of drugs covered under the Medicare program, (3) reforms to the Medicare drug
benefit, such as beneficiary cost-sharing changes that aim to lower consumer costs, (4) attempts at both the federal and state levels to ban the use of spread
pricing contracts in both the Commercial and Medicaid markets, and (5) electronic prior authorizations of drugs. These reforms have the potential to have
broad impacts on our PBM business and could materially adversely affect our business if they are enacted.
Privacy, Confidentiality and Data Standards Regulation
The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and the administrative simplification provisions of HIPAA impose
a number of requirements on covered entities (including insurers, HMOs, group health plans, providers and clearinghouses) and their business associates
relating to the use, disclosure and safeguarding of protected health information. These requirements include uniform standards of common electronic
healthcare transactions; privacy and security regulations; and unique identifier rules for employers, health plans and providers.
Also, the Health Information Technology for Economic and Clinical Health (“HITECH”) Act provisions of the American Recovery and Reinvestment
Act of 2009 and corresponding implementing regulations have imposed additional requirements on the use and disclosure of protected health information
such as additional breach notification and reporting requirements, contracting requirements for HIPAA business associate agreements, strengthened
enforcement mechanisms and increased penalties for HIPAA violations. Federal consumer protection laws may also apply in some instances to privacy and
security practices related to personally identifiable information.
The federal Gramm-Leach-Bliley Act generally places restrictions on the disclosure of non-public information to non-affiliated third parties, and
requires financial institutions, including insurers, to provide customers with notice regarding how their non-public personal information is used, including
an opportunity to “opt out” of certain disclosures. State departments of insurance and certain federal agencies adopted implementing regulations as required
by federal law.
The Cybersecurity Information Sharing Act of 2015 encourages organizations to share cyber threat indicators with the federal government and, among
other things, directed HHS to develop a set of voluntary cybersecurity best practices for organizations in the healthcare industry.
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In addition, public exchanges are required to adhere to privacy and security standards with respect to personally identifiable information and to impose
privacy and security standards that are at least as protective as those the public exchange has implemented for itself on insurers offering plans through the
public exchanges and their designated downstream entities, including pharmacy benefit managers and other business associates. These standards may differ
from, and be more stringent than, HIPAA.
Furthermore, states have begun enacting more comprehensive privacy laws and regulations addressing consumer rights to data protection or
transparency that may affect our privacy and security practices, such as state laws like the California Consumer Privacy Act that govern the use, disclosure
and protection of member data and impose additional breach notification requirements. State consumer protection laws may also apply to privacy and
security practices related to personally identifiable information, including information related to consumers and care providers. Complying with conflicting
cybersecurity regulations and varying enforcement philosophies, which may differ from state to state, requires significant resources and may materially and
adversely affect our ability to standardize our products and services across state lines.
Federal regulations have been finalized in the following areas that will materially impact our operations:
•
•
Federal regulations on data interoperability that will require claims data to be made available to third parties unaffiliated with Anthem; and
Federal regulations requiring hospitals and health insurers to publish negotiated prices for services.
Federal regulations have also been proposed that will expand the final regulation on data interoperability to require health insurers to build new
application programming interfaces to afford patients access to their health information and require electronic prior authorizations for commercial Qualified
Health Plans in the federal exchange as well as Medicaid and CHIP fee-for-service and managed care organizations. These regulations are expected to
materially impact our operations if finalized.
Employee Retirement Income Security Act of 1974
The provision of services to certain employee welfare benefit plans is subject to the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”) a complex set of laws and regulations subject to interpretation and enforcement by the Internal Revenue Service (“IRS”) and the Department of
Labor. ERISA regulates certain aspects of the relationships between us, the employers that maintain employee welfare benefit plans subject to ERISA and
participants in such plans. Some of our administrative services and other activities may also be subject to regulation under ERISA. In addition, certain
states require licensure or registration of companies providing third-party claims administration services for benefit plans. We provide a variety of products
and services to employee welfare benefit plans that are covered by ERISA. Plans subject to ERISA can also be subject to state laws, and the question of
whether and to what extent ERISA preempts a state law has been, and will continue to be, interpreted by many courts.
Guaranty Fund Assessments
Under insolvency or guaranty association laws in most states, insurance companies and HMOs can be assessed for amounts paid by guaranty funds for
policyholder losses incurred when an insurance company or HMO becomes insolvent. Most state insolvency or guaranty association laws currently provide
for assessments based upon the amount of premiums received on insurance underwritten within such state (with a minimum amount payable even if no
premium is received). Under many of these guaranty association laws, assessments are made retrospectively. Some states permit insurers or HMOs to
recover assessments paid through full or partial premium tax offsets or through future policyholder surcharges. The amount and timing of any future
assessments cannot be predicted with certainty; however, future assessments are likely to occur.
Human Capital
At Anthem, it starts with our culture, and our associates are critical to fulfilling our purpose of improving the health of humanity. As of December 31,
2020, we had approximately 83,400 associates. We are working to build a high performance culture that enhances our ability to deliver on our
commitments and guides us to address the challenges of today. We believe that our culture allows us to attract and retain talented and experienced
individuals to support the communities we serve. Our
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associates actively participate through online feedback tools and we leverage these associate feedback tools and engagement surveys to monitor and take
action on responses.
Inclusion & Diversity
The diversity of our associates is central to achieving key strategies and improving performance. We believe a diverse and inclusive workforce enables
a deeper connection with members and drives greater business results. We honor the diversity of our associates—in gender, race/ethnicity, age, gender
identity, sexual orientation, socio-economic status, language, nationality, abilities and life experiences. As of December 31, 2020, our U.S. associate
population was approximately 76% female and 48% ethnically diverse.
Talent Development
Growing and developing our talent internally is key to our succession plans and our ability to lead at our best every day. To inspire a high-performance
culture and promote talent excellence, we offer individual, career and leadership development opportunities, encouraging associates to continually learn
and grow. We offer various instructor-led and virtual instructor-led programs and maintain a vast curriculum of relevant, on-demand learning and
development resources.
Health & Wellbeing
We have the privilege of touching the lives of millions of people each day, and for us, this starts with the health of our own associates. To improve the
health and wellbeing of our associates, we offer a comprehensive compensation package, including competitive salaries, a 401(k) plan and medical, dental,
vision and disability coverage. In addition, we offer our associates wellness and behavioral programs and tools to help them get and stay healthy and more
easily manage their work and personal lives.
COVID-19 Response
We moved swiftly in our response to the COVID-19 pandemic to promote the safety of our associates and best serve our members and communities. In
March of 2020, we implemented business continuity plans, transitioning the majority of our associates to remote work environments, while maintaining
service operations. We have provided our associates with additional benefits, support and resources to help them manage the complexities of working from
home and handling caregiver and family needs. In addition to their current benefits, we are providing up to 80 hours of COVID-related additional paid time
off for associates to use when they are unable to work due to quarantine or illness or to provide care to a family member, and we provided a one-month
premium holiday and added an extra paid day off as a “Wellness Holiday” on December 31, 2020. In addition to our associate assistance program, we
provide materials and behavioral health resources to our associates that address important emotional health issues.
Available Information
We are a large accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) and are required,
pursuant to Item 101 of Regulation S-K, to provide certain information regarding our website and the availability of certain documents filed with or
furnished to the U.S. Securities and Exchange Commission (“SEC”). The SEC maintains a website that contains reports, proxy and information statements
and other information regarding issuers at www.sec.gov. Our website is www.antheminc.com. We have included our website address throughout this
Annual Report on Form 10-K as a textual reference only. The information contained on, or accessible through, our website is not incorporated into this
Annual Report on Form 10-K. We make available, free of charge, by mail or through our website, our Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as
soon as reasonably practicable after we electronically file such material with or furnish it to the SEC. We also include on our website our Corporate
Governance Guidelines, our Code of Conduct and the charter of each standing committee of our Board of Directors. In addition, we intend to disclose on
our website any amendments to, or waivers from, our Code of Conduct that are required to be publicly disclosed pursuant to rules of the SEC and the New
York Stock Exchange (“NYSE”). Anthem, Inc. is an Indiana corporation incorporated on July 17, 2001.
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ITEM 1A. RISK FACTORS.
In evaluating our business, the risks described below, as well as the other information contained in this Annual Report on Form 10-K, should be
carefully considered. Any one or more of such risks could materially and adversely affect our business, financial condition, results of operations and stock
price and could cause our actual results of operations and financial condition to vary materially from past or anticipated future results of operations and
financial condition. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect us.
BUSINESS RISKS
The outbreak of the COVID-19 pandemic and measures taken to prevent its spread are adversely affecting our business in a number of ways, and
we are unable to predict the full extent of those impacts on our business, cash flows, financial condition and results of operations, but the impact
could be material.
The COVID-19 pandemic is evolving, and the impact of COVID-19, and the actions taken to contain its spread or address its impact, could have a
material adverse effect on our operations and financial results in the future. We continue to closely monitor developments related to the COVID-19
pandemic to assess its ongoing impact on our business. The extent of this impact will depend on future developments, which are highly uncertain and
cannot be predicted at this time, including, but not limited to, the transmission rate, duration and spread of the outbreak, its severity, the extent and
effectiveness of the actions taken to contain the spread of the virus and address its impacts, and how quickly and to what extent normal economic and
operating conditions can resume. Factors that could negatively impact our ability to operate successfully during or following the COVID-19 pandemic, or
that could otherwise significantly adversely impact and disrupt our business, cash flows, financial condition and results of operations include, but are not
limited to, the following:
•
Continued increases in healthcare costs due to higher utilization rates of medical facilities and services, medical expenses and other increases in
associated hospital and pharmaceutical costs. We continue to offer our members expanded benefit coverage, such as providing full coverage for
COVID-19 testing and treatment and governmental action has required, and may continue to require, us to provide additional coverage.
• Decreased predictability of Medicare and Medicaid rates due to changes in utilization of medical facilities and services, medical expenses, and
other costs as a result of the impact of COVID-19. We experienced rate adjustments from certain state Medicaid regulators in 2020 in response to
decreased utilization of medical facilities and services, and we may experience further adjustments in the future with regard to current and prior
year rates.
•
Increased estimation uncertainty on our claims liability due to the impact of COVID-19 on healthcare utilization and medical claims submission.
• A reduction in enrollment in our health benefits and PBM products and services, or a continued change in membership mix to less profitable lines
of business, as a result of reductions in workforce by existing customers and other impacts of an economic downturn.
•
•
Cash flow volatility or shortfalls caused by an increase in delayed, delinquent or non-collectable payments from customers and government
payers.
Reductions in our operating effectiveness as our employees work from home or otherwise are impacted by COVID-19. The majority of our
workforce continues to work remotely in an effort to mitigate the spread of COVID-19, which may exacerbate certain risks to our business,
including an increased demand for information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk
of unauthorized dissemination of sensitive personal information or proprietary or confidential information about us, our members or other third
parties.
• Disruptions in our normal business operations due to disruptions in public and private infrastructure, including communications, financial services
and supply chains.
•
Loss of functionality due to the disruption of services provided to us by third-party vendors, including as a result of financial difficulties
experienced by such vendors and the impact of vendor employees working from home or otherwise being impacted by COVID-19.
• A decrease in the value of our investments, which may result in losses charged to income.
•
Increased cost of capital and limited ability to access the capital markets due to disruption and volatility in global financial markets or a
downgrade in our credit rating.
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If we fail to appropriately predict, price for and manage healthcare costs, the profitability of our products could decline, which could materially
adversely affect our business, cash flows, financial condition and results of operations.
Our profitability depends in large part on accurately predicting and pricing healthcare costs and on our ability to manage future healthcare costs
through medical management, product design, negotiation of favorable provider contracts and underwriting criteria. Total healthcare costs are affected by
the number of individual services rendered, the cost of each service and the type of service rendered. Numerous factors affecting the cost of healthcare may
adversely affect our ability to predict and manage healthcare costs, as well as our business, cash flows, financial condition and results of operations. These
factors include, among others, changes in healthcare practices, demographic characteristics including the aging population, medical cost inflation, the
introduction of new technologies, drugs and treatments, increased cost of individual services, increases in the cost and number of prescription drugs,
clusters of high cost cases, increased use of services, including due to natural catastrophes or other large-scale medical emergencies, epidemics or
pandemics such as COVID-19, new treatment guidelines, new mandated benefits (such as the expansion of essential benefits coverage) and changes to
other regulations impacting our business, such as the health plan price transparency regulations issued in October 2020 by the U.S. Departments of Health
and Human Services, Labor and Treasury (the “Health Plan Transparency Rule”) and the Appropriations Act.
Relatively small differences between predicted and actual medical costs or utilization rates as a percentage of premium revenues can result in
significant changes in our results of operations. Generally, our premiums on Commercial policies and Medicaid contracts are fixed for a 12-month period
and are determined several months prior to the commencement of the premium period. Our revenue on Medicare policies is based on bids submitted to
CMS six months prior to the start of the contract year. Accordingly, the costs we incur in excess of our benefit cost projections generally are not recovered
in the contract year through higher premiums. Existing Medicaid contract rates are often established by the applicable state, and our actual costs may
exceed those rates. Although we base our Commercial premiums, our Medicare and Medicaid bids, and our acceptance of state-established Medicaid rates
on our estimates of future medical costs over the fixed contract period, many factors, including those discussed above, may cause actual costs to exceed
those estimated and reflected in premiums and bids.
Although federal and state premium and risk adjustment mechanisms could help offset healthcare benefit costs in excess of our projections if our
assumptions utilized in setting our premium rates are significantly different than actual results, our results of operations and financial condition could still
be adversely affected. The reserves that we establish for health insurance policy benefits and other contractual rights and benefits are based upon
assumptions concerning a number of factors, including trends in healthcare costs, expenses, general economic conditions and other factors. To the extent
the actual claims experience is unfavorable as compared to our underlying assumptions, our incurred losses would increase and future earnings could be
adversely affected.
In addition to the challenge of managing healthcare costs, we face pressure to contain premium rates. Our customers may renegotiate their contracts to
seek to contain their costs or may move to a competitor to obtain more favorable premiums. Further, federal and state regulatory agencies may restrict or
prevent entirely our ability to implement changes in premium rates. A limitation on our ability to increase or maintain our premium or reimbursement
levels or a significant loss of membership resulting from our need to increase or maintain premium or reimbursement levels could adversely affect our
business, cash flows, financial condition and results of operations.
A significant reduction in the enrollment in our health benefits programs or PBM products or services, particularly in states where we have large
regional concentrations, could have an adverse effect on our business, cash flows, financial condition and results of operations.
A significant reduction in the number of enrollees in our health benefits programs or PBM products or services could adversely affect our business,
cash flows, financial condition and results of operations. Factors that could contribute to a reduction in enrollment include: reductions in workforce by
existing customers; a general economic upturn that results in fewer individuals being eligible for Medicaid programs; a general economic downturn that
results in business failures and high unemployment rates, as has been experienced as a result of the COVID-19 pandemic; employers no longer offering
certain healthcare coverage as an employee benefit or electing to offer coverage on a voluntary, employee-funded basis; participation on public exchanges;
federal and state regulatory changes; failure to obtain new customers or retain existing
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customers; premium increases and benefit changes; our exit from a specific market; negative publicity and news coverage; and failure to attain or maintain
nationally recognized accreditations.
The states in which we operate that have the largest concentrations of revenues include California, Florida, Georgia, Indiana, New York, Ohio, Texas
and Virginia. Due to this concentration of business in these states, we are exposed to potential losses resulting from the risk of state-specific or regional
economic downturns impacting these states. If any such negative economic conditions do not improve, we may experience a reduction in existing and new
business, which could have a material adverse effect on our business, cash flows, financial condition and results of operations.
A cyber attack or other privacy or data security incident could result in an unauthorized disclosure of sensitive or confidential information, cause
a loss of data, disrupt a large amount of our operations, give rise to remediation or other expenses, expose us to liability under federal and state
laws, and subject us to litigation and investigations, which could have an adverse effect on our business, cash flows, financial condition and results
of operations.
As part of our normal operations, we collect, process and retain certain sensitive and confidential information. We are subject to a variety of
continuously evolving federal, state and international laws and rules regarding the use and disclosure of certain sensitive or confidential information,
including HIPAA, the HITECH Act, the Gramm-Leach-Bliley Act and numerous state laws governing personal information. Our facilities and systems, and
those of our third-party service providers, are regularly the target of, and may be vulnerable to, cyber attacks, security breaches, acts of vandalism,
computer viruses, misplaced or lost data, programming and/or human errors or other threats.
We have been, and may in the future be subject to litigation and governmental investigations related to cyber attacks and security breaches, which
could divert the attention of management from the operation of our business, result in reputational damage and have a material adverse impact on our
business, cash flows, financial condition and results of operations. While we have contingency plans and insurance coverage for potential liabilities of this
nature, they may not be sufficient to cover all claims and liabilities.
We cannot ensure that we will be able to identify, prevent or contain the effects of cyber attacks or other cybersecurity risks that bypass our security
measures or disrupt our information technology systems or business. We have security technologies, processes and procedures in place to protect against
cybersecurity risks and security breaches. However, hardware, software or applications we develop or procure from third parties may contain defects in
design, manufacturer defects or other problems that could unexpectedly compromise information security. In addition, because the techniques used to
obtain unauthorized access, disable or degrade service or sabotage systems change frequently, are becoming increasingly sophisticated, and may not
immediately produce signs of intrusion, we may be unable to anticipate these techniques, timely discover or counter them or implement adequate
preventative measures. Viruses, worms or other malicious software programs may be used to attack our systems or otherwise exploit any security
vulnerabilities, and such security attacks may cause system disruptions or shutdowns, or may cause personal information or proprietary or confidential
information to be misappropriated or compromised. As a result, cybersecurity and the continued development and enhancement of our controls, processes
and practices designed to protect our systems, computers, software, data and networks from attack, damage and unauthorized access remain a priority for
us.
Noncompliance with any privacy or security laws and regulations, or any security breach, cyber attack or cybersecurity breach, and any incident
involving the misappropriation, loss or other unauthorized disclosure or use of, or access to, sensitive or confidential information, whether by us or by one
of our third-party service providers, could require us to expend significant resources to continue to modify or enhance our protective measures and to
remediate any damage. In addition, this could negatively affect our operations, cause system disruptions, damage our reputation, cause membership losses
and contract breaches, and could also result in regulatory enforcement actions, material fines and penalties, litigation or other actions that could have a
material adverse effect on our business, cash flows, financial condition and results of operations.
There are various risks associated with participating in Medicaid and Medicare programs, including dependence upon government funding and
the timing of payments, compliance with government contracts and increased regulatory oversight.
We contract with various federal and state agencies, including CMS, to provide managed healthcare services, such as Medicare Advantage, Medicare
Part D, Medicare Supplement, Medicaid, TANF, SPD, LTSS, CHIP, ACA-related Medicaid expansion programs and various specialty programs. We also
provide various administrative services for several other entities
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offering medical and/or prescription drug plans to their Medicaid or Medicare eligible members through our affiliated companies, and we offer employer
group waiver plans which provide medical and/or prescription drug coverage to retirees. We are also participating in programs in several states for the care
of dual-eligible members. Regulatory reform initiatives or changes in existing laws or regulations applicable to these programs, or their interpretations, are
difficult to predict and could have a material adverse effect on our business, cash flows, financial condition and results of operations.
Revenues from the Medicare and Medicaid programs are dependent, in whole or in part, upon annual funding from the federal government and/or
applicable state governments, and base premium rates paid by each state or federal agency differ depending upon a combination of factors such as defined
upper payment limits, a member’s health status, age, gender, county or region, benefit mix, member eligibility category and risk scores. Future rates may be
affected by continued government efforts to contain costs as well as federal and state budgetary constraints, and certain state contracts are subject to
cancellation in the event of the unavailability of state funds. Additionally, ongoing CMS system changes related to the data it uses to calculate risk scores in
the Medicare Advantage program may impact our federal funding. If the federal government or any state in which we operate were to decrease rates paid to
us, pay us less than the amount necessary to keep pace with our cost trends, cancel our contracts retroactively or seek an adjustment to previously
negotiated rates, it could have a material adverse effect on our business, cash flows, financial condition and results of operations. In addition, various states’
MMPs are still subject to uncertainty surrounding payment rates and other requirements, which could affect where we seek to participate in these programs.
An unexpected reduction in payments, inadequate government funding or significantly delayed payments for these programs may adversely affect our
business, cash flows, financial condition and results of operations.
Other potential risks associated with Medicare Advantage and Medicare Part D plans include increased medical or pharmaceutical costs, data
corrections identified as a result of ongoing auditing and monitoring activities, potential uncollectability of receivables resulting from processing and/or
verifying enrollment, inadequacy of underwriting assumptions, inability to receive and process correct information (including inability due to systems
issues by the federal government, the applicable state government or us), uncollectability of premiums from members, and limited enrollment periods.
Actual results may be materially different than our assumptions and estimates and could have a material adverse effect on our business, financial condition
and results of operations. Finally, there is the possibility that the Medicare Advantage program could be significantly impacted by any future modification,
repeal or replacement of the ACA.
Our contracts with CMS and state governmental agencies contain certain provisions regarding data submission, risk adjustment, provider network
maintenance, quality measures, claims payment, encounter data, continuity of care, call center performance and other requirements specific to federal and
state program regulations. We have been subject in the past, and may again be in the future, to administrative actions, fines, penalties, liquidated damages
or retrospective adjustments in payments made to our health plans as a result of a failure to comply with those requirements, which has impacted and in the
future could impact our profitability. Due to decreased utilization of medical facilities and services as a result of the COVID-19 pandemic, we experienced
retroactive rate adjustments by certain state Medicaid agencies, and rate adjustments may continue in the future. As members have accessed care during the
COVID-19 pandemic, we have experienced increased difficulty obtaining provider information required by CMS and state governmental agencies and, as a
result, may have difficulty meeting these quality measures. In addition, we could be required to file a corrective plan of action with additional penalties for
noncompliance, which could have a negative impact on future membership enrollment levels. Further, our existing CMS or state Medicaid contracts have
not always been renewed, we have not always been awarded new contracts as a result of the competitive procurement process, and in some cases we have
lost members under existing contracts as a result of a post-award challenge, each of which could take place again in the future and have a material adverse
effect on our business, cash flows, financial condition and results of operations.
Further, the Star Rating System utilized by CMS to evaluate Medicare Advantage Plans may have a significant effect on our revenue, as higher-rated
plans tend to experience increased enrollment and plans with a Star rating of 4.0 or higher are eligible for quality-based bonus payments and can market to
and enroll members year-round. If we do not maintain or continue to improve our Star ratings, fail to meet or exceed our competitors’ Star ratings, or if
quality-based bonus payments are reduced or eliminated, we may experience a negative impact on our revenues and the benefits that our plans can offer,
which could materially and adversely affect the marketability of our plans, our membership levels, results of operations, financial condition and cash flows.
Similarly, if we fail to meet or exceed any performance standards imposed by state Medicaid programs in which we participate, we may not receive
performance-based bonus payments or may incur penalties.
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In addition, our failure to comply with federal and state healthcare laws and regulations applicable to our participation in Medicaid and Medicare
programs, including those directed at preventing fraud, abuse and discrimination in government-funded programs, could result in investigations, litigation,
fines, restrictions on, or exclusions from, program participation, or the imposition of corporate integrity agreements or other agreements with a federal or
state governmental agency, any of which could adversely impact our business, cash flows, financial condition and results of operations.
We are periodically subject to government audits, including CMS Risk Adjustment Data Validation (“RADV”) audits of our Medicare Advantage
Plans to validate diagnostic data, patient claims and financial reporting, and audits of our Medicare Part D plans by the Medicare Part D Recovery Audit
Contractor (“RAC”) as well as state Medicaid RAC programs authorized by the ACA. These audits could result in significant adjustments in payments
made to our health plans, which could adversely affect our financial condition and results of operations. If we fail to report and correct errors discovered
through our own auditing procedures or during a RADV or RAC audit, or otherwise fail to comply with applicable laws and regulations, we could be
subject to fines, civil penalties or other sanctions which could have a material adverse effect on our ability to participate in these programs, and on our
financial condition, cash flows and results of operations.
Our Medicare and Medicaid contracts are also subject to various MLR rules, including minimum MLR thresholds, rebate requirements and audits,
which could adversely affect our membership and revenues if any of our state Medicare or Medicaid plans do not meet an applicable minimum MLR
threshold. If a Medicare Advantage, MMP or Medicare Part D contract pays minimum MLR rebates for three consecutive years, it will become ineligible to
participate in open enrollment. If a Medicare Advantage or Medicare Part D contract pays such rebates for five consecutive years, it will be terminated by
CMS.
A change in our healthcare product mix may impact our profitability.
Our healthcare products that involve greater potential risk generally tend to be more profitable than administrative services products and those
healthcare products where the employer groups assume the underwriting risks. Individuals and small employer groups are more likely to purchase our
higher-risk healthcare products because such purchasers are generally unable or unwilling to bear greater liability for healthcare expenditures. Typically,
government-sponsored programs also involve our higher-risk healthcare products. A shift of enrollees from more profitable products to less profitable
products could have a material adverse effect on our cash flows, financial condition and results of operations.
If we fail to develop and maintain satisfactory relationships with hospitals, physicians, PBM service providers and other healthcare providers, our
business, cash flows, financial condition and results of operations may be adversely affected.
Our profitability is dependent in part upon our ability to contract on favorable terms with hospitals, physicians, PBM service providers and supply
chain partners and other healthcare providers. Physicians, hospitals and other healthcare providers may elect not to contract with us, and the failure to
secure or maintain cost-effective healthcare provider contracts on competitive terms may result in a loss of membership or higher medical costs, which
could adversely affect our business. In addition, consolidation among healthcare providers, ACO practice management companies, and other organizational
structures that physicians, hospitals and other care providers choose, as well as the ability of larger employers to contract directly with providers, may
change the way that these providers interact with us and may change the competitive landscape. Such organizations or groups of physicians may compete
directly with us, which may impact our relationship with these providers or affect the way that we price our products and estimate our costs and may
require us to incur costs to change our operations, which could adversely affect our business, cash flows, financial condition and results of operations. In
addition, price transparency initiatives, such as the Health Plan Transparency Rule, may impact our ability to obtain or maintain favorable contract terms.
For example, beginning in 2021, hospitals will be required to publish online payer-specific negotiated charges for each item or services the hospital
provides.
Our inability to contract with providers, or if providers attempt to use their market position to negotiate more favorable contracts or place us at a
competitive disadvantage, or the inability of providers to provide adequate care, could adversely affect our business. In addition, we do not have contracts
with all providers that render services to our members and, as a result, may not have a pre-established agreement about the amount of compensation those
out-of-network providers will accept for the services they render, which can result in significant litigation or arbitration proceedings, or provider attempts to
obtain payment from our members for the difference between the amount we have paid and the amount they have charged.
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We are dependent on the success of our relationships with third parties for various services and functions.
We contract with various third parties to perform certain functions and services and provide us with certain information technology systems. Certain of
these third parties provide us with significant portions of our business infrastructure and operating requirements. For example, a single vendor provides us
with a wide range of technology infrastructure services, including end user (help desk and field support), data center, mainframe, storage and database
services, cloud infrastructure and multi-cloud management services, and we are subject to the risks of any operational failure, termination or other restraints
in this arrangement. We could become overly dependent on key vendors, which could cause us to lose core competencies. A termination of our agreements
with, or disruption in the performance of, one or more of these service providers could result in service disruptions or unavailability, reduced service quality
and effectiveness, increased or duplicative costs or an inability to meet our obligations to our customers. In addition, we may also have to seek alternative
service providers, which may be unavailable or only available on less favorable contract terms. Any of these outcomes could adversely affect our business,
reputation, cash flows, financial condition and operating results.
Our PBM services business in particular would be adversely affected if we are unable to contract on favorable terms with third-party vendors,
including pharmaceutical manufacturers. We delegate certain PBM administrative functions, such as claims processing and prescription fulfillment, to CVS
Health pursuant to the CVS PBM Agreement. If CVS Health fails to provide PBM services as contractually required, we may not be able to meet the full
demands of our customers, which could have a material adverse effect on our business, reputation and results of operations. For additional information on
the CVS PBM Agreement, see “Business — Product and Service Descriptions,” in Part I, Item 1 of this Annual Report on Form 10-K.
The failure to effectively maintain and upgrade our information systems could adversely affect our business.
Our business depends significantly on effective information systems, and we have many different information systems for our various businesses,
including those that we have acquired as a result of our merger and acquisition activities. Our information systems require an ongoing commitment of
significant resources to maintain and enhance existing systems and develop new systems in order to keep pace with continuing changes in information
processing technology, emerging cybersecurity risks and threats, changing customer preferences, evolving industry and regulatory standards and legal
requirements, including as a result of the ACA, the Health Plan Transparency Rule, the Appropriations Act and proposed federal data interoperability
regulations. In addition, we may from time to time obtain significant portions of our systems-related or other services or facilities from independent third
parties, which may make our operations vulnerable if such third parties fail to perform adequately.
Failure to adequately implement and maintain effective and efficient information systems with sufficiently advanced technological capabilities, or our
failure to efficiently and effectively consolidate our information systems to eliminate redundant or obsolete applications, could result in competitive and
cost disadvantages to us compared to our competitors, and a diversion of management’s time and could have a material adverse effect on our business,
financial condition and results of operations. If the information we rely upon to run our business were found to be inaccurate or unreliable or if we fail to
adequately maintain our information systems and data integrity effectively, we could experience problems in determining medical cost estimates and
establishing appropriate pricing and reserves, have disputes with customers and providers, face regulatory problems, including sanctions and penalties,
incur increases in operating expenses or suffer other adverse consequences, including a decrease in membership.
Large-scale medical emergencies may have a material adverse effect on our business, cash flows, financial condition and results of operations.
Natural disasters, war, terrorism, political events, global climate change and other similar occurrences could create large-scale medical emergencies or
otherwise have a material adverse effect on our business, cash flows, financial condition and results of operations. Large-scale medical emergencies can
take many forms and can cause widespread illness and death and have other far-reaching impact. For example, the ongoing COVID-19 global pandemic
has caused illness, deaths, quarantines, business and school shutdowns, reductions in business activity, travel and financial transactions, unemployment,
labor shortages, supply chain interruptions and overall economic and financial market instability. In addition, federal and state law enforcement officials
have issued warnings about potential terrorist activity involving biological and other weapons, and natural disasters such as hurricanes and the potential for
a widespread pandemic of influenza or other illness coupled with the lack of availability of appropriate preventative medicines could have a significant
impact on the health of the population
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of widespread areas. If the United States were to experience widespread bioterrorism or other attacks, large-scale natural disasters in our concentrated
coverage areas or an epidemic or pandemic such as the ongoing COVID-19 pandemic, our covered medical expenses could rise, our operations could be
interrupted and we could experience a material adverse effect on our business, cash flows, financial condition and results of operations or, in the event of
extreme circumstances, our viability could be threatened. Furthermore, global climate change could result in certain types of natural disasters occurring
more frequently or with more intense effects, and may have a long-term effect on general economic conditions and the healthcare or pharmacy industry in
particular, which could adversely affect our business and financial results. For additional information, see the risk factor above describing the impact of the
COVID-19 pandemic on our business, cash flows, financial condition and results of operations.
LEGAL, REGULATORY AND PUBLIC POLICY RISKS
We are subject to significant government regulation, and changes or proposed changes in the regulation of our business by federal and state
regulators may adversely affect our business, cash flows, financial condition and results of operations and the market price of our securities.
We are subject to significant state and federal regulation associated with many aspects of our business, including, but not limited to, licensing,
premiums, marketing activities, provider contracting, access and payment standards, and corporate governance and financial reporting matters, as described
in greater detail in Part I, Item 1 “Business—Regulation” in this Annual Report on Form 10-K. Further, the integration into our business of entities that we
acquire, or the expansion of our business into new areas, may affect the way in which existing laws and rules apply to us, including by subjecting us to laws
and rules that did not previously apply to us.
Changes in existing laws, rules and regulatory interpretation or future laws, rules, regulatory interpretations or judgments could force us to change how
we conduct our business, affect the products we offer (and where we offer them), restrict revenue and enrollment growth, increase our costs, including
operating, healthcare technology and administrative costs, restrict our ability to obtain new product approvals and implement changes in premium rates and
require enhancements to our compliance infrastructure and internal controls environment, which could adversely impact our business and results of
operations. In addition, legislative and/or regulatory policies or proposals that seek to manage the healthcare industry or otherwise impact our business may
cause the market price of our securities to decrease, even if such policies or proposals never become effective.
We are required to obtain and maintain insurance and other regulatory approvals to market certain of our products, to increase prices for certain
regulated products and to consummate some of our acquisitions and dispositions. Delays in obtaining or failure to obtain or maintain these approvals, as
well as future regulatory action by state or federal authorities, could have a material adverse effect on the profitability or marketability of our health
benefits or managed care products or on our business, financial condition and results of operations. For example, requirements in the Health Plan
Transparency Rule and the Appropriations Act including the price comparison tool and other requirements have the potential to increase healthcare costs
and our operating costs in order to comply, and also may impact provider negotiations and market pricing. In addition, changes in government regulations
or policies that apply to government-sponsored programs such as Medicare and Medicaid including, among other things, reimbursement levels, eligibility
requirements, benefit coverage requirements and additional governmental participation, could also adversely affect our business, cash flows, financial
condition and results of operations. Where states allow certain programs to expire or have not opted for Medicaid expansion under the ACA, we could
experience reduced Medicaid enrollment and reduced growth opportunities. If future modifications to laws and regulations significantly reduce Medicaid
enrollment, our Medicaid business will be negatively impacted.
We have experienced assessments in the past under state or federal insolvency or guaranty association laws applicable to insurance companies, HMOs
and other payers, and may experience assessments in the future if, for example, premiums established by other companies for their health insurance
products, including certain long-term care products, are inadequate to cover their costs. Any such assessment could expose us to the risk of paying a portion
of an impaired or insolvent insurance company’s claims through state guaranty associations. We are not currently able to estimate our potential financial
obligations, losses, or the availability of offsets associated with potential guaranty association assessments; however, any significant increase in guaranty
association assessments could have a material adverse effect on our business, cash flows, financial condition and results of operations.
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We expect state legislatures will continue to focus on healthcare delivery and financing issues, including actions to reduce or limit increases to
premium payments, provider billing protections, and broader reforms of their health insurance markets. State ballot initiatives can also be put to voters that
would substantially impair our operating environment. If enacted into law, these state proposals could have a material adverse impact on our business, cash
flows, operations or financial condition.
Additionally, from time to time, Congress has considered, and may consider in the future, various forms of managed care reform legislation which, if
adopted, could fundamentally alter the treatment of coverage decisions under ERISA and could increase our costs, expose us to expanded liability or
require us to revise the ways in which we conduct business. There have been legislative attempts to limit ERISA’s preemptive effect on state laws and
litigants’ ability to seek damages beyond the benefits offered under their plans. If adopted, such limitations could increase our liability exposure, permit
greater state regulation of our operations, and expand the scope of damages, including punitive damages, litigants could be awarded.
The ongoing changes to the ACA and related laws and regulations could adversely affect our business, cash flows, financial condition and results
of operations.
The ongoing changes in federal and state laws and regulations stemming from the ACA, including the steps that have been taken to amend, repeal and
limit the scope and application of the ACA, continue to represent significant challenges to the U.S. healthcare system. We are unable to predict how these
events will ultimately be resolved, what impact the 2020 U.S. Presidential and Senate elections may have, and what the ultimate impact may be on our
business, including, but not limited to, our products, services, processes and technology, and on our relationships with current and future customers and
healthcare providers. The legal challenges regarding the ACA, including a federal district court decision invalidating the ACA in its entirety, which was
argued before the U.S. Supreme Court in November 2020 and has been stayed pending the U.S. Supreme Court’s decision, continue to contribute to this
uncertainty. Further regulations and modifications to the ACA at the federal or state level, including a judicial invalidation of the ACA, could significantly
impact the market for our products, the regulations applicable to us and the fees and taxes payable by us and otherwise have significant effects on our
business and future operations, some of which may adversely affect our results of operations and financial condition.
In general, the risk pool for the Individual market, which includes public exchange markets, has become less healthy since its inception in 2014 and
continues to exhibit risk volatility. In addition, insurers have faced uncertainties related to federal government funding for various ACA programs. Based
on our experience in public exchange markets to date, we have made adjustments to our premium rates and geographic participation, and will continue to
evaluate the performance of our public exchange plans, the future viability of the public exchanges and availability of federal subsidies, and may make
further adjustments to our rates and participation going forward. These factors may have a material adverse effect on our results of operations if premiums
are not adequate or do not appropriately reflect the acuity of these individuals. Any variation from our expectations regarding acuity, enrollment levels,
adverse selection, or other assumptions utilized in setting premium rates could have a material adverse effect on our results of operations, financial
position, and cash flows.
For additional information related to the ACA, see Part I, Item 1 “Business” and Part II, Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” of this Annual Report on Form 10-K.
We are subject to various risks associated with our international operations.
Certain of our subsidiaries that provide services to some of our health plans operate internationally and are subject to regulation in the jurisdictions in
which they are organized or conduct business related to, among other things, taxation, intellectual property, investment, management control, labor, anti-
fraud, anti-corruption and privacy and data protection regulations. In addition, we are subject to U.S. laws that regulate the conduct and activities of U.S.-
based businesses operating abroad, such as the Foreign Corrupt Practices Act. Violations of these laws and regulations could result in fines, criminal
sanctions against us, our officers or employees, restrictions or outright prohibitions on the conduct of our business and significant reputational harm.
We face risks related to litigation.
We are, and may in the future be, a party to a variety of legal actions that may affect our business, such as administrative charges before government
agencies, employment and employment discrimination-related suits, employee benefit claims, breach of contract actions, tort claims and intellectual
property-related litigation. In addition, because of the nature of our
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business, we are subject to a variety of legal actions relating to our business operations, including the design, administration and offering of our products
and services. These could include claims relating to the denial or limitation of healthcare benefits; federal and state false claims act laws; dispensing of
drugs associated with our PBM business; professional liability claims arising out of the delivery of healthcare and related services to the public;
development or application of medical policies and coverage and clinical guidelines; medical malpractice actions; product liability claims; allegations of
anti-competitive and unfair business activities; provider disputes over reimbursement and contracts; provider tiering programs; narrow networks;
termination of provider contracts; the recovery of overpayments from providers; self-funded business; disputes over co-payment calculations;
reimbursement of out-of-network claims; the failure to disclose certain business practices; the failure to comply with various state or federal laws, including
but not limited to, ERISA and the Mental Health Parity Act; and customer audits and contract performance, including government contracts. These actions
or proceedings could result in substantial costs to us, require our officers to spend substantial time focused on the litigation, and result in negative media
attention, and may adversely affect our business, reputation, financial condition, results of operations and cash flows.
We are also involved in, or may in the future be party to, pending or threatened litigation of the character incidental to the business we transact or
arising out of our operations, including, but not limited to, breaches of security and violations of privacy requirements, shareholder actions, compliance
with federal and state laws and regulations (including qui tam or “whistleblower” actions), or sales and acquisitions of businesses or assets (including as a
result of the now terminated Agreement and Plan of Merger between us and Cigna Corporation, or as more fully described under Note 14, “Commitments
and Contingencies - Litigation and Regulatory Proceedings - Cigna Corporation Merger Litigation,” of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K). From time to time, we are involved as a party in various governmental investigations,
audits, reviews and administrative proceedings, including challenges relating to the award of government contracts. These investigations, audits and
reviews include routine and special investigations by various state insurance departments, various federal regulators including CMS and the HHS Office of
Inspector General, state attorneys general, the Department of Justice, and various offices of the U.S. Attorney General. Following an investigation, we may
be subject to civil or criminal fines, penalties and other sanctions if we are determined to be in violation of applicable laws or regulations. Liabilities that
may result from these actions could have a material adverse effect on our cash flows, results of operations and financial condition.
Recent court decisions and legislative activity may increase our exposure for any of these types of claims. In some cases, substantial non-economic
(including injunctive relief), treble or punitive damages may be sought. Although we maintain insurance coverage for some of these potential liabilities,
some liabilities and damages may not be covered by insurance, insurers may dispute coverage or the amount of insurance may not be enough to cover the
damages awarded. In addition, insurance coverage for all or certain forms of liability may become unavailable or prohibitively expensive in the future. Any
adverse judgment against us resulting in such damage awards could result in negative publicity and have an adverse effect on our cash flows, results of
operations and financial condition.
There are various risks associated with providing healthcare services.
The direct provision of healthcare services by certain of our subsidiaries involves risks of additional litigation arising from medical malpractice actions
based on our treatment decisions or brought against us or our associates for alleged malpractice or professional liability claims arising out of the delivery of
healthcare and related services. In addition, liability may arise from maintaining healthcare premises that serve the public. The defense of any actions may
result in significant expenses, and if we fail to maintain adequate insurance coverage for these liabilities, or if such insurance is not available, the resulting
costs could adversely affect our business, cash flows, financial condition and results of operations.
Additionally, many states in which certain of our subsidiaries operate limit the practice of medicine to licensed individuals or professional
organizations comprised of licensed individuals. Business corporations generally may not exercise control over the medical decisions of physicians, and we
are not licensed to practice medicine. Rules and regulations relating to the practice of medicine, fee-splitting between physicians and referral sources, and
similar issues vary from state to state. Further, certain federal and state laws, including those covering our Medicare and Medicaid plans, prohibit the offer,
payment, solicitation or receipt of any form of remuneration to induce, or in return for, the referral of patient care opportunities and also generally prohibit
physicians from making referrals to any entity providing certain designated health services if the referring physician or related person has an ownership or
financial interest in the entity. Any enforcement
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actions by governmental officials alleging non-compliance with these rules and regulations could adversely affect our business, cash flows, financial
condition and results of operations.
Our PBM services business and related operations are subject to a number of risks and uncertainties that are in addition to those we face in our
core healthcare business.
We provide PBM services through our IngenioRx business, and we are responsible to regulators and our customers for the delivery of those PBM
services that we contract to provide. Our PBM services business is subject to the risks inherent in the dispensing, packaging, fulfillment and distribution of
pharmaceuticals and other healthcare products, including exposure to liabilities and reputational harm related to purported dispensing and other operational
errors by us or our PBM services suppliers. Any failure by us or one of our PBM services suppliers to adhere to the laws and regulations applicable to the
dispensing of pharmaceuticals could subject our PBM business to civil and criminal penalties.
Our PBM services business is subject to federal and state laws and regulations that govern its relationships with pharmaceutical manufacturers,
physicians, pharmacies and customers, including without limitation, federal and state anti-kickback laws, beneficiary inducement laws, consumer
protection laws, ERISA, HIPAA and laws related to the operation of internet and mail-service pharmacies, as well as an increasing number of licensure,
registration and other laws and accreditation standards that impact the business practices of a PBM services business. In addition, the practice of pharmacy
is subject to federal and state laws and regulation, including those of state boards of pharmacy, individual state-controlled substance authorities, the U.S.
Drug Enforcement Agency and the U.S. Food and Drug Administration. Also, we and our third-party vendors are subject to registration requirements and
state and federal laws concerning labeling, packaging, advertising, handling and adulteration of prescription drugs and dispensing of controlled substances.
Noncompliance with applicable laws and regulations by us or our third-party vendors could have material adverse effects on our business, results of
operations, financial condition, liquidity and reputation.
Federal and state legislatures also regularly consider new regulations and changes to existing regulations for the industry that could materially affect
current industry practices and our business, including the regulation implemented by HHS in November 2020 related to rebates and the pricing of
pharmaceuticals, the Appropriations Act, and potential new regulations regarding rebates, fees from pharmaceutical companies, the development and use of
formularies and other utilization management tools, the use of average wholesale prices or other pricing benchmarks, pricing for specialty pharmaceuticals,
limited access to networks and pharmacy network reimbursement methodologies. In December 2020, the U.S. Supreme Court let stand an Arkansas law
regulating PBMs that may be a precursor to greater state regulation of PBMs.
We are a party to license agreements with the BCBSA that entitle us to the exclusive and, in certain areas, non-exclusive use of the BCBS names
and marks in our geographic territories. The termination of these license agreements or changes in the terms and conditions of these license
agreements could adversely affect our business, cash flows, financial condition and results of operations.
Our license agreements with the BCBSA contain certain requirements and restrictions regarding our operations and our use of the BCBS names and
marks, and failure to comply with those requirements could result in a termination of the license agreements. The license agreements may be modified by
the BCBSA, which could have a material adverse effect on our future expansion plans or results of operations. Further, BCBS licensees have certain
requirements to perform administrative services for members of other BCBS licensees. As of December 31, 2020, we provided services to approximately
32 million Blue Cross and/or Blue Shield enrollees. If we or another BCBS licensee are not in compliance with all legal requirements or are unable to
perform administrative services as required, this could have an adverse effect on our members and our ability to maintain our licenses, which could have a
material adverse effect on our business, cash flows, financial condition and results of operations.
Upon the occurrence of an event causing termination of the license agreements, we would no longer have the right to use the BCBS names and marks
or to sell BCBS health insurance products and services in one or more of our service areas. Furthermore, the BCBSA would be free to issue a license to use
the BCBS names and marks in these service areas to another entity. Our existing BCBS members would be provided with instructions for obtaining
alternative products and services licensed by the BCBSA. We believe that the BCBS names and marks are valuable identifiers of our products and services
in the marketplace.
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Upon termination of either license agreement, the BCBSA would have the right to impose a “Re-establishment Fee” upon us, which would be used in
part to fund the establishment of a replacement Blue Cross and/or Blue Shield licensee in the vacated service area. The fee is set at $98.33 per licensed
enrollee. If the Re-establishment Fee was applied to our total Blue Cross and/or Blue Shield enrollees of approximately 32 million as of December 31,
2020, we would be assessed approximately $3 billion by the BCBSA. As a result, termination of the license agreements would have a material adverse
effect on our business, cash flows, financial condition and results of operations.
For more information on the BCBSA license agreements, including requirements, restrictions and termination events set forth in these license
agreements, see Part I, Item 1, “Business — BCBSA Licenses” of this Annual Report on Form 10-K.
Indiana law, other applicable laws, our articles of incorporation and bylaws, and provisions of our BCBSA license agreements may prevent or
discourage takeovers and business combinations that our shareholders might consider to be in their best interest.
Indiana law, other applicable laws and regulations and provisions in our articles of incorporation and bylaws may delay, defer, prevent or render more
difficult a takeover attempt that our shareholders might consider to be in their best interests. For instance, they may prevent our shareholders from receiving
the benefit from any premium to the market price of our common stock offered by a bidder in a takeover context or adversely affect the price that some
investors are willing to pay for our stock.
The insurance holding company acts and certain health statutes of the states in which our insurance company or HMO subsidiaries are regulated
restrict the ability of any person to obtain control of an insurance company or HMO without prior regulatory approval. Further, the Indiana Business
Corporation Law contains business combination provisions that, in general, prohibit for five years any business combination with a beneficial owner of
10% or more of our common stock unless the holder’s acquisition of the stock was approved in advance by our Board of Directors.
Our articles of incorporation and bylaws contain provisions that could have anti-takeover effects and may delay, defer or prevent a takeover attempt
that our shareholders might consider to be in their best interests. Our articles of incorporation provide that no person may beneficially own shares of voting
capital stock in excess of specified ownership limits, except with the prior approval of a majority of the “continuing directors.” The ownership limits,
which may not be exceeded without the prior approval of the BCBSA, are the following: (1) for any institutional investor (as defined in our articles of
incorporation), one share less than 10% of our outstanding voting securities; (2) for any non-institutional investor (as defined in our articles of
incorporation), one share less than 5% of our outstanding voting securities; and (3) for any person, one share less than the number of shares of our common
stock or other equity securities (or a combination thereof) representing a 20% ownership interest in us.
In addition, our articles of incorporation and bylaws: divide our Board of Directors into three classes serving staggered three-year terms (which is
required by our license agreement with the BCBSA); permit our Board of Directors to determine the terms of and issue one or more series of preferred
stock without further action by shareholders; restrict the maximum number of directors and the ability to increase that number; limit the ability of
shareholders to remove directors; impose restrictions on shareholders’ ability to fill vacancies on our Board of Directors; impose advance notice
requirements for shareholder proposals and nominations of directors to be considered at meetings of shareholders; prohibit shareholders from amending
certain provisions of our bylaws; and impose restrictions on who may call a special meeting of shareholders.
The health benefits industry is subject to negative publicity, which could adversely affect our business, cash flows, financial condition and results
of operations.
The health benefits industry is subject to negative publicity, which can arise from, among other things, increases in premium rates, industry
consolidation, cost of care initiatives and debate around existing or proposed legislation. Negative publicity may result in increased regulation and
legislative review of industry practices, which may further increase our costs of doing business and adversely affect our profitability by limiting our ability
to market or provide our products and services, requiring us to change our products and services, or increasing the regulatory oversight under which we
operate. In addition, any negative publicity concerning the BCBSA or other BCBSA licensees may adversely affect us and the sale of our health benefits
products and services. Negative public perception or publicity of the health benefits industry in general, the BCBSA, other BCBSA licensees, or us or our
key vendors in particular, could adversely affect our business, cash flows, financial condition and results of operations.
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STRATEGIC RISKS
We face competition in many of our markets, and if we fail to adequately adapt to changes in our industry and develop and implement strategic
growth opportunities, our ability to compete and grow may be adversely affected.
As a health benefits company, we operate in a highly competitive environment and in an industry that is subject to significant changes from and
competition due to legislative reform, business consolidations, new strategic alliances, new market entrants, aggressive marketing practices, technological
advancements and changing market practices such as increasing usage of telehealth. We also will have to respond to pricing and other actions taken by
existing competitors and potentially disruptive new entrants in the public exchanges and in our other lines of business. These factors have produced and
will likely continue to produce significant pressures on our profitability. Furthermore, decisions to buy our products and services are increasingly made or
influenced by consumers, through means such as direct purchasing (for example, Medicare Advantage plans) and insurance exchanges that allow individual
choice, or by large employers that may increasingly have the ability to contract directly with providers. This creates unique market pressures, and in order
to compete effectively in the consumer-driven marketplace, we will be required to develop and deliver innovative and potentially disruptive products and
services to satisfy evolving market demands.
In addition, the PBM industry is highly competitive, and IngenioRx is subject to competition from national, regional and local PBMs, other insurers,
health plans, large retail pharmacy chains, large retail stores, supermarkets, other mail order and web pharmacies, discount cards and specialty pharmacies.
Strong competition within the PBM business has generated greater demand for lower product and service pricing, increased revenue sharing and enhanced
product and service offerings. Our inability to maintain positive trends, contract on favorable terms with pharmaceutical manufacturers for, among other
things, rebates, discounts and administrative fees or a failure to identify and implement new ways to mitigate pricing pressures, could negatively impact our
ability to attract or retain customers, negatively impact our margins and have a material adverse effect on our business and results of operations. In addition,
legislative reforms such as the regulation issued by HHS in November 2020 related to rebates, and the Appropriations Act, which requires reporting of plan
spending, the cost of plan pharmacy benefits, enrollee premiums and any manufacturer rebates received by the plan or issuer, may adversely affect our
competitive position, cash flows, financial condition and results of operations.
In order to profitably grow our business in the future, we need to not only grow our profitable medical membership, but also continue to diversify our
sources of revenue and earnings, including through the increased sale of our specialty products, such as dental, vision and other supplemental products,
expansion of products, expansion of our non-insurance assets and establishment of new cost of care solutions, including innovations in PBM services. If we
are unable to acquire or develop and successfully manage new opportunities that further our strategic objectives and differentiate our products from our
competitors, our ability to profitably grow our business could be adversely affected.
We are currently dependent on the non-exclusive services of independent agents and brokers in the marketing of our healthcare products, particularly
with respect to individuals, seniors and local group customers. We face intense competition for the services and allegiance of these independent agents and
brokers, who may also market the products of our competitors. Our relationship with our brokers and independent agents could be adversely impacted by
changes in our business practices to address legislative changes, including potential reductions in commissions and consulting fees paid to agents and
brokers. We cannot ensure that we will be able to compete successfully against current and future competitors for these services or that competitive
pressures faced by us will not materially and adversely affect our business, cash flows, financial condition and results of operations.
For additional information, see “Business — Competition,” in Part I, Item 1 of this Annual Report on Form 10-K.
We have built a significant portion of our current business through mergers and acquisitions, joint ventures and strategic alliances, and we expect
to pursue such opportunities in the future.
The following are some of the risks associated with mergers, acquisitions, joint ventures and strategic alliances, referred to collectively as business
combinations, that could have a material adverse effect on our business, cash flows, financial condition and results of operations:
•
some of the business combinations may not achieve anticipated revenues, earnings or cash flow, business opportunities, synergies, growth
prospects and other anticipated benefits;
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• we may assume liabilities that were not disclosed to us or which were underestimated;
• we may experience difficulties in integrating business combinations, be unable to integrate business combinations successfully or as quickly as
expected and be unable to realize anticipated economic, operational and other benefits in a timely manner or at all;
•
business combinations, and proposed business combinations that are not completed, could disrupt our ongoing business, lead to the incurrence of
significant fees, distract management, result in the loss of key employees, divert resources, result in tax costs or inefficiencies and make it difficult
to maintain our current business standards, controls, information technology systems, policies and procedures;
• we may finance future business combinations by issuing common stock for some or all of the purchase price, which could dilute the ownership
interests of our shareholders;
• we may compete with other firms, some of which may have greater financial and other resources, to acquire attractive companies;
• we may experience disputes with our partners in our strategic alliances and joint ventures, which could result in litigation or a loss of business; and
•
future business combinations may make it difficult to comply with the requirements of the BCBSA and lead to an increased risk that our BCBSA
license agreements may be terminated.
We face intense competition to attract and retain employees. Further, managing key executive transition, succession and retention is critical to our
success.
Our success depends on our ability to attract and retain qualified employees and to integrate employees who have joined us through acquisitions. We
face intense competition for qualified employees, and there can be no assurance that we will be able to attract and retain such employees or that such
competition among potential employers will not result in increasing salaries. An inability to retain existing employees or attract additional employees could
have a material adverse effect on our business, cash flows, financial condition and results of operations.
We would be adversely affected if we fail to adequately plan for the succession of our President and Chief Executive Officer and other senior
management or retain key executives. While we have succession plans in place for members of our senior management, and employment arrangements
with certain key executives, these plans and arrangements do not guarantee that the services of our senior executives will continue to be available to us or
that we will be able to attract, transition and retain suitable successors.
FINANCIAL RISKS
As a holding company, we are dependent on dividends from our subsidiaries. These dividends are necessary to pay our outstanding indebtedness.
Our regulated subsidiaries are subject to state regulations, including restrictions on the payment of dividends, maintenance of minimum levels of
capital and restrictions on investment portfolios.
As a holding company, we are dependent on dividends and administrative expense reimbursements from our subsidiaries. Our regulated subsidiaries
are not obligated to make funds available to us, and creditors of our subsidiaries will have a superior claim to certain of our subsidiaries’ assets.
Furthermore, among other restrictions, state insurance and HMO laws may restrict the ability of our regulated subsidiaries to pay dividends. In some states,
we have made special undertakings that may limit the ability of our regulated subsidiaries to pay dividends. In addition, our subsidiaries’ ability to make
any payments to us will also depend on their earnings, the terms of their indebtedness, business and tax considerations and other legal restrictions. Our
ability to repurchase shares or pay dividends in the future to our shareholders and meet our obligations, including paying operating expenses and debt
service on our outstanding and future indebtedness, will depend upon the receipt of dividends from our subsidiaries. An inability of our subsidiaries to pay
dividends in the future in an amount sufficient for us to meet our financial obligations may materially adversely affect our business, cash flows, financial
condition and results of operations.
Most of our regulated subsidiaries are subject to RBC standards or other forms of minimum capital requirements imposed by their states of domicile
that require them to report their results of risk-based capital calculations to the departments of insurance and the NAIC. Failure to maintain the minimum
RBC standards could subject our regulated subsidiaries to corrective action, including state supervision or liquidation. Changes to the existing RBC
standards and the
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NAIC’s December 2020 adoption of an RBC requirement at the holding company level, which requires submission of the first report in May 2023, could
further restrict our or our regulated subsidiaries’ ability to pay dividends and adversely affect our business. In addition, as discussed in more detail above,
we are a party to license agreements with the BCBSA which contain certain requirements and restrictions regarding our operations, including minimum
capital and liquidity requirements, which could restrict the ability of our regulated subsidiaries to pay dividends.
Our regulated subsidiaries are subject to state laws and regulations that require diversification of their investment portfolios and limit the amount of
investments in certain riskier investment categories, such as below-investment-grade fixed maturity securities, mortgage loans, real estate and equity
investments, which could generate higher returns on their investments. Failure to comply with these laws and regulations might cause investments
exceeding regulatory limitations to be treated as non-admitted assets for purposes of measuring statutory surplus and risk-based capital, and, in some
instances, require the sale of those investments.
We have substantial indebtedness outstanding and may incur additional indebtedness in the future, which could adversely affect our ability to
pursue desirable business opportunities and to react to changes in the economy or our industry, and exposes us to interest rate risk to the extent of
our variable rate indebtedness.
Our debt service obligations require us to use a portion of our cash flow to pay interest and principal on debt instead of for other corporate purposes,
including funding future expansion. If our cash flow and capital resources are insufficient to service our debt obligations, we may be forced to seek
extraordinary dividends from our subsidiaries, sell assets, seek additional equity or debt capital or restructure our debt. However, these measures might be
unsuccessful or inadequate to meet scheduled debt service obligations, or may not be available on commercially reasonable terms.
We may also incur future debt obligations that might subject us to restrictive covenants that could affect our financial and operational flexibility. Our
breach or failure to comply with any of these covenants could result in a default under our credit facilities or other indebtedness. If we default under our
credit agreement, the lenders could cease to make further extensions of credit or cause all of our outstanding debt obligations under our credit agreement to
become immediately due and payable, together with accrued and unpaid interest. If the indebtedness under our notes or our credit agreement or our other
indebtedness is accelerated, we may be unable to repay or finance the amounts due, on commercially reasonable terms, or at all.
A downgrade in our credit ratings could have an adverse effect on our business, cash flows, financial condition and results of operations.
Claims-paying ability as well as financial strength and debt ratings by nationally recognized statistical rating organizations are important factors in
establishing the competitive position of insurance companies and health benefits companies. We believe our strong credit ratings are an important factor in
marketing our products to customers. In addition, if our credit ratings are downgraded or placed under review, our business, cash flows, financial condition
and results of operations could be adversely impacted by limitations on future borrowings and a potential increase in our borrowing costs. Each of the
ratings organizations reviews our ratings periodically, and there can be no assurance that our current ratings will be maintained in the future.
The value of our intangible assets may become impaired.
As of December 31, 2020, we had $31 billion of goodwill and other intangible assets, representing 36% of our total consolidated assets. In accordance
with applicable accounting standards, we periodically evaluate our goodwill and other intangible assets for potential impairment, using assumptions and
judgments regarding the estimated fair value of our reporting units. Estimated fair values might be significantly different if other reasonable assumptions
and estimates were to be used. If estimated fair values are less than the carrying values of goodwill and other intangible assets with indefinite lives in future
impairment tests, or if significant impairment indicators are noted relative to other intangible assets subject to amortization, we may be required to record
impairment losses against future income.
The value we place on intangible assets may be adversely impacted if existing or future business combinations fail to perform in a manner consistent
with our assumptions. In addition, from time to time we divest businesses, and any such divestiture could result in significant asset impairment and
disposition charges, including those related to goodwill and other intangible assets. In addition, the estimated value of our reporting units may be impacted
as a result of business decisions we
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make associated with any future changes to laws and regulations, which could unfavorably affect the carrying value of certain goodwill and other
intangible assets and result in impairment charges in future periods. Any future evaluations requiring an impairment of our goodwill and other intangible
assets could materially affect our results of operations and shareholders’ equity which could, in turn, negatively impact our debt ratings or potentially
impact our compliance with existing debt covenants.
The value of our investments is influenced by varying economic and market conditions, and a decrease in value may result in a loss charged to
income.
We maintain a significant investment portfolio of cash equivalents and short-term and long-term investments in a variety of securities, which are
subject to general credit, liquidity, market and interest rate risks. As a result, we may experience a reduction in value or loss of our investments, which may
have a negative adverse effect on our results of operations, liquidity and financial condition. Changes in the economic environment, including periods of
increased volatility in the securities markets such as those experienced in 2020 related to the ongoing COVID-19 pandemic, can increase the difficulty of
assessing investment impairment and increase the risk of potential impairment of these assets. There is continuing risk that declines in fair value may occur
and material impairments may be charged to income in future periods, resulting in realized losses.
GENERAL RISKS
Changes in tax laws and regulations could have a material adverse effect on our business, cash flow, financial condition and results of operations.
In addition, we may not be able to realize the value of our deferred tax assets.
Changes in tax laws and regulations , including a potential increase in U.S. corporate tax rates or changes in the deductibility of expenses, or changes
in the interpretation of tax laws and regulations by federal and/or state authorities, could have a material impact on the future value of our deferred tax
assets and deferred tax liabilities, could result in significant one-time charges in the current or future taxable years and could increase our future U.S. tax
expense. In addition, we are regularly audited by federal and other tax authorities. Although we believe our tax positions comply with applicable tax law,
the final determination of audits and any related litigation in the jurisdictions where we are subject to taxation could be materially different from our
historical income provisions and accruals. These changes could have a material adverse effect on our business, cash flow, financial condition and results of
operations.
In addition, any future increase in our valuation allowance with regard to our deferred tax assets would result in additional income tax expense and a
decrease in shareholders’ equity, which could materially affect our financial position and results of operations in the period in which the increase occurs. A
material decrease in shareholders’ equity could, in turn, negatively impact our debt ratings or potentially impact our compliance with existing debt
covenants.
We also face other risks that could adversely affect our business, financial condition or results of operations, which include:
•
•
•
•
•
•
•
adverse securities and credit market conditions, which could impact our ability to meet liquidity needs;
any requirement to restate financial results in the event of inappropriate application of accounting principles;
a significant failure of our internal control over financial reporting;
failure of our prevention and control systems related to employee compliance with internal policies, including data security;
provider fraud that is not prevented or detected and impacts our medical costs or those of self-insured customers;
failure to protect our proprietary information; and
failure of our corporate governance policies or procedures.
ITEM 1B. UNRESOLVED SEC STAFF COMMENTS.
None.
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ITEM 2. PROPERTIES.
We lease our principal executive offices located at 220 Virginia Avenue, Indianapolis, Indiana. In addition to this location, we have operating facilities
located in each state where we operate as licensees of the BCBSA, in each state where Amerigroup conducts business and in certain other states and
countries where our other subsidiaries operate. A majority of these locations are also leased properties. Our facilities support our various business
segments. We modified certain of our workforce practices in 2020 in response to the COVID-19 pandemic, including having the majority of our workforce
work remotely. In the third quarter of 2020, our management introduced enterprise-wide initiatives to streamline our operations and optimize our business,
including a reduction of our office space footprint. We believe that our properties are adequate and suitable for our business as presently conducted;
however, we are continuing to evaluate our real estate strategy as it relates to the impact of the COVID-19 pandemic and the changing needs of a more
remote workforce.
ITEM 3. LEGAL PROCEEDINGS.
For information regarding our legal proceedings, see Note 14, “Commitments and Contingencies - Litigation and Regulatory Proceedings,” of the
Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, which information is incorporated herein by
reference.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
PART II
Market Information
Our common stock, par value $0.01 per share, is listed on the NYSE under the symbol “ANTM.”
Holders
As of February 4, 2021, there were 55,764 shareholders of record of our common stock.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by this Item concerning securities authorized for issuance under our equity compensation plans is set forth in Part III, Item 12
“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in this Annual Report on Form 10-K.
Issuer Purchases of Equity Securities
The following table presents information related to our repurchases of common stock for the periods indicated (in millions, except share and per share
data):
Period
October 1, 2020 to October 31, 2020
November 1, 2020 to November 30, 2020
December 1, 2020 to December 31, 2020
Total Number
of Shares
Purchased
1
Average
Price Paid
per Share
1,236,624 $
1,483,621
1,744,143
4,464,388
288.64
310.05
314.04
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
2
Programs
Approximate
Dollar Value
of Shares that
May Yet Be
Purchased
Under the
Programs
1,234,200 $
1,481,675
1,725,700
4,441,575
2,093
1,634
1,092
1
2
Total number of shares purchased includes 22,813 shares delivered to or withheld by us in connection with employee payroll tax withholding upon
exercise or vesting of stock awards. Stock grants to employees and directors and stock issued for stock option plans and stock purchase plans in the
consolidated statements of shareholders’ equity are shown net of these shares purchased.
Represents the number of shares repurchased through the common stock repurchase program authorized by our Board of Directors, which the Board
evaluates periodically. During the year ended December 31, 2020, we repurchased 9,429,067 shares at an aggregate cost of $2,700 under the program,
including the cost of options to purchase shares. The Board of Directors has authorized our common stock repurchase program since 2003. On January
26, 2021, our Audit Committee, pursuant to authorization granted by the Board of Directors, authorized a $5,000 increase to our common stock
repurchase program. No duration has been placed on our common stock repurchase program, and we reserve the right to discontinue the program at
any time.
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Performance Graph
The following Performance Graph and related information compares the cumulative total return to shareholders of our common stock for the period
from December 31, 2015 through December 31, 2020, with the cumulative total return over such period of (i) the Standard & Poor’s 500 Stock Index (the
“S&P 500 Index”) and (ii) the Standard & Poor’s Managed Health Care Index (the “S&P Managed Health Care Index”). The graph assumes an investment
of $100 on December 31, 2015 in each of our common stock, the S&P 500 Index and the S&P Managed Health Care Index (and the reinvestment of all
dividends).
The comparisons shown in the graph below are based on historical data, and we caution that the stock price performance shown in the graph below is
not indicative of, and is not intended to forecast, the potential future performance of our common stock. Information used in the graph was obtained from
S&P Global Market Intelligence, a source believed to be reliable, but we are not responsible for any errors or omissions in such information. The following
graph and related information shall not be deemed “soliciting materials” or to be “filed” with the SEC, nor shall such information be incorporated by
reference into any future filing under the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
Anthem, Inc.
S&P 500 Index
S&P Managed Health Care Index
December 31,
2015
2016
2017
2018
2019
2020
$
100 $
100
100
105 $ 167 $
112
120
136
172
197 $
130
191
229 $
171
229
247
203
266
Based upon an initial investment of $100 on December 31, 2015 with dividends reinvested.
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ITEM 6. SELECTED FINANCIAL DATA.
The table below provides selected consolidated financial data of Anthem. The information has been derived from our consolidated financial statements
for each of the years in the five-year period ended December 31, 2020. You should read this selected consolidated financial data in conjunction with the
audited consolidated financial statements and notes as of and for the year ended December 31, 2020 included in Part II, Item 8 “Financial Statements and
Supplementary Data,” and Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this
Annual Report on Form 10-K.
(in millions, except where indicated and except per share data)
Income Statement Data
2
Total operating revenue
Total revenues
Net income
Per Share Data
Basic net income per share
Diluted net income per share
Dividends per share
Other Data (unaudited)
3
Benefit expense ratio
4
Selling, general and administrative expense ratio
Income before income tax expense as a percentage of total revenues
Net income as a percentage of total revenues
Medical membership (in thousands)
Balance Sheet Data
5
Cash and investments
Total assets
Long-term debt, less current portion
Total liabilities
Total shareholders’ equity
$
$
$
1
2020
$
$
$
120,808
121,867
4,572
18.23
17.98
3.80
84.6 %
14.4 %
5.1 %
3.8 %
42,925
31,295
86,615
19,335
53,416
33,199
As of and for the Years Ended December 31
1
2018
1
2017
2019
$
$
$
103,141
104,213
4,807
18.81
18.47
3.20
86.8 %
13.0 %
5.7 %
4.6 %
41,000
26,127
77,453
17,787
45,725
31,728
$
$
$
91,341
92,105
3,750
14.53
14.19
3.00
84.2 %
15.3 %
5.5 %
4.1 %
39,938
22,639
71,571
17,217
43,030
28,541
$
$
$
89,061
90,040
3,843
14.70
14.35
2.70
86.4 %
14.2 %
4.4 %
4.3 %
40,299
25,179
70,540
17,382
44,037
26,503
2016
84,194
84,863
2,470
9.39
9.21
2.60
84.8 %
14.9 %
5.4 %
2.9 %
39,940
23,263
65,083
14,359
39,982
25,101
1
2
3
4
5
The net assets of and results of operations for Beacon, America’s 1st Choice and HealthSun are included from their respective acquisition dates of February 28, 2020, February 15, 2018 and
December 21, 2017, respectively.
Operating revenue is obtained by adding premiums, product revenue, and administrative fees and other revenue.
The benefit expense ratio represents benefit expenses as a percentage of premium revenue.
The selling, general and administrative expense ratio represents selling, general and administrative expenses as a percentage of total operating revenue.
Cash and investments is obtained by adding cash and cash equivalents, current and long-term fixed maturity securities and equity securities.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(In Millions, Except Per Share Data or As Otherwise Stated Herein)
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), should be read in conjunction with our
audited consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. References to the terms “we,” “our,” “us,”
“Anthem” or the “Company” used throughout this MD&A refer to Anthem, Inc., an Indiana corporation, and, unless the context otherwise requires, its
direct and indirect subsidiaries. References to the “states” include the District of Columbia, unless the context otherwise requires.
This section of this Annual Report on Form 10-K generally discusses 2020 and 2019 items and year-over-year comparisons between 2020 and 2019. A
detailed discussion of 2018 items and year-over-year comparisons between 2019 and 2018 that are not included in this Annual Report on Form 10-K can be
found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K
for the year ended December 31, 2019.
Overview
We are one of the largest health benefits companies in the United States in terms of medical membership, serving approximately 43 medical members
through our affiliated health plans as of December 31, 2020. We are an independent licensee of the Blue Cross and Blue Shield Association (“BCBSA”), an
association of independent health benefit plans. We serve our members as the Blue Cross licensee for California and as the Blue Cross and Blue Shield
(“BCBS”) licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New
Hampshire, New York (in the New York City metropolitan area and upstate New York), Ohio, Virginia (excluding the Northern Virginia suburbs of
Washington, D.C.) and Wisconsin. In a majority of these service areas, we do business as Anthem Blue Cross, Anthem Blue Cross and Blue Shield, and
Empire Blue Cross Blue Shield or Empire Blue Cross. In addition, we conduct business through arrangements with other BCBS licensees as well as other
strategic partners. Through our subsidiaries, we also serve customers in numerous states across the country as AIM Specialty Health, Amerigroup, Aspire
Health, Beacon, CareMore, Freedom Health, HealthLink, HealthSun, Optimum HealthCare, Simply Healthcare, and/or UniCare. Also, in the second
quarter of 2019, we began providing pharmacy benefits management (“PBM”) services through our IngenioRx subsidiary. We are licensed to conduct
insurance operations in all 50 states and the District of Columbia through our subsidiaries.
We manage our operations through four reportable segments: Commercial & Specialty Business, Government Business, IngenioRx and Other. In 2019,
IngenioRx was included in our Other reportable segment. Amounts for 2019 have been reclassified to conform to the current year presentation of our
reportable segments for comparability.
Our operating revenue consists of premiums, product revenue, and administrative fees and other revenue. Premium revenue is generated from fully-
insured contracts where we indemnify our policyholders against costs for covered health and life insurance benefits. Product revenue represents services
performed by IngenioRx for unaffiliated PBM customers and includes ingredient costs (net of any rebates or discounts), including co-payments made by or
on behalf of the customer, and administrative fees. Unaffiliated PBM customers include our self-funded groups that contract with IngenioRx for PBM
services and external customers outside of the health plans we own. Administrative fees and other revenue come from fees from our self-funded customers
for the processing of transactions or network discount savings realized, revenues from our Medicare processing business and revenues from other health-
related businesses, including disease management programs and miscellaneous other income.
Our benefit expense primarily includes costs of care for health services consumed by our fully-insured members, such as outpatient care, inpatient
hospital care, professional services (primarily physician care) and pharmacy benefit costs. All four components are affected both by unit costs and
utilization rates. Unit costs include the cost of outpatient medical procedures per visit, inpatient hospital care per admission, physician fees per office visit
and prescription drug prices. Utilization rates represent the volume of consumption of health services and typically vary with the age and health status of
our members and their social and lifestyle choices, along with clinical protocols and medical practice patterns in each of our markets. A portion of benefit
expense recognized in each reporting period consists of actuarial estimates of claims incurred but not yet paid by
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us. Any changes in these estimates are recorded in the period the need for such an adjustment arises. While we offer a diversified mix of managed care
products and services through our managed care plans, our aggregate cost of care can fluctuate based on a change in the overall mix of these products and
services. Our managed care plans include: Preferred Provider Organizations; Health Maintenance Organizations (“HMOs”); Point-of-Service plans;
traditional indemnity plans and other hybrid plans, including Consumer-Driven Health Plans; and hospital only and limited benefit products.
We classify certain quality improvement costs as benefit expense. Quality improvement activities are those designed to improve member health
outcomes, prevent hospital readmissions and improve patient safety. They also include expenses for wellness and health promotion provided to our
members. These quality improvement costs may be comprised of expenses incurred for: (i) medical management, including care coordination and case
management; (ii) health and wellness, including disease management services for such conditions as diabetes, high-risk pregnancies, congestive heart
failure and asthma management and wellness initiatives like weight-loss programs and smoking cessation treatments; and (iii) clinical health policy, such as
identification and use of best clinical practices to avoid harm, identifying clinical errors and safety concerns, and identifying potential adverse drug
interactions.
Our cost of products sold represents the cost of pharmaceuticals dispensed by IngenioRx for our unaffiliated PBM customers (net of rebates or
discounts), including any co-payments made by or on behalf of the customer, per-claim administrative fees for prescription fulfillment and certain direct
costs related to sales and administration of customer contracts.
Our selling, general and administrative expenses consist of fixed and variable costs. Examples of fixed costs are depreciation, amortization and certain
facilities expenses. Certain variable costs, such as premium taxes, vary directly with premium volume. Commission expense generally varies with premium
or membership volume. Other variable costs, such as salaries and benefits, do not vary directly with changes in premium but are more aligned with changes
in membership. The acquisition or loss of a significant block of business would likely impact staffing levels and thus, associated compensation expense.
Other variable costs include professional and consulting expenses and advertising. Other factors can impact our administrative cost structure, including
systems efficiencies, inflation and changes in productivity.
Our results of operations depend in large part on our ability to accurately predict and effectively manage healthcare costs through effective contracting
with providers of care to our members, product pricing, medical management and health and wellness programs, innovative product design and our ability
to maintain or achieve improvement in our CMS Star ratings. Several economic factors related to healthcare costs, such as regulatory mandates of coverage
as well as direct-to-consumer advertising by providers and pharmaceutical companies, have a direct impact on the volume of care consumed by our
members. The potential effect of escalating healthcare costs, any changes in our ability to negotiate competitive rates with our providers and any regulatory
or market-driven restrictions on our ability to obtain adequate premium rates to offset overall inflation in healthcare costs, including increases in unit costs
and utilization resulting from the aging of the population and other demographics, the impact of epidemics and pandemics, as well as advances in medical
technology, may impose further risks to our ability to profitably underwrite our business, and may have a material adverse impact on our results of
operations.
For additional information about our business and reportable segments, see Part I, Item 1, “Business” and Note 20, “Segment Information” of the
Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
COVID-19
In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus (“COVID-19”) a global health pandemic. At the
onset of the pandemic, to prevent its spread, most states issued shelter-in-place or stay-at-home orders, which generally required the businesses not
considered essential to close their physical offices. While these orders were largely lifted during the second quarter of 2020, many states and local
authorities continued to impose certain restrictions on the conduct of businesses and individuals.
The COVID-19 pandemic continues to evolve, and the virus and mitigation efforts have continued to impact the global economy, cause market
instability, increase unemployment and put pressure on the healthcare system. The COVID-19 pandemic has impacted and will continue to impact our
membership and benefit expense and has influenced and will likely continue to influence member behavior, impacting how members access healthcare
services. Although increased unemployment caused by the COVID-19 pandemic resulted in a decline in our Local Group membership, our Medicaid
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membership grew as a result of the temporary suspension of eligibility recertification efforts in response to the COVID-19 pandemic. While reduced or
cancelled utilization of non-COVID-19 health services by our members decreased our claim costs overall in 2020, in the second half of 2020 utilization of
such services began to rebound, and non-COVID-19 claim costs began to normalize as the shelter-in-place, stay-at-home orders and other restrictions on
the conduct of businesses were lifted. Our expenses in 2020 included additional costs to cover COVID-19 related testing, treatment, expanded coverage of
insurance benefits, waivers for cost-sharing and actions to support our providers. Furthermore, our expenses associated with COVID-19, including testing
and treatment and the actions taken to support our members in response to the pandemic, accelerated in the fourth quarter of 2020 and exceeded the benefit
we experienced during the quarter from the lower volume of healthcare claims attributable to decreased utilization of non-COVID-19 health services.
We remain focused on increasing access and coverage for our members and made several changes to our membership benefits and business operations,
adopted tools and policies to assist consumers and care providers and provided support to our associates and our local communities, which were discussed
in Part I, Item 1, “Business — COVID-19,” of this Annual Report on Form 10-K. Further, during 2020 we proactively took several actions to preserve our
liquidity and financial flexibility and minimize the effects of the COVID-19 pandemic, including:
•
Borrowing under our senior revolving credit facility in March 2020, which was repaid in April 2020;
• Delaying certain tax payments as permitted by the IRS and the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”); and
•
Temporarily suspending our share repurchase activity in March 2020, which was resumed in late June 2020.
The COVID-19 pandemic has created unique and unprecedented challenges, and although it has impacted and will likely continue to impact our
membership and benefit expense, it did not have a material adverse effect on our reported results in 2020. However, this may change in the future as the
COVID-19 pandemic is evolving, and the extent of its impact will depend on future developments, which are highly uncertain and cannot be predicted at
this time. We will continue to monitor the COVID-19 pandemic as well as resulting legislative and regulatory changes that may impact our business. For
additional discussion regarding our risks related to the COVID-19 pandemic and our other risk factors, see Part I, Item 1A, “Risk Factors” in this Annual
Report on Form 10-K and “Business Trends” in this MD&A.
Business Trends
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended (collectively, the “ACA”),
has changed and may continue to make broad-based changes to the U.S. healthcare system. We expect the ACA will continue to impact our business model
and strategy. Also, the legal challenges regarding the ACA, including a federal district court decision invalidating the ACA, which was argued before the
U.S. Supreme Court in November 2020 and has been stayed pending the U.S. Supreme Court’s decision, could significantly disrupt our business. We
currently offer Individual ACA-compliant products in 103 of the 143 rating regions in which we operate. Our strategy has been, and will continue to be, to
only participate in rating regions where we have an appropriate level of confidence that these markets are on a path toward sustainability, including, but not
limited to, factors such as expected financial performance, regulatory environment, and underlying market characteristics. In addition, the continuing
growth in our government-sponsored business exposes us to increased regulatory oversight.
In the second quarter of 2019, we began using IngenioRx to market and offer PBM services to our affiliated health plan customers throughout the
country, as well as to customers outside of the health plans we own. Our comprehensive PBM services portfolio includes features such as formulary
management, pharmacy networks, a prescription drug database, member services and mail order capabilities. IngenioRx delegates certain PBM
administrative functions, such as claims processing and prescription fulfillment, to CaremarkPCS Health, L.L.C., which is a subsidiary of CVS Health
Corporation, pursuant to a five-year agreement. With IngenioRx, we retain the responsibilities for clinical and formulary strategy and development,
member and employer experiences, operations, sales, marketing, account management and retail network strategy. From December 2009 through
December 2019, we delegated certain PBM functions and administrative services to Express Scripts, Inc. (“Express Scripts”). We began transitioning
existing members from Express Scripts to IngenioRx in the second quarter of 2019, and completed the transition of all of our members by January 1, 2020.
Pricing Trends: We strive to price our healthcare benefit products consistent with anticipated underlying medical cost trends. We continue to closely
monitor the COVID-19 pandemic and the impacts it may have on our pricing, such as surges
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in COVID-19 hospitalizations, infection rates, and the cost of COVID-19 vaccines. We frequently make adjustments to respond to legislative and
regulatory changes as well as pricing and other actions taken by existing competitors and new market entrants. Product pricing in our Commercial &
Specialty Business segment, including our Individual and Small Group lines of business, remains competitive. Revenues from the Medicare and Medicaid
programs are dependent, in whole or in part, upon annual funding from the federal government and/or applicable state governments. The ACA imposed an
annual Health Insurance Provider Fee (“HIP Fee”) on health insurers that write certain types of health insurance on U.S. risks. We priced our affected
products to cover the impact of the HIP Fee when it was in effect. The HIP Fee was suspended for 2019, was resumed for 2020 and has been permanently
repealed beginning in 2021.
Medical Cost Trends: Our medical cost trends are primarily driven by increases in the utilization of services across all provider types and the unit cost
increases of these services. We work to mitigate these trends through various medical management programs such as utilization management, condition
management, program integrity and specialty pharmacy management, as well as benefit design changes. There are many drivers of medical cost trends that
can cause variance from our estimates, such as changes in the level and mix of services utilized, regulatory changes, aging of the population, health status
and other demographic characteristics of our members, epidemics, pandemics, advances in medical technology, new high cost prescription drugs, and
healthcare provider or member fraud. Our underlying Local Group medical cost trends reflect the “allowed amount,” or contractual rate, paid to providers.
The COVID-19 pandemic has caused a decrease in utilization of non-COVID-19 health services, which decreased our claim costs in 2020. While the
utilization of such services began to rebound and claim costs began to normalize in the second half of 2020, further increases in the utilization of such
services may increase our claim costs in the future and affect our medical cost trends. Our expenses in 2020 include additional costs to cover COVID-19
related testing, treatment, expanded benefits coverage and waivers for cost-sharing. In response to the current crisis, we expanded coverage for certain
members in our affiliated health plans for testing and treatment related to a COVID-19 diagnosis. Governmental action has required us to provide full
coverage for COVID-19 testing to our members, and future governmental action could require us to provide additional coverage, including, for example,
vaccines. Increased member demand for care, along with continued COVID-19 care, testing and vaccination costs, are expected to result in increased future
medical costs. The continued cost and volume of covered services related to the COVID-19 pandemic may have a material adverse effect on our future
claim costs. We continue to closely monitor the COVID-19 pandemic and its impacts on our business, financial condition, results of operations and medical
cost trends.
For additional discussion regarding business trends, see Part I, Item 1, “Business” of this Annual Report on Form 10-K.
Regulatory Trends and Uncertainties
Federal and state legislation has been enacted, and is likely to continue to be enacted, in response to the COVID-19 pandemic that has had, and we
expect will continue to have, a significant impact on all of our lines of business, including mandates to waive cost-sharing on COVID-19 testing, treatment
and related services. The federal government enacted the Coronavirus Preparedness and Response Supplemental Appropriations Act, the Families First
Coronavirus Response Act and the CARES Act in March 2020, the Paycheck Protection Program and Health Care Enhancement Act in April 2020 and the
Consolidated Appropriations Act of 2021 in December 2020 (the “Appropriations Act”). These acts provide, among other things, prohibitions on prior
authorization and cost-sharing for certain items and services related to COVID-19 tests, reforms including waiving Medicare originating site restrictions for
qualified providers providing telehealth services, financial support to healthcare providers, including expansion of the Medicare accelerated payment
program to all providers receiving Medicare payments, and funding to replenish and administer small business loan programs to help small businesses keep
their workers employed and healthcare benefits covered in the group market.
The Appropriations Act contains a number of provisions that may have a material effect upon our business, including procedures and coverage
requirements related to surprise medical bills and new mandates for continuity of care for certain patients, price comparison tools, disclosure of broker
compensation and reporting on pharmacy benefits and drug costs. The various health plan-related requirements of the Appropriations Act will go into effect
on January 1, 2022, and our first report on pharmacy benefits and drug costs is due December 27, 2021.
Regulatory changes have also been enacted, and are likely to continue to be enacted, at the state and federal level in response to the COVID-19
pandemic. Those changes, which could have a significant impact on health benefits, consumer
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eligibility for public programs, and our cash flows, include mandated expansion of premium payment terms including the time period for which claims can
be denied for lack of payment, mandates related to prior authorizations and payment levels to providers, additional consumer enrollment windows, and an
increased ability to provide services through telehealth. We are providing extensions to premium payment terms in certain situations and working closely
with state regulators that are mandating or requesting such relief.
The ACA presented us with new growth opportunities, but also introduced new risks, regulatory challenges and uncertainties, and required changes in
the way products are designed, underwritten, priced, distributed and administered. Changes to our business environment are likely to continue as elected
officials at the national and state levels continue to enact, and both elected officials and candidates for election continue to propose, significant
modifications to existing laws and regulations, including changes to taxes and fees. In addition, the legal challenges regarding the ACA, including a federal
district court decision invalidating the ACA in its entirety, which was argued before the U.S. Supreme Court in November 2020 and has been stayed
pending the U.S. Supreme Court’s decision, continue to contribute to this uncertainty. In a separate development, in April 2020, the U.S. Supreme Court
ruled that the federal government is required to pay health insurance companies for amounts owed, as calculated under the risk corridor program of the
ACA. In June 2020, the U.S. Court of Federal Claims entered a final judgment stipulating that we are entitled to reimbursement for risk corridor amounts
from 2014, 2015 and 2016. At the end of December 2020, the U.S. Department of Health and Human Services (“HHS”) issued final guidance on how to
treat the risk corridor recoveries that we expect to receive. Based on the guidance from HHS, we revised previously filed minimum medical loss ratio
(“MLR”) reports and recognized the net premium impact of the risk corridor recoveries in the fourth quarter of 2020. We will continue to evaluate the
impact of the ACA as any further developments or judicial rulings occur.
The annual HIP Fee, which has been permanently eliminated beginning in 2021, was allocated to health insurers based on the ratio of the amount of an
insurer’s net premium revenues written during the preceding calendar year to the amount of health insurance premium for all U.S. health risk for those
certain lines of business written during the preceding calendar year. The HIP Fee was non-deductible for federal income tax purposes. Our affected
products were priced to cover the increased selling, general and administrative and income tax expenses associated with the HIP Fee when applicable. The
HIP Fee was suspended for 2019. For 2020, the HIP Fee resumed and the total amount due from allocations to health insurers was $15,523. For the year
ended December 31, 2020, we recognized $1,570 as selling, general and administrative expense related to the HIP Fee. There was no corresponding
expense for 2019 due to the suspension of the HIP Fee for 2019. The HIP Fee has been permanently eliminated beginning in 2021.
As a result of the ACA, the HHS issued MLR regulations that require us to meet minimum MLR thresholds of 85% for Large Group and 80% for
Small Group and Individual lines of business. Plans that do not meet the minimum thresholds have to pay a MLR rebate. For purposes of determining MLR
rebates, HHS has defined the types of costs that should be included in the MLR rebate calculation. However, certain components of the MLR calculation as
defined by HHS cannot be classified consistently under U.S. generally accepted accounting principles (“GAAP”). While considered benefit expense or a
reduction of premium revenue by HHS, certain of these costs are classified as other types of expense, such as selling, general and administrative expense or
income tax expense, in our GAAP basis financial statements. Accordingly, the benefit expense ratio determined using our consolidated GAAP operating
results is not comparable to the MLR calculated under HHS regulations.
The ACA also imposed a separate minimum MLR threshold of 85% for Medicare Advantage and Medicare Part D prescription drug plans (“Medicare
Part D”). Medicare Advantage or Medicare Part D plans that do not meet this threshold have to pay an MLR rebate. If a plan’s MLR is below 85% for three
consecutive years, enrollment is restricted. A Medicare Advantage or Medicare Part D plan contract will be terminated if the plan’s MLR is below 85% for
five consecutive years.
For additional discussion regarding regulatory trends and uncertainties, and risk factors that could cause actual results to differ materially from those
contained in forward-looking statements made in this Annual Report on Form 10-K, see Part I, Item 1, “Business — Regulation” and Part I, Item 1A, “Risk
Factors.”
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Other Significant Items
Business and Operational Matters
On February 2, 2021, we announced our entrance into an agreement with InnovaCare Health, L.P. to acquire its Puerto Rico-based subsidiaries,
including MMM Holdings, LLC (“MMM”) and its Medicare Advantage plan MMM Healthcare, LLC, Medicaid plan and other affiliated companies.
MMM is an integrated healthcare organization and seeks to provide its Medicare Advantage and Medicaid members with a whole health experience
through its network of specialized clinics and wholly owned independent physician associations. This acquisition aligns with our vision to be an innovative,
valuable and inclusive healthcare partner by providing care management programs that improve the lives of the people we serve. The acquisition is
expected to close by the end of the second quarter of 2021 and is subject to standard closing conditions and customary approvals.
In 2020, we introduced enterprise-wide initiatives to optimize our business and as a result, recorded a charge of $653 in selling, general and
administrative expenses. We believe these initiatives largely represent the next step forward in our progression towards becoming a more agile
organization, including process automation and a reduction in our office space footprint. For additional information, see Note 4, “Business Optimization
Initiatives” and Note 18, “Leases,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
On February 28, 2020, we completed our acquisition of Beacon Health Options, Inc. (“Beacon”), the largest independently held behavioral health
organization in the country. At the time of acquisition, Beacon served more than thirty-four million individuals across all fifty states. This acquisition
aligned with our strategy to diversify into health services and deliver both integrated solutions and care delivery models that personalize care for people
with complex and chronic conditions. For additional information, see Note 3, “Business Acquisitions,” of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K.
In February 2018, we completed our acquisition of Freedom Health, Inc., Optimum HealthCare, Inc., America’s 1st Choice of South Carolina, Inc. and
related entities. This Medicare Advantage organization offers HMO products, including Chronic Special Needs Plans and Dual-Eligible Special Needs
Plans, under its Freedom Health and Optimum HealthCare brands in Florida and its America’s 1st Choice of South Carolina brand in South Carolina. This
acquisition aligned with our plans for continued growth in the Medicare Advantage and Special Needs populations.
Other significant transactions in recent years that have impacted or will impact our capital structure or that have influenced or will influence how we
conduct our business operations include our Board of Directors’ declarations of dividends on our common stock, repurchases of our common stock, debt
repurchases and new debt issuances (2020 and prior). For additional information regarding these transactions, see Note 13, “Debt” and Note 15, “Capital
Stock,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Litigation Matters
In the consolidated multi-district proceeding in the United States District Court for the Northern District of Alabama (the “Court”) captioned In re Blue
Cross Blue Shield Antitrust Litigation (“BCBSA Litigation”), the Blue Cross Blue Shield Association (the “BCBSA”), and Blue Cross and/or Blue Shield
licensees, including us (the “Blue plans”) have approved a settlement agreement and release (the “Subscriber Settlement Agreement”) with the plaintiffs
representing a putative nationwide class of health plan subscribers. Generally, the lawsuits in the BCBSA Litigation challenge elements of the licensing
agreements between the BCBSA and the independently owned and operated Blue plans. The cases were brought by two putative nationwide classes of
plaintiffs, health plan subscribers and providers, and the Subscriber Settlement Agreement applies only to the putative subscriber class. No settlement
agreement has been reached with the provider plaintiffs at this time, and the defendants continue to contest the consolidated cases brought by the provider
plaintiffs.
If approved by the Court, the Subscriber Settlement Agreement will require the defendants to make a monetary settlement payment, our portion of
which is estimated to be $594, and will contain certain non-monetary terms including (i) eliminating the “national best efforts” rule in the BCBSA license
agreements (which rule limits the percentage of non-Blue revenue permitted for each Blue plan) and (ii) allowing for some large national employers with
self-funded benefit plans to request a bid for insurance coverage from a second Blue plan in addition to the local Blue plan. We recognized our estimated
payment obligation of $548, net of third-party insurance coverage received as of December 31, 2020.
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On November 30, 2020, the Court issued an order preliminarily approving the Subscriber Settlement Agreement, following which members of the
Subscriber class were provided notice of the Settlement Agreement and an opportunity to opt out of the class. All terms of the Subscriber Settlement
Agreement are subject to final approval by the Court before they become effective. Objections to the settlement as well as the deadline for those that wish
to opt-out from the settlement must be submitted by July 28, 2021. Claims must be filed by November 5, 2021. A final approval hearing has been
scheduled for October 20, 2021. If the Court grants approval of the Subscriber Settlement Agreement, and after all appellate rights have expired or have
been exhausted in a manner that affirms the Court’s final order and judgment, the defendants’ payment and non-monetary obligations under the Subscriber
Settlement Agreement will become effective. For additional information regarding this lawsuit, see Note 14, “Commitments and Contingencies - Litigation
and Regulatory Proceedings – Blue Cross Blue Shield Antitrust Litigation,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of
this Annual Report on Form 10-K.
In August 2020, the Delaware Court of Chancery ruled that neither we nor Cigna Corporation could collect damages in connection with the now
terminated Agreement and Plan of Merger, between us and Cigna Corporation. Cigna filed a notice of appeal in November 2020 challenging the trial
court’s opinion that Anthem did not owe Cigna a termination fee. Cigna filed its appellate brief in December 2020, and we filed a response in January
2021. For additional information, see Note 14, “Commitments and Contingencies - Litigation and Regulatory Proceedings - Cigna Corporation Merger
Litigation,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
In January 2019, we exercised our contractual right to terminate our PBM Agreement with Express Scripts (the “ESI PBM Agreement”) and we
completed the transition of our members from Express Scripts to IngenioRx by January 1, 2020. Notwithstanding our termination of the ESI PBM
Agreement, the litigation between us and Express Scripts regarding the ESI PBM Agreement continues. For additional information regarding this lawsuit,
see Note 14, “Commitments and Contingencies - Litigation and Regulatory Proceedings - Express Scripts, Inc. Pharmacy Benefit Management Litigation,”
of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Selected Operating Performance
During the year ended December 31, 2020, total medical membership increased by 1.9, or 4.7%. Our medical membership grew in both our
Government Business and Commercial & Specialty Business segments. The increase in medical membership in our Government Business segment was
driven by organic growth in our Medicaid business due to the temporary suspension of eligibility recertification efforts in our markets in response to the
COVID-19 pandemic, as well as acquisitions, and growth in our Medicare business. The increase in medical membership in our Commercial & Specialty
Business segment was primarily driven by growth in our self-funded business, partially offset by declines in our fully-insured Local Group membership
due to negative in-group changes as a result of increased unemployment caused by the COVID-19 pandemic.
Operating revenue for the year ended December 31, 2020 was $120,808, an increase of $17,667, or 17.1%, from the year ended December 31, 2019.
The increase in operating revenue was primarily driven by higher premium revenue in our Government Business segment, as well as increased pharmacy
product revenue related to the launch of IngenioRx.
Net income for the year ended December 31, 2020 was $4,572, a decrease of $235, or 4.9%, from the year ended December 31, 2019. The decrease in
net income was a result of lower operating results in our Commercial & Specialty Business segment, which was largely driven by costs associated with
actions taken to support our members and providers in response to the COVID-19 pandemic and costs for COVID-19 related care, as well as our estimated
payment obligation related to the BCBSA Litigation and expenses related to our business optimization initiatives recognized in 2020, higher income tax
expense, and a decrease in net earnings from investment activities. These decreases in net income were largely offset by higher operating results in our
IngenioRx and Government Business segments.
Our fully-diluted earnings per share (“EPS”) for the year ended December 31, 2020 were $17.98, a decrease of $0.49, or 2.7%, from the year ended
December 31, 2019. Our diluted shares for the year ended December 31, 2020 were 254.3, a decrease of 6.0, or 2.3%, compared to the year ended
December 31, 2019. The decrease in EPS resulted from the decrease in net income, partially offset by the impact of a lower number of shares outstanding
in 2020.
-50-
Operating cash flow for the year ended December 31, 2020 was $10,688, or approximately 2.3 times net income. Operating cash flow for the year
ended December 31, 2019 was $6,061, or approximately 1.3 times net income. The increase in operating cash flow was primarily due to the impact of the
timing of working capital changes. The increase was further due to membership growth in our Government Business segment and higher net income in
2020, excluding the non-cash impact of accrued expenses related to our business optimization initiatives and the BCBSA Litigation.
Our results of operations discussed throughout this MD&A are determined in accordance with GAAP. We also calculate operating gain to further aid
investors in understanding and analyzing our core operating results. We define operating revenue as premium income, product revenue and administrative
fees and other revenue. Operating gain is calculated as total operating revenue less benefit expense, cost of products sold and selling, general and
administrative expense. We use these measures as a basis for evaluating segment performance, allocating resources, forecasting future operating periods
and setting incentive compensation targets. This information is not intended to be considered in isolation or as a substitute for income before income tax
expense, net income or EPS prepared in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies. For
additional details on operating gain, see our “Reportable Segments Results of Operations” discussion included in this MD&A. For a reconciliation of
reportable segment operating revenue to the amounts of total revenue included in the consolidated statements of income and a reconciliation of reportable
segment operating gain to income before income tax expense, see Note 20, “Segment Information,” of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K.
We intend to expand through a combination of organic growth, strategic acquisitions and efficient use of capital in both existing and new markets. Our
growth strategy is designed to enable us to take advantage of additional economies of scale, as well as providing us access to new and evolving
technologies and products. In addition, we believe geographic and product diversity reduces our exposure to local or regional regulatory, economic and
competitive pressures and provides us with increased opportunities for growth. In 2019, we began using IngenioRx to market and offer PBM services, and
we expect IngenioRx to improve our ability to integrate pharmacy benefits within our medical and specialty platform. In 2020, we continued growing our
government-sponsored business. In all other markets, we intend to maintain our position by delivering excellent service, offering competitively priced
products, providing access to high-quality provider networks and effectively capitalizing on the brand strength of the Blue Cross and Blue Shield names
and marks.
Membership
Our medical membership includes seven different customer types: Local Group, Individual, National Accounts, BlueCard , Medicare, Medicaid and
®
our Federal Employees Health Benefits (“FEHB”) Program. BCBS-branded business generally refers to members in our service areas licensed by the
BCBSA. Non-BCBS-branded business refers to members in our non-BCBS-branded Amerigroup, Freedom Health, HealthSun, Optimum HealthCare and
Simply Healthcare plans, as well as Beacon, HealthLink and UniCare members. In addition to the above medical membership, we also serve customers
who purchase one or more of our other products or services that are often ancillary to our health business.
•
•
Local Group consists of those employer customers with less than 5% of eligible employees located outside of the headquarter state, as well as
customers with more than 5% of eligible employees located outside of the headquarter state with up to 5,000 eligible employees. In addition,
Local Group includes Student Health and UniCare members. Local Group accounts are generally sold through brokers or consultants who work
with industry specialists from our in-house sales force and are offered both on and off the public exchanges. Local Group insurance premiums may
be based on claims incurred by the group or sold on a self-insured basis. The customer’s buying decision is typically based upon the size and
breadth of our networks, customer service, the quality of our medical management services, the administrative cost included in our quoted price,
our financial stability, our reputation and our ability to effectively service large complex accounts. Local Group accounted for 36.4%, 38.2% and
39.4% of our medical members at December 31, 2020, 2019 and 2018, respectively.
Individual consists of individual customers under age 65 and their covered dependents. Individual policies are generally sold through independent
agents and brokers, retail partnerships, our in-house sales force or via the exchanges. Individual business is sold on a fully-insured basis. We offer
on-exchange products through public exchanges and off-exchange products. Federal premium subsidies are available only for certain public
exchange Individual products. Unsubsidized Individual customers are generally more sensitive to product pricing and, to a lesser extent, the
configuration of the network and the efficiency of administration. Customer turnover is generally
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higher with Individual as compared to Local Group. Individual business accounted for 1.6%, 1.7% and 1.6% of our medical members at
December 31, 2020, 2019 and 2018, respectively.
• National Accounts generally consist of multi-state employer groups primarily headquartered in an Anthem service area with at least 5% of the
eligible employees located outside of the headquarter state and with more than 5,000 eligible employees. Some exceptions are allowed based on
broker and consultant relationships. Service area is defined as the geographic area in which we are licensed to sell BCBS products. National
Accounts are generally sold through independent brokers or consultants retained by the customer working with our in-house sales force. We
believe we have an advantage when competing for very large National Accounts due to the size and breadth of our networks and our ability to
access the national provider networks of other BCBS companies at their competitive local market rates. National Accounts represented 18.0%,
18.5% and 19.0% of our medical members at December 31, 2020, 2019 and 2018, respectively.
•
®
®
BlueCard host customers represent enrollees of Blue Cross and/or Blue Shield plans not owned by Anthem who receive healthcare services in
our BCBSA licensed markets. BlueCard membership consists of estimated host members using the national BlueCard program. Host members
are generally members who reside in or travel to a state in which an Anthem subsidiary is the Blue Cross and/or Blue Shield licensee and who are
covered under an employer-sponsored health plan issued by a non-Anthem controlled BCBSA licensee (the “home plan”). We perform certain
®
functions including claims pricing and administration for BlueCard members, for which we receive administrative fees from the BlueCard
members’ home plans. Other administrative functions, including maintenance of enrollment information and customer service, are performed by
®
the home plan. Host members are computed using, among other things, the average number of BlueCard claims received per month. BlueCard
host membership accounted for 14.1%, 14.8% and 14.6% of our medical members at December 31, 2020, 2019 and 2018, respectively.
®
®
®
• Medicare customers are Medicare-eligible individual members age 65 and over who have enrolled in Medicare Supplement plans; Medicare
Advantage, including Special Needs Plans (“SNPs”), also known as Medicare Advantage SNPs; Medicare Part D; and dual-eligible programs
through Medicare-Medicaid Plans (“MMPs”). Medicare Supplement plans typically pay the difference between healthcare costs incurred by a
beneficiary and amounts paid by Medicare. Medicare Advantage plans provide Medicare beneficiaries with a managed care alternative to
traditional Medicare and often include a Medicare Part D benefit. In addition, our Medicare Advantage SNPs provide tailored benefits to special
needs individuals who are institutionalized or have severe or disabling chronic conditions and to dual-eligible customers, who are low-income
seniors and persons under age 65 with disabilities. Medicare Advantage SNPs are coordinated care plans specifically designed to provide targeted
care, covering all the healthcare services considered medically necessary for members and often providing professional care coordination services,
with personal guidance and programs that help members maintain their health. Medicare Advantage membership also includes Medicare
Advantage members in our Group Retiree Solutions business who are related to National Accounts, retired members of Local Group accounts, or
retired members of groups who are not affiliated with our Commercial accounts who have selected a Medicare Advantage product through us.
Medicare Part D offers a prescription drug plan to Medicare and MMP beneficiaries. MMP, which was established as a result of the passage of the
ACA, is a demonstration program focused on serving members who are dually eligible for Medicaid and Medicare. Medicare Supplement and
Medicare Advantage products are marketed in the same manner, primarily through independent agents and brokers. Medicare business accounted
for 5.5%, 5.2% and 4.6% of our medical members at December 31, 2020, 2019 and 2018, respectively.
• Medicaid membership represents eligible members who receive healthcare benefits through publicly funded healthcare programs, including
Medicaid, ACA-related Medicaid expansion programs, Temporary Assistance for Needy Families, programs for seniors and people with
disabilities, Children’s Health Insurance Programs, and specialty programs such as those focused on long-term services and support, HIV/AIDS,
foster care, behavioral health and/or substance abuse disorders, and intellectual disabilities or developmental disabilities, among others. Total
Medicaid program business accounted for 20.6%, 17.7% and 16.8% of our medical members at December 31, 2020, 2019 and 2018, respectively.
-52-
•
FEHB members consist of United States government employees and their dependents within our geographic markets through our participation in
the national contract between the BCBSA and the U.S. Office of Personnel Management. FEHB business accounted for 3.8% of our medical
members at December 31, 2020 and 3.9% at both December 31, 2019 and 2018.
In addition to reporting our medical membership by customer type, we report by funding arrangement according to the level of risk that we assume in
the product contract. Our two principal funding arrangement categories are fully-insured and self-funded. Fully-insured products are products in which we
indemnify our policyholders against costs for health benefits. Self-funded products are offered to customers, generally larger employers, who elect to retain
most or all of the financial risk associated with their employees’ healthcare costs. Some self-funded customers choose to purchase stop loss coverage to
limit their retained risk.
-53-
The following table presents our medical membership by customer type, funding arrangement and reportable segment as of December 31, 2020, 2019
and 2018. Also included below is other membership by product. At this time, the following table does not include membership resulting from our
acquisition of Beacon. The medical membership and other membership presented are unaudited and in certain instances include estimates of the number of
members represented by each contract at the end of the period.
(In thousands)
Medical Membership
Customer Type
Local Group
Individual
National:
National Accounts
®
BlueCard
Total National
Medicare:
Medicare Advantage
Medicare Supplement
Total Medicare
Medicaid
FEHB
Total Medical Membership by Customer Type
Funding Arrangement
Self-Funded
Fully-Insured
Total Medical Membership by Funding Arrangement
Reportable Segment
Commercial & Specialty Business
Government Business
Total Medical Membership by Reportable Segment
Other Membership
Life and Disability Members
Dental Members
Dental Administration Members
Vision Members
Medicare Part D Standalone Members
December 31, 2020 Compared to December 31, 2019
Medical Membership
December 31
2019
2020
2020 vs. 2019
2019 vs. 2018
2018
Change
% Change
Change
% Change
15,614
680
7,736
6,059
13,795
1,428
933
2,361
8,852
1,623
42,925
25,629
17,296
42,925
30,089
12,836
42,925
5,064
6,385
1,316
7,536
413
15,682
684
7,596
6,060
13,656
1,214
905
2,119
7,265
1,594
41,000
25,418
15,582
41,000
30,022
10,978
41,000
5,259
6,263
5,516
7,261
283
15,733
655
7,588
5,838
13,426
1,006
846
1,852
6,716
1,556
39,938
25,287
14,651
39,938
29,814
10,124
39,938
4,795
5,807
5,327
6,946
309
(68)
(4)
140
(1)
139
214
28
242
1,587
29
1,925
211
1,714
1,925
67
1,858
1,925
(195)
122
(4,200)
275
130
(0.4)%
(0.6)%
1.8 %
— %
1.0 %
17.6 %
3.1 %
11.4 %
21.8 %
1.8 %
4.7 %
0.8 %
11.0 %
4.7 %
0.2 %
16.9 %
4.7 %
(3.7)%
1.9 %
(76.1)%
3.8 %
45.9 %
(51)
29
8
222
230
208
59
267
549
38
1,062
131
931
1,062
208
854
1,062
464
456
189
315
(26)
(0.3)%
4.4 %
0.1 %
3.8 %
1.7 %
20.7 %
7.0 %
14.4 %
8.2 %
2.4 %
2.7 %
0.5 %
6.4 %
2.7 %
0.7 %
8.4 %
2.7 %
9.7 %
7.9 %
3.5 %
4.5 %
(8.4)%
Total medical membership grew in both our Government Business and Commercial & Specialty Business segments as well as by funding arrangement.
Fully-insured membership increased primarily due to growth in our Medicaid and Medicare businesses, partially offset by membership decreases in our
fully-insured Local Group business. Local Group membership decreased due to negative in-group changes as a result of increased unemployment caused
by the COVID-19 pandemic,
-54-
which was partially offset by sales exceeding lapses. Self-funded medical membership increased primarily as a result of membership increases in our
National Accounts business driven by our acquisition of a third-party administrator. Medicaid membership increased primarily due to organic growth in
existing markets due to the temporary suspension of eligibility recertification during the COVID-19 pandemic as well as our acquisition of Medicaid plans
in Missouri and Nebraska in 2020. Medicare membership increased primarily due to higher sales.
Other Membership
Our other membership can be impacted by changes in our medical membership, as our medical members often purchase our other products that are
ancillary to our health business. Life and disability membership decreased due to higher lapses in our fully-insured Local Group business. Dental
membership increased primarily due to new sales and growth in our National Accounts and membership growth in our FEHB program, as well as new sales
in our Individual product offerings. Dental administration membership decreased due to the lapse of a large dental administration services contract. Vision
membership increased due to higher sales in our Medicare and Local Group businesses.
Consolidated Results of Operations
Our consolidated summarized results of operations and other information for the years ended December 31, 2020, 2019 and 2018 are as
follows:
$
$
$
Total operating revenue
Net investment income
Net realized gains (losses) on financial
instruments
Total revenues
Benefit expense
Cost of products sold
Selling, general and administrative expense
1
Other expense
Total expenses
Income before income tax expense
Income tax expense
Net income
Average diluted shares outstanding
Diluted net income per share
Effective tax rate
2
Benefit expense ratio
Selling, general and administrative expense
4
ratio
Income before income tax expense as a
percentage of total revenues
Net income as a percentage of total revenues
2020
120,808
877
182
121,867
88,045
8,953
17,450
1,181
115,629
6,238
1,666
4,572
254.3
17.98
26.7 %
84.6 %
14.4 %
5.1 %
3.8 %
Years Ended December 31
2019
103,141
1,005
$
$
67
104,213
81,786
1,992
13,364
1,086
98,228
5,985
1,178
4,807
260.3
18.47
19.7 %
86.8 %
13.0 %
5.7 %
4.6 %
$
$
$
$
2020 vs. 2019
2019 vs. 2018
Change
$
17,667
(128)
115
17,654
6,259
6,961
4,086
95
17,401
253
488
(235)
(6.0)
(0.49)
$
$
$
2018
91,341
970
(206)
92,105
71,895
—
14,020
1,122
87,037
5,068
1,318
3,750
264.2
14.19
26.0 %
84.2 %
15.3 %
5.5 %
4.1 %
$
11,800
35
273
12,108
9,891
1,992
(656)
(36)
11,191
917
(140)
1,057
(3.9)
4.28
%
17.1 % $
(12.7)%
(171.6)%
16.9 %
7.7 %
349.4 %
30.6 %
8.7 %
17.7 %
4.2 %
41.4 %
(4.9)% $
(2.3)%
(2.7)% $
700bp
3
(220)bp
3
140bp
3
3
(60)bp
3
(80)bp
%
12.9 %
3.6 %
(132.5)%
13.1 %
13.8 %
NM
(4.7)%
(3.2)%
12.9 %
18.1 %
(10.6)%
28.2 %
(1.5)%
30.2 %
3
(630)bp
3
260bp
3
(230)bp
20bp
50bp
3
3
Certain of the following definitions are also applicable to all other results of operations tables in this discussion:
NM Not meaningful.
1
2
Includes interest expense, amortization of other intangible assets and loss on extinguishment of debt.
Benefit expense ratio represents benefit expense as a percentage of premium revenue. Premiums for the years ended December 31, 2020, 2019 and 2018 were
$104,109, $94,173 and $85,421, respectively. Premiums are included in total operating revenue presented above.
-55-
3
4
bp = basis point; one hundred basis points = 1%.
Selling, general and administrative expense ratio represents selling, general and administrative expense as a percentage of total operating revenue.
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
Total operating revenue increased as a result of higher premium revenue due mainly to membership growth in our Government Business segment
related to our Medicaid and Medicare businesses and rate increases designed to cover the impact of the HIP Fee reinstatement for 2020. The increase in
operating revenue was further attributable to an increase in pharmacy product revenue as we completed the transition of all of our unaffiliated PBM
customers to IngenioRx between the second quarter of 2019 and January 1, 2020. The increase in operating revenue was partially offset by a decrease in
premiums in our Commercial & Specialty Business segment related to fully-insured membership declines as a result of increased unemployment caused by
the COVID-19 pandemic.
Net investment income decreased primarily due to losses from other invested assets and lower yields on our short term investments. The losses on our
other invested assets were primarily due to losses from energy sector private equity funds recognized in 2020 as a result of a decrease in the worldwide
demand for energy due to the COVID-19 pandemic.
Net realized gains on financial instruments increased primarily due to the changes in the fair values of our investments in equity securities. This
increase was partially offset by a decrease in net realized gains on sales of equity securities.
Benefit expense increased primarily due to increased costs as a result of growth in our Medicaid and Medicare membership and overall cost trends
across our businesses including increased expense to cover COVID-19 related costs such as testing, treatment, expanded coverage of insurance benefits,
waivers for cost-sharing and actions taken to support our members in response to the pandemic. These increases were partially offset by the lower volume
of healthcare claims experienced resulting from decreased utilization of non-COVID-19 health services during the COVID-19 pandemic.
Our benefit expense ratio decreased primarily due to the COVID-19 impact of lower utilization rates of healthcare benefits, and to a lesser extent, the
HIP Fee reinstatement for 2020. These decreases were partially offset by increased benefit costs associated with actions taken to support our members in
response to the pandemic and COVID-19 related care. The decreases were further offset by the impact of retroactive rate adjustments in our Medicaid
business and premium credits provided in response to the COVID-19 pandemic to our members enrolled in select Individual plans and fully-insured
employer customers.
Cost of products sold increased as we completed the transition of all of our unaffiliated PBM customers to IngenioRx between the second quarter of
2019, when it began its operations, and January 1, 2020.
Selling, general and administrative expense increased primarily due to the reinstatement of the HIP Fee for 2020 and increased spend to support
growth in our businesses. The increase was further due to the recognition of expenses related to our business optimization initiatives and the BCBSA
Litigation during 2020.
Our selling, general and administrative expense ratio increased as a result of the higher selling, general and administrative expenses discussed above,
partially offset by the growth in operating revenue.
Our effective income tax rate increased primarily due to the reinstatement of the non-tax deductible HIP Fee for 2020.
Our net income as a percentage of total revenue decreased as a result of all factors discussed above.
Reportable Segments Results of Operations
Beginning in 2020, IngenioRx met the quantitative thresholds for a reportable segment and the results of our operations are now described through four
reportable segments: Commercial & Specialty Business, Government Business, IngenioRx and Other. We use operating gain to evaluate the performance of
our reportable segments. Operating gain is calculated as total operating revenue less benefit expense, cost of products sold and selling, general and
administrative expense. It does not include net investment income, net realized gains (losses) on financial instruments, interest expense, amortization of
other intangible assets, loss on extinguishment of debt or income taxes, as these items are managed in a corporate shared service environment and are not
the responsibility of operating segment management.
-56-
The discussion of segment results presented below is based on operating gain, as described above, and operating margin, which is calculated as
operating gain divided by operating revenue. Our definition of operating gain and operating margin may not be comparable to similarly titled measures
reported by other companies. We use these measures as a basis for evaluating segment performance, allocating resources, forecasting future operating
periods and setting incentive compensation targets. This information is not intended to be considered in isolation or as a substitute for income before
income tax expense, net income or EPS, prepared in accordance with GAAP. For our 2019 segment reporting, operating gain generated from IngenioRx
activities were allocated and included in our Commercial & Specialty Business and Government Business based upon their utilization of those services,
which aligns with the method by which we assessed the 2019 operating performance of our reportable segments. Beginning January 1, 2020, we are
managing the operating performance of each of our segments on a standalone basis. Prior year 2019 allocations were not restated to conform to the 2020
presentation; however, operating margins for IngenioRx were approximately 8% in 2019. For additional information, see Note 20, “Segment Information,”
of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
The following table presents a summary of our reportable segment financial information for the years ended December 31, 2020, 2019 and 2018:
Operating Revenue
Commercial & Specialty Business
Government Business
IngenioRx
Other
Eliminations
Total operating revenue
Operating Gain (Loss)
1
Commercial & Specialty Business
2
Government Business
3
IngenioRx
4
Other
Operating Margin
Commercial & Specialty Business
Government Business
IngenioRx
Years Ended December 31
2019
2018
2020
2020 vs. 2019
2019 vs. 2018
$
%
$
%
Change
$
$
$
36,699 $
71,572
21,911
6,057
(15,431)
120,808 $
37,421
62,632
5,402
2,293
(4,607)
103,141
2,681 $
2,444
1,361
(126)
4,032
2,056
—
(89)
$
$
$
35,782
55,348
—
1,519
(1,308)
91,341
3,600
1,928
—
(102)
7.3
3.4
6.2
10.8 %
3.3 %
— %
10.1 %
3.5 %
NM
$
$
(722)
8,940
16,509
3,764
(10,824)
17,667
(1.9)% $
14.3 %
305.6 %
164.2 %
234.9 %
17.1 % $
1,639
7,284
5,402
774
(3,299)
11,800
432
128
—
13
(1,351)
388
1,361
(37)
(33.5)%
18.9 %
NM
41.6 %
5
(350)bp
5
10bp
NM
4.6 %
13.2 %
NM
51.0 %
252.2 %
12.9 %
12.0 %
6.6 %
NM
(12.7)%
5
70bp
5
(20)bp
NM
Includes expenses of $524 for the BCBSA Litigation and $311 for business optimization initiatives recognized in 2020.
NM Not meaningful.
1
2 Includes expenses of $205 for business optimization initiatives and $24 for the BCBSA Litigation recognized in 2020.
3 Includes expenses of $4 for business optimization initiatives recognized in 2020.
4 Includes expenses of $133 for business optimization initiatives recognized in 2020.
5 bp = basis point; one hundred basis points = 1%.
Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
Commercial & Specialty Business
Operating revenue decreased primarily due to fully-insured membership declines as a result of increased unemployment caused by the COVID-19
pandemic. The decrease in operating revenue was further attributable to the absence of pharmacy
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administrative fee revenue that is now being recognized within the IngenioRx segment and the impact of premium credits provided to certain members in
response to the COVID-19 pandemic. These decreases were partially offset by higher premium revenue resulting from rate increases designed to cover the
impact of the HIP Fee reinstatement for 2020.
The decrease in operating gain was primarily driven by costs associated with actions taken to support our members and providers in response to the
pandemic and COVID-19 related care, as well as expenses for the BCBSA Litigation and business optimization initiatives recognized in 2020. The
decrease was further attributable to the shift of pharmacy earnings to our IngenioRx segment and the impact of premium credits provided to certain
members in response to the COVID-19 pandemic. The decrease was partially offset by the impact of the lower volume of healthcare claims attributable to
decreased utilization of non-COVID-19 health services during the COVID-19 pandemic.
Government Business
Operating revenue increased primarily due to higher premium revenue as a result of membership growth in our Medicaid business driven by the
temporary suspension of eligibility recertification efforts during the COVID-19 pandemic, acquisitions and new expansions, as well as membership growth
in our Medicare business. The increase in premium revenue was further attributable to the HIP Fee reinstatement for 2020.
The increase in operating gain was primarily driven by the lower volume of healthcare claims attributable to decreased utilization of non-COVID-19
health services during the COVID-19 pandemic. The increase was partially offset by costs associated with actions taken to support our members in
response to the pandemic and COVID-19 related care and retroactive rate adjustments and higher experience-rated refunds in our Medicaid business. The
increase in operating gain was further offset by increased spend to support growth and expenses for business optimization initiatives recognized in 2020.
IngenioRx
Operating revenue and operating gain increased as a result of the transition of our existing members to IngenioRx, which commenced its operations
during the second quarter of 2019. Operating revenue represents product revenues from services performed for our fully-insured affiliated health plans and
self-funded customers and external customers outside of the health plans we own. Product revenues and cost of goods sold for our fully-insured affiliated
health plan customers are eliminated in consolidation. Operating gain represents operating revenue less cost of products sold and selling, general and
administrative expenses.
Other
Operating revenue increased due to our acquisition of Beacon in February 2020 and higher administrative fees and other revenue from services
performed by DBG in certain markets.
The increase in operating loss was driven by expenses recognized for our business optimization initiatives.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in conformity with GAAP. Application of GAAP requires management to make estimates and
assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes and within this MD&A. We consider our
most important accounting policies that require significant estimates and management judgment to be those policies with respect to liabilities for medical
claims payable, income taxes, goodwill and other intangible assets, investments and retirement benefits, which are discussed below. Our other significant
accounting policies are summarized in Note 2, “Basis of Presentation and Significant Accounting Policies,” of the Notes to Consolidated Financial
Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
We continually evaluate the accounting policies and estimates used to prepare the consolidated financial statements. In general, our estimates are based
on historical experience, evaluation of current trends, information from third-party professionals and various other assumptions that we believe to be
reasonable under the known facts and circumstances. Estimates can require a significant amount of judgment, and a different set of assumptions could
result in material changes to our reported results.
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Medical Claims Payable
The most subjective accounting estimate in our consolidated financial statements is our liability for medical claims payable. At December 31, 2020,
this liability was $11,359 and represented 21% of our total consolidated liabilities. We record this liability and the corresponding benefit expense for
incurred but not paid claims, including the estimated costs of processing such claims. Incurred but not paid claims include (1) an estimate for claims that
are incurred but not reported, as well as claims reported to us but not yet processed through our systems, which approximated 96%, or $10,925, of our total
medical claims liability as of December 31, 2020; and (2) claims reported to us and processed through our systems but not yet paid, which approximated
4%, or $434, of the total medical claims payable as of December 31, 2020. The level of claims payable processed through our systems but not yet paid may
fluctuate from one period-end to the next, from approximately 1% to 5% of our total medical claims liability, due to timing of when claim payments are
made.
Liabilities for both claims incurred but not reported and reported but not yet processed through our systems are determined in the aggregate, employing
actuarial methods that are commonly used by health insurance actuaries and meet Actuarial Standards of Practice. Actuarial Standards of Practice require
that the claim liabilities be appropriate under moderately adverse circumstances. We determine the amount of the liability for incurred but not paid claims
by following a detailed actuarial process that uses both historical claim payment patterns as well as emerging medical cost trends to project our best
estimate of claim liabilities. Under this process, historical paid claims data is formatted into “claim triangles,” which compare claim incurred dates to the
dates of claim payments. This information is analyzed to create “completion factors” that represent the average percentage of total incurred claims that
have been paid through a given date after being incurred. Completion factors are applied to claims paid through the period-end date to estimate the ultimate
claim expense incurred for the period. Actuarial estimates of incurred but not paid claim liabilities are then determined by subtracting the actual paid claims
from the estimate of the ultimate incurred claims.
For the most recent incurred months (typically the most recent two months), the percentage of claims paid for claims incurred in those months is
generally low. This makes the completion factor methodology less reliable for such months. Therefore, incurred claims for recent months are not projected
from historical completion and payment patterns; rather, they are projected by estimating the claims expense for those months based on recent claims
expense levels and healthcare trend levels (“trend factors”).
Because the reserve methodology is based upon historical information, it must be adjusted for known or suspected operational and environmental
changes. These adjustments are made by our actuaries based on their knowledge and their estimate of emerging impacts to benefit costs and payment
speed. Circumstances to be considered in developing our best estimate of reserves include changes in utilization levels, unit costs, mix of business, benefit
plan designs, provider reimbursement levels, processing system conversions and changes, claim inventory levels, claim processing patterns, claim
submission patterns and operational changes resulting from business combinations. A comparison of prior period liabilities to re-estimated claim liabilities
based on subsequent claims development is also considered in making the liability determination. In our comparison to prior periods, the methods and
assumptions are not changed as reserves are recalculated; rather, the availability of additional paid claims information drives changes in the re-estimate of
the unpaid claim liability. To the extent appropriate, changes in such development are recorded as a change to current period benefit expense. The impact
from COVID-19 on healthcare utilization and medical claims submission patterns has increased estimation uncertainty on our incurred but not reported
liability at December 31, 2020. Slowdowns in claims submission patterns and increases in utilization levels for COVID-19 testing and treatment during the
fourth quarter of 2020 are the primary factors that lead to the increased estimation uncertainty.
We regularly review and set assumptions regarding cost trends and utilization when initially establishing claim liabilities. We continually monitor and
adjust the claims liability and benefit expense based on subsequent paid claims activity. If it is determined that our assumptions regarding cost trends and
utilization are materially different than actual results, our income statement and financial position could be impacted in future periods. Adjustments of prior
year estimates may result in additional benefit expense or a reduction of benefit expense in the period an adjustment is made. Further, due to the
considerable variability of healthcare costs, adjustments to claim liabilities occur each period and are sometimes significant as compared to the net income
recorded in that period. Prior period development is recognized immediately upon the actuary’s judgment that a portion of the prior period liability is no
longer needed or that an additional liability should have been accrued. That determination is made when sufficient information is available to ascertain that
the re-estimate of the liability is reasonable.
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While there are many factors that are used as a part of the estimation of our medical claims payable liability, the two key assumptions having the most
significant impact on our incurred but not paid claims liability as of December 31, 2020 were the completion and trend factors. As discussed above, these
two key assumptions can be influenced by utilization levels, unit costs, mix of business, benefit plan designs, provider reimbursement levels, processing
system conversions and changes, claim inventory levels, claim processing patterns, claim submission patterns and operational changes resulting from
business combinations.
There is variation in the reasonable choice of completion factors by duration for durations of three months through twelve months where the
completion factors have the most significant impact. As previously discussed, completion factors tend to be less reliable for the most recent months and
therefore are not specifically utilized for months one and two. In our analysis for the claim liabilities at December 31, 2020, the variability in months three
to five was estimated to be between 40 and 90 basis points, while months six through twelve have much lower estimated variability ranging from 0 to 30
basis points.
The difference in completion factor assumptions, assuming moderately adverse experience, results in variability of 2%, or approximately $204, in the
December 31, 2020 incurred but not paid claims liability, depending on the completion factors chosen. It is important to note that the completion factor
methodology inherently assumes that historical completion rates will be reflective of the current period. However, it is possible that the actual completion
rates for the current period will develop differently from historical patterns and therefore could fall outside the possible variations described herein.
The other major assumption used in the establishment of the December 31, 2020 incurred but not paid claim liability was the trend factors. In our
analysis for the period ended December 31, 2020, there was a 320 basis point differential in the high and low trend factors assuming moderately adverse
experience. This range of trend factors would imply variability of 4%, or approximately $427, in the incurred but not paid claims liability, depending upon
the trend factors used. Because historical trend factors are often not representative of current claim trends, the trend experience for the most recent six to
nine months, plus knowledge of recent events likely affecting current trends, have been taken into consideration in establishing the incurred but not paid
claims liability at December 31, 2020. The COVID-19 pandemic continues to have a significant impact on 2020 dates of service. Our expenses associated
with COVID-19 accelerated in the fourth quarter of 2020 and exceeded the benefit from lower volume of healthcare claims attributable to decreased
utilization of non-COVID-19 health services. We will continue to monitor emerging experience in order to better understand the possible implications to
our reserves.
See Note 12, “Medical Claims Payable,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form
10-K, for a reconciliation of the beginning and ending balance for medical claims payable for the years ended December 31, 2020, 2019 and 2018.
Components of the total incurred claims for each year include amounts accrued for current year estimated claims expense as well as adjustments to prior
year estimated accruals. In Note 12, “Medical Claims Payable,” the line labeled “Net incurred medical claims: Prior years redundancies” accounts for those
adjustments made to prior year estimates. The impact of any reduction of “Net incurred medical claims: Prior years redundancies” may be offset as we
establish the estimate of “Net incurred medical claims: Current year.” Our reserving practice is to consistently recognize the actuarial best estimate of our
ultimate liability for our claims. When we recognize a release of the redundancy, we disclose the amount that is not in the ordinary course of business, if
material.
The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 87.7% for 2020, 89.3% for 2019 and 90.2%
for 2018. This ratio serves as an indicator of claims processing speed whereby 2020 claims were processed at a slower speed than in 2019 and 2018.
We calculate the percentage of prior year redundancies in the current year as a percent of prior year net incurred claims payable less prior year
redundancies in the current year in order to demonstrate the development of the prior year reserves. For the year ended December 31, 2020, this metric was
8.0%, largely driven by favorable trend factor development at the end of 2019 as well as favorable completion factor development from 2019. For the year
ended December 31, 2019, this metric was 7.4%, largely driven by favorable trend factor development at the end of 2018 as well as favorable completion
factor development from 2018. For the year ended December 31, 2018, this metric was 13.7%, largely driven by favorable trend factor development at the
end of 2017 as well as favorable completion factor development from 2017.
We calculate the percentage of prior year redundancies in the current year as a percent of prior year net incurred medical claims to indicate the
percentage of redundancy included in the preceding year calculation of current year net incurred
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medical claims. We believe this calculation supports the reasonableness of our prior year estimate of incurred medical claims and the consistency in our
methodology. For the year ended December 31, 2020, this metric was 0.8%, which was calculated using the redundancy of $637. This metric was 0.7% for
2019 and 1.3% for 2018. We believe these metrics demonstrate an appropriate level of reserve conservatism.
The following table shows the variance between total net incurred medical claims as reported in Note 12, “Medical Claims Payable,” of the Notes to
Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for each of 2019 and 2018 and the incurred claims for
such years had it been determined retrospectively (computed as the difference between “net incurred medical claims – current year” for the year shown and
“net incurred medical claims – prior years redundancies” for the immediately following year):
Total net incurred medical claims, as reported
Retrospective basis, as described above
Variance
Variance to total net incurred medical claims, as reported
$
$
Years Ended December 31
2019
2018
78,195
78,058
137
$
$
0.2 %
68,651
69,081
(430)
(0.6)%
Given that our business is primarily short tailed (which means that medical claims are generally paid within twelve months of the member receiving
service from the provider), the variance to total net incurred medical claims, as reported above, is used to assess the reasonableness of our estimate of
ultimate incurred medical claims for a given calendar year with the benefit of one year of experience. We expect that substantially all of the development of
the 2020 estimate of medical claims payable will be known during 2021.
The 2019 variance to total net incurred medical claims, as reported of 0.2% was greater than the 2018 percentage of (0.6)%. This was driven by the
fact that the change in the prior year redundancy reported for 2020 as compared to 2019 was greater than the change in the prior year redundancy reported
for 2019 as compared to 2018.
Income Taxes
We account for income taxes in accordance with the Financial Accounting Standards Board (“FASB”) guidance, which requires, among other things,
the separate recognition of deferred tax assets and deferred tax liabilities. Such deferred tax assets and deferred tax liabilities represent the tax effect of
temporary differences between financial reporting and tax reporting measured at tax rates enacted at the time the deferred tax asset or liability is recorded.
A valuation allowance must be established for deferred tax assets if it is “more likely than not” that all or a portion may be unrealized. Our judgment is
required in determining an appropriate valuation allowance.
At each financial reporting date, we assess the adequacy of the valuation allowance by evaluating each of our deferred tax assets based on the
following:
•
•
•
•
•
the types of temporary differences that created the deferred tax asset;
the amount of taxes paid in prior periods and available for a carry-back claim;
the tax rate at which the deferred tax assets will likely be utilized in the future;
the forecasted future taxable income, and therefore, likely future deduction of the deferred tax item; and
any significant other issues impacting the likely realization of the benefit of the temporary differences.
We, like other companies, frequently face challenges from tax authorities regarding the amount of taxes due. These challenges include questions
regarding the timing and amount of deductions that we have taken on our tax returns. In evaluating any additional tax liability associated with various
positions taken in our tax return filings, we record additional liabilities for potential adverse tax outcomes. Based on our evaluation of our tax positions, we
believe we have appropriately accrued for uncertain tax benefits, as required by the applicable guidance. To the extent we prevail in matters we have
accrued for, our future effective tax rate would be reduced and net income would increase. If we are required to pay more
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than accrued, our future effective tax rate would increase and net income would decrease. Our effective tax rate and net income in any given future period
could be materially impacted.
In the ordinary course of business, we are regularly audited by federal and other tax authorities, and from time to time, these audits result in proposed
assessments. We believe our tax positions comply with applicable tax law, and we intend to defend our positions vigorously through the federal, state and
local appeals processes. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters. Accordingly, although
their ultimate resolution may require additional tax payments, we do not anticipate any material impact on our results of operations or financial condition
from these matters.
For additional information, see Note 8, “Income Taxes,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual
Report on Form 10-K.
Goodwill and Other Intangible Assets
Our consolidated goodwill at December 31, 2020 was $21,691 and other intangible assets were $9,405. The sum of goodwill and other intangible
assets represented 35.9% of our total consolidated assets and 93.7% of our consolidated shareholders’ equity at December 31, 2020.
We follow FASB guidance for business combinations and goodwill and other intangible assets, which specifies the types of acquired intangible assets
that are required to be recognized and reported separately from goodwill. Under the guidance, goodwill and other intangible assets (with indefinite lives)
are not amortized but are tested for impairment at least annually. Furthermore, goodwill and other intangible assets are allocated to reporting units for
purposes of the annual impairment test. Our impairment tests require us to make assumptions and judgments regarding the estimated fair value of our
reporting units, which include goodwill and other intangible assets. In addition, certain other intangible assets with indefinite lives, such as trademarks, are
also tested separately.
We complete our annual impairment tests of existing goodwill and other intangible assets with indefinite lives during the fourth quarter of each year.
These tests involve the use of estimates related to the fair value of goodwill at the reporting unit level and other intangible assets with indefinite lives, and
require a significant degree of management judgment and the use of subjective assumptions. Certain interim impairment tests are also performed when
potential impairment indicators exist or changes in our business or other triggering events occur. We have the option of first performing a qualitative
assessment for each reporting unit to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount,
which is an indication that our goodwill may be impaired. These qualitative impairment tests include assessing events and factors that could affect the fair
value of the indefinite-lived intangible assets. Our procedures include assessing our financial performance, macroeconomic conditions, industry and market
considerations, various asset specific factors and entity specific events. If we determine that a reporting unit’s goodwill may be impaired after utilizing
these qualitative impairment analysis procedures, we are required to perform a quantitative impairment test.
Our quantitative impairment test utilizes the projected income and market valuation approaches for goodwill and the projected income approach for
our indefinite lived intangible assets. Use of the projected income and market valuation approaches for our goodwill impairment test reflects our view that
both valuation methodologies provide a reasonable estimate of fair value. The projected income approach is developed using assumptions about future
revenue, expenses and net income derived from our internal planning process. These estimated future cash flows are then discounted. Our assumed
discount rate is based on our industry’s weighted-average cost of capital. Market valuations are based on observed multiples of certain measures including
revenue; earnings before interest, taxes, depreciation and amortization; and book value of invested capital (debt and equity) and include market
comparisons to publicly traded companies in our industry.
We did not incur any impairment losses as a result of our 2020 annual impairment tests, as it was determined that it is more likely than not that the
estimated fair values of our reporting units were substantially in excess of the carrying values as of December 31, 2020. Additionally, we do not believe
that the estimated fair values of our reporting units are at risk of becoming impaired in the next twelve months.
If estimated fair values are less than the carrying values of goodwill and other intangibles with indefinite lives in future annual impairment tests, or if
significant impairment indicators are noted relative to other intangible assets subject to amortization, we may be required to record impairment losses
against future income.
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For additional information, see Note 3, “Business Acquisitions” and Note 10, “Goodwill and Other Intangible Assets,” of the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Investments
Current and long-term marketable investment securities were $25,554 at December 31, 2020 and represented 29.5% of our total consolidated assets at
December 31, 2020. We classify fixed maturity securities in our investment portfolio as “available-for-sale” and report those securities at fair value. Certain
fixed maturity securities are available to support current operations and, accordingly, we classify such investments as current assets without regard to their
contractual maturity. Investments used to satisfy contractual, regulatory or other requirements are classified as long-term, without regard to contractual
maturity.
Our impairment review is subjective and requires a high degree of judgment. We conduct this review on a quarterly basis, using both qualitative and
quantitative factors. Such factors considered include the extent to which a security’s market value has been less than its cost, the reasons for the decline in
value (i.e., credit event compared to liquidity, general credit spread widening, currency exchange rate or interest rate factors), financial condition and near
term prospects of the issuer, including the credit ratings and changes in the credit ratings of the issuer, recommendations of investment advisors, and
forecasts of economic, market or industry trends.
Prior to 2020, our fixed maturity securities were evaluated for other-than-temporary impairment where credit-related impairments were presented
within the other-than-temporary impairment losses recognized in our consolidated statements of income with an adjustment to the security’s amortized cost
basis. Effective January 1, 2020, if a fixed maturity security is in an unrealized loss position and we have the intent to sell the fixed maturity security, or it
is more likely than not that we will have to sell the fixed maturity security before recovery of its amortized cost basis, we write down the fixed maturity
security’s cost basis to fair value and record an impairment loss in our consolidated statements of income. For impaired fixed maturity securities that we do
not intend to sell or if it is more likely than not that we will not have to sell such securities, but we expect that we will not fully recover the amortized cost
basis, we recognize the credit component of the impairment as an allowance for credit loss in our consolidated balance sheets and record an impairment
loss in our consolidated statements of income. The non-credit component of the impairment is recognized in accumulated other comprehensive income.
Furthermore, unrealized losses entirely caused by non-credit-related factors related to fixed maturity securities for which we expect to fully recover the
amortized cost basis continue to be recognized in accumulated other comprehensive income.
The credit component of an impairment is determined primarily by comparing the net present value of projected future cash flows with the amortized
cost basis of the fixed maturity security. The net present value is calculated by discounting our best estimate of projected future cash flows at the effective
interest rate implicit in the fixed maturity security at the date of purchase. For mortgage-backed and asset-backed securities, cash flow estimates are based
on assumptions regarding the underlying collateral, including prepayment speeds, vintage, type of underlying asset, geographic concentrations, default
rates, recoveries and changes in value. For all other securities, cash flow estimates are driven by assumptions regarding probability of default, including
changes in credit ratings and estimates regarding timing and amount of recoveries associated with a default.
We have a committee of accounting and investment associates and management that is responsible for managing the impairment review process. We
believe we have adequately reviewed our investment securities for impairment and that our investment securities are carried at fair value. We have
established an allowance for credit loss and recorded credit loss expense as a reflection of our expected impairment losses. Given the inherent uncertainty
of changes in market conditions and the significant judgments involved, there is continuing risk that declines in fair value may occur and additional
impairment losses on investments may be recorded in future periods.
In addition to marketable investment securities, we held additional long-term investments of $4,285, or 4.9% of total consolidated assets, at
December 31, 2020. These long-term investments consisted primarily of certain other equity investments, the cash surrender value of corporate-owned life
insurance policies and real estate. Due to their less liquid nature, these investments are classified as long-term.
The COVID-19 pandemic and efforts to prevent its spread have significantly impacted the global economy, causing market instability and declines in
the fair value of our investment holdings in the energy sector and consumer-driven
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industries such as travel, entertainment and retail. While the markets have stabilized since the onset of the COVID-19 pandemic, the extent and length of
the recovery remain uncertain. Further, the energy sector and consumer-driven industries remain distressed. Given this market uncertainty, there is a risk
that our investments that have declined may not recover in future periods.
Through our investing activities, we are exposed to financial market risks, including those resulting from changes in interest rates and changes in
equity market valuations. We manage market risks through our investment policy, which establishes credit quality limits and limits on investments in
individual issuers. Ineffective management of these risks could have an impact on our future results of operations and financial condition. Our investment
portfolio includes fixed maturity securities with a fair value of $23,995 at December 31, 2020. The weighted-average credit rating of these securities was
“A” as of December 31, 2020. Included in this balance are investments in fixed maturity securities of states, municipalities and political subdivisions of
$1,010 that are guaranteed by third parties. With the exception of twenty-one securities with a fair value of $34, these securities are all investment-grade
and carry a weighted-average credit rating of “AA” as of December 31, 2020. The securities are guaranteed by a number of different guarantors, and we do
not have any material exposure to any single guarantor, neither indirectly through the guarantees, nor directly through investment in the guarantor. Further,
due to the high underlying credit rating of the issuers, the weighted-average credit rating of the fixed maturity securities without a guarantee, for which
such information is available, was “A” as of December 31, 2020.
Fair values of fixed maturity and equity securities are based on quoted market prices, where available. These fair values are obtained primarily from
third-party pricing services, which generally use Level I or Level II inputs for the determination of fair value in accordance with FASB guidance for fair
value measurements and disclosures. We have controls in place to review the pricing services’ qualifications and procedures used to determine fair values.
In addition, we periodically review the pricing services’ pricing methodologies, data sources and pricing inputs to ensure the fair values obtained are
reasonable.
We obtain quoted market prices for each security from the pricing services, which are derived through recently reported trades for identical or similar
securities, making adjustments through the reporting date based upon available market observable information. For securities not actively traded, the
pricing services may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently
observable in the markets for similar securities. Inputs that are often used in these valuation methodologies include, but are not limited to, broker quotes,
benchmark yields, credit spreads, default rates and prepayment speeds. As we are responsible for the determination of fair value, we perform analysis on
the prices received from the pricing services to determine whether the prices are reasonable estimates of fair value. Our analysis includes procedures such
as a review of month-to-month price fluctuations and price comparisons to secondary pricing services. There were no adjustments to quoted market prices
obtained from the pricing services during the years ended December 31, 2020 and 2019.
In certain circumstances, it may not be possible to derive pricing model inputs from observable market activity, and therefore, such inputs are
estimated internally. Such securities are designated Level III in accordance with FASB guidance. Securities designated Level III at December 31, 2020
totaled $392 and represented approximately 1.3% of our total assets measured at fair value on a recurring basis. Our Level III securities primarily consisted
of certain corporate securities and equity securities for which observable inputs were not always available and the fair values of these securities were
estimated using inputs including, but not limited to, prepayment speeds, credit spreads, default rates and benchmark yields.
For additional information, see Part II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” and Note 2, “Basis of Presentation and
Significant Accounting Policies,” Note 5, “Investments,” and Note 7, “Fair Value,” of the Notes to Consolidated Financial Statements included in Part II,
Item 8 of this Annual Report on Form 10-K.
Retirement Benefits
Pension Benefits
We sponsor defined benefit pension plans for some of our employees. These plans are accounted for in accordance with FASB guidance for retirement
benefits, which requires that amounts recognized in financial statements be determined on an actuarial basis. As permitted by the guidance, we calculate the
value of plan assets as described below. Further, the difference between our expected rate of return and the actual performance of plan assets, as well as
certain changes in pension liabilities, are amortized over future periods.
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An important factor in determining our pension expense is the assumption for expected long-term return on plan assets. As of our December 31, 2020
measurement date, we selected a weighted-average long-term rate of return on plan assets of 6.72%. We use a total portfolio return analysis in the
development of our assumption. Factors such as past market performance, the long-term relationship between fixed maturity and equity securities, interest
rates, inflation and asset allocations are considered in the assumption. The assumption includes an estimate of the additional return expected from active
management of the investment portfolio. Peer data and an average of historical returns are also reviewed for appropriateness of the selected assumption. We
believe our assumption of future returns is reasonable. However, if we lower our expected long-term return on plan assets, future contributions to the
pension plan and pension expense would likely increase.
This assumed long-term rate of return on assets is applied to a calculated value of plan assets, which recognizes changes in the fair value of plan assets
in a systematic manner over three years, producing the expected return on plan assets that is included in the determination of pension expense. We apply a
corridor approach to amortize unrecognized actuarial gains or losses. Under this approach, only accumulated net actuarial gains or losses in excess of 10%
of the greater of the projected benefit obligation or the fair value of plan assets are amortized over the average remaining service or lifetime of the
workforce as a component of pension expense. The net deferral of past asset gains or losses affects the calculated value of plan assets and, ultimately, future
pension expense.
The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year based on our most recent
measurement date. We use the annual spot rate approach for setting our discount rate. Under the spot rate approach, individual spot rates from a full yield
curve of published rates are used to discount each plan’s cash flows to determine the plan’s obligation. At the December 31, 2020 measurement date, the
weighted-average discount rate under the annual spot rate approach was 2.24%, compared to 3.11% at the December 31, 2019 measurement date. The net
effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, have been deferred and amortized
as a component of pension expense in accordance with FASB guidance.
In managing the plan assets, our objective is to be a responsible fiduciary while minimizing financial risk. Plan assets include a diversified mix of
equity securities, investment grade fixed maturity securities and other types of investments across a range of sectors and levels of capitalization to
maximize long-term return for a prudent level of risk. In addition to producing a reasonable return, the investment strategy seeks to minimize the volatility
in our expense and cash flow.
Effective January 1, 2019, we curtailed the benefits under the Anthem Cash Balance Plan B pension plan. All grandfathered participants no longer
have pay credits added to their accounts, but continue to earn interest on existing account balances. Participants continue to earn years of pension service
for vesting purposes.
Other Postretirement Benefits
We provide most associates with certain medical, vision and dental benefits upon retirement. We use various actuarial assumptions, including a
discount rate and the expected trend in healthcare costs, to estimate the costs and benefit obligations for our retiree benefits.
At our December 31, 2020 measurement date, the selected discount rate for all plans was 1.99%, compared to a discount rate of 2.93% at the
December 31, 2019 measurement rate. We developed this rate using the annual spot rate approach as described above.
The assumed healthcare cost trend rates used to measure the expected cost of pre-Medicare (those who are not currently eligible for Medicare benefits)
other benefits at our December 31, 2020 measurement date was 7.00% for 2021 with a gradual decline to 4.50% by the year 2033. The assumed healthcare
cost trend rates used to measure the expected cost of post-Medicare (those who are currently eligible for Medicare benefits) other benefits at our
December 31, 2020 measurement date was 5.50% for 2021 with a gradual decline to 4.50% by the year 2033. These estimated trend rates are subject to
change in the future.
For additional information regarding our retirement benefits, see Note 11, “Retirement Benefits,” of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K.
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New Accounting Pronouncements
For information regarding new accounting pronouncements that were issued or became effective during the year ended December 31, 2020 that had, or
are expected to have, a material impact on our financial position, results of operations or financial statement disclosures, see the “Recently Adopted
Accounting Guidance” and “Recent Accounting Guidance Not Yet Adopted” sections of Note 2, “Basis of Presentation and Significant Accounting
Policies,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Liquidity and Capital Resources
Introduction
Our cash receipts result primarily from premiums, product revenue, administrative fees and other revenue, investment income, proceeds from the sale
or maturity of our investment securities, proceeds from borrowings, and proceeds from the issuance of common stock under our employee stock plans.
Cash disbursements result mainly from claims payments, administrative expenses, taxes, purchases of investment securities, interest expense, payments on
borrowings, acquisitions, capital expenditures, repurchases of our debt securities and common stock and the payment of cash dividends. Cash outflows
fluctuate with the amount and timing of settlement of these transactions. Any future decline in our profitability would likely have an unfavorable impact on
our liquidity.
The COVID-19 pandemic and the related mitigation efforts have significantly impacted the economy, causing market instability and increasing
unemployment in the United States. While the full impact of COVID-19 on our business remains uncertain, it could have a material adverse effect on our
claim payments, collection of our premiums, product or administrative fee revenues, our investments and our ability to access credit. Additional discussion
regarding the impact of COVID-19 can be found elsewhere in this MD&A.
We manage our cash, investments and capital structure so we are able to meet the short-term and long-term obligations of our business while
maintaining financial flexibility and liquidity. We forecast, analyze and monitor our cash flows to enable investment and financing within the overall
constraints of our financial strategy.
To preserve our liquidity and financial flexibility and to minimize the effects of the COVID-19 pandemic, we proactively took several actions during
2020, including borrowing under our senior revolving credit facility in March 2020, which was repaid in April 2020; delaying certain tax payments as
permitted by the IRS and the CARES Act; and temporarily suspending our share repurchase activity in March 2020, which was resumed in late June 2020.
We may take additional actions going forward to maximize our liquidity, including increasing our borrowings from existing or new Federal Home Loan
Bank memberships and other available borrowings. We will continue to monitor the market conditions and seek to act in a prudent manner.
A substantial portion of the assets held by our regulated subsidiaries are in the form of cash and cash equivalents and investments. After considering
expected cash flows from operating activities, we generally invest cash that exceeds our near term obligations in longer term marketable fixed maturity
securities to improve our overall investment income returns. Our investment strategy is to make investments consistent with insurance statutes and other
regulatory requirements, while preserving our asset base. Our investments are generally available-for-sale to meet liquidity and other needs. Our
subsidiaries pay out excess capital annually in the form of dividends to their respective parent companies for general corporate use, as permitted by
applicable regulations.
The availability of financing in the form of debt or equity is influenced by many factors, including our profitability, operating cash flows, debt levels,
debt ratings, contractual restrictions, regulatory requirements and market conditions. The securities and credit markets have in the past experienced higher
than normal volatility, although current market conditions are more stable. During recent years, the federal government and various governmental agencies
have taken a number of steps to strengthen the regulation of the financial services market. In addition, governments around the world have developed their
own plans to provide stability and security in the credit markets and to ensure adequate capital in certain financial institutions. Further, in response to the
COVID-19 pandemic, the federal government has established a number of programs to provide liquidity to the financial system that provides lending to
states, municipalities, and eligible businesses.
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A summary of our major sources and uses of cash and cash equivalents for the years ended December 31, 2020, 2019 and 2018 is as follows:
Sources of Cash:
Net cash provided by operating activities
Proceeds from sales, maturities, calls and redemptions of investments, net of
purchases
Issuance of common stock under Equity Units stock purchase contracts
Issuances of commercial paper and short- and long-term debt, net of
repayments
Issuances of common stock under employee stock plans
Other sources of cash, net
Total sources of cash
Uses of Cash:
Purchases of investments, net of proceeds from sales, maturities, calls and
redemptions
Repurchase and retirement of common stock
Purchases of subsidiaries, net of cash acquired
Purchases of property and equipment
Repayments of commercial paper and short- and long-term debt, net of
issuances
Cash dividends
Other uses of cash, net
Total uses of cash
Effect of foreign exchange rates on cash and cash equivalents
Net increase in cash and cash equivalents
Years Ended December 31
2019
2018
2020
$ Change
2020 vs. 2019
2019 vs. 2018
$
10,688 $
6,061 $
3,827 $
4,627 $
2,234
—
—
—
176
315
11,179
(3,433)
(2,700)
(1,976)
(1,021)
—
—
608
187
—
6,856
(1,919)
(1,701)
—
(1,077)
1,929
1,250
—
173
—
7,179
—
(1,685)
(1,760)
(1,208)
—
—
(608)
(11)
315
4,323
(1,514)
(999)
(1,976)
56
(298)
(954)
—
(10,382)
7
804 $
—
(818)
(338)
(5,853)
—
1,003 $
$
(1,086)
(776)
(337)
(6,852)
(2)
325 $
(298)
(136)
338
(4,529)
7
(199) $
(1,929)
(1,250)
608
14
—
(323)
(1,919)
(16)
1,760
131
1,086
(42)
(1)
999
2
678
Liquidity—Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
The increase in cash provided by operating activities was primarily due to the impact of the timing of working capital changes. The increase was
further due to membership growth in our Government Business segment and higher net income in 2020, excluding the non-cash impact of accrued
expenses related to our business optimization initiatives and the BCBSA Litigation.
Other significant changes in sources and uses of cash year-over-year included increases in cash used for acquisitions, net purchases of investments and
cash used for repurchase and retirement of common stock.
Financial Condition
We maintained a strong financial condition and liquidity position, with consolidated cash, cash equivalents and investments in fixed maturity and
equity securities of $31,295 at December 31, 2020. Since December 31, 2019, total cash, cash equivalents and investments in fixed maturity and equity
securities increased by $5,168, primarily due to cash generated from operations. This increase was partially offset by cash used for common stock
repurchases, acquisitions, purchases of property and equipment and cash dividends paid to shareholders.
Many of our subsidiaries are subject to various government regulations that restrict the timing and amount of dividends and other distributions that
may be paid to their respective parent companies. Certain accounting practices prescribed by insurance regulatory authorities, or statutory accounting
practices, differ from GAAP. Changes that occur in statutory accounting practices, if any, could impact our subsidiaries’ future dividend capacity. In
addition, we have agreed to certain
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undertakings to regulatory authorities, including the requirement to maintain certain capital levels in certain of our subsidiaries.
At December 31, 2020, we held $1,747 of cash, cash equivalents and investments at the parent company, which are available for general corporate use,
including investment in our businesses, acquisitions, potential future common stock repurchases and dividends to shareholders, repurchases of debt
securities and debt and interest payments.
Debt
Periodically, we access capital markets and issue debt (“Notes”) for long-term borrowing purposes, for example, to refinance debt, to finance
acquisitions or for share repurchases. Certain of these Notes may have a call feature that allows us to redeem the Notes at any time at our option and/or a
put feature that allows a Note holder to redeem the Notes upon the occurrence of both a change in control event and a downgrade of the Notes below an
investment grade rating. For more information on our debt, including redemptions and issuances, see Note 13, “Debt” of the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
We calculate our consolidated debt-to-capital ratio, a non-GAAP measure, from the amounts presented on our audited consolidated balance sheets
included in Part II, Item 8 of this Annual Report on Form 10-K. Our debt-to-capital ratio is calculated as total debt divided by total debt plus total
shareholders’ equity. Total debt is the sum of short-term borrowings, current portion of long-term debt, long-term debt, less current portion, and lease
liabilities. We believe our debt-to-capital ratio assists investors and rating agencies in measuring our overall leverage and additional borrowing capacity. In
addition, our bank covenants include a maximum debt-to-capital ratio that we cannot and did not exceed. Our debt-to-capital ratio may not be comparable
to similarly titled measures reported by other companies. Our consolidated debt-to-capital ratio was 38.7% and 39.5% as of December 31, 2020 and 2019,
respectively.
Our senior debt is rated “A” by S&P Global, “BBB” by Fitch Ratings, Inc., “Baa2” by Moody’s Investor Service, Inc. and “bbb+” by AM Best
Company, Inc. We intend to maintain our senior debt investment grade ratings. If our credit ratings are downgraded, our business, financial condition and
results of operations could be adversely impacted by limitations on future borrowings and a potential increase in our borrowing costs.
Future Sources and Uses of Liquidity
We have a shelf registration statement on file with the SEC to register an unlimited amount of any combination of debt or equity securities in one or
more offerings. Specific information regarding terms and securities being offered will be provided at the time of an offering. Proceeds from future offerings
are expected to be used for general corporate purposes, including, but not limited to, the repayment of debt, investments in or extensions of credit to our
subsidiaries and the financing of possible acquisitions or business expansions.
We have a senior revolving credit facility (the “5-Year Facility”) with a group of lenders for general corporate purposes. In June 2019, we amended
and restated the credit agreement for the 5-Year Facility to, among other things, extend the maturity date from August 2020 to June 2024 and decrease the
amount of credit available from $3,500 to $2,500. In June 2019, we also entered into a 364-day senior revolving credit facility (the “364-Day Facility”)
with a group of lenders for general corporate purposes, which provides for credit in the amount of $1,000. In May 2020, we amended and extended the 364-
Day Facility, which now matures in June 2021. Our ability to borrow under these credit facilities is subject to compliance with certain covenants. We do not
believe the restrictions contained in these covenants materially affect our financial or operating flexibility. As of December 31, 2020, we were in
compliance with all of our debt covenants. There were no amounts outstanding under the 5-Year Facility or the 364-Day Facility at December 31, 2020.
Through certain subsidiaries, we have entered into multiple 364-day lines of credit (the “Subsidiary Credit Facilities”) with separate lenders for general
corporate purposes. The Subsidiary Credit Facilities provide combined credit up to $300. Our ability to borrow under the Subsidiary Credit Facilities is
subject to compliance with certain covenants. At December 31, 2020, we had no outstanding borrowings under the Subsidiary Credit Facilities.
We have a $3,500 commercial paper program, the proceeds of which may be used for general corporate purposes. Should commercial paper issuance
be unavailable, we have the ability to use a combination of cash on hand and/or our two senior revolving credit facilities, which provide for combined
credit in the amount of $3,500, to redeem any outstanding commercial
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paper upon maturity. While there is no assurance in the current economic environment, we believe the lenders participating in our credit facilities, if market
conditions allow, would be willing to provide financing in accordance with their legal obligations. At December 31, 2020, we had $250 outstanding under
our commercial paper program.
We are a member, through certain subsidiaries, of the Federal Home Loan Bank of Indianapolis, the Federal Home Loan Bank of Cincinnati, the
Federal Home Loan Bank of Atlanta and the Federal Home Loan Bank of New York, collectively (the “FHLBs”). As a member, we have the ability to
obtain short-term cash advances, subject to certain minimum collateral requirements. At December 31, 2020, we had no outstanding short-term borrowings
from the FHLBs.
As discussed in “Financial Condition” above, many of our subsidiaries are subject to various government regulations that restrict the timing and
amount of dividends and other distributions that may be paid. Based upon these requirements, we currently estimate that approximately $2,505 of
dividends will be paid to the parent company during 2021. During 2020, we received $3,618 of dividends from our subsidiaries.
We regularly review the appropriate use of capital, including acquisitions, common stock and debt security repurchases and dividends to shareholders.
The declaration and payment of any dividends or repurchases of our common stock or debt is at the discretion of our Board of Directors and depends upon
our financial condition, results of operations, future liquidity needs, regulatory and capital requirements and other factors deemed relevant by our Board of
Directors.
On January 26, 2021, our Audit Committee declared a quarterly cash dividend to shareholders of $1.13 per share on the outstanding shares of our
common stock. This quarterly dividend is payable on March 25, 2021 to the shareholders of record as of March 10, 2021.
Under our Board of Directors’ authorization, we maintain a common stock repurchase program. As of December 31, 2020, we had Board authorization
of $1,092 to repurchase our common stock. On January 26, 2021, our Audit Committee, pursuant to authorization granted by the Board of Directors,
authorized a $5,000 increase to our common stock repurchase program.
For additional information regarding our sources and uses of capital, see Note 5, “Investments,” Note 6, “Derivative Financial Instruments,” Note 13,
“Debt” and Note 15, “Capital Stock–Use of Capital–Dividends and Stock Repurchase Program” of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K.
Contractual Obligations and Commitments
Our estimated contractual obligations and commitments as of December 31, 2020 are as follows:
On-Balance Sheet:
1
Debt
2
Operating leases, including imputed interest
3
Investment commitments
4
Other long-term liabilities
Off-Balance Sheet:
5
Purchase obligations
2
Operating leases, including imputed interest
6
Investment commitments
Total contractual obligations and commitments
Total
Less than
1 Year
1-3 Years
3-5 Years
More than
5 Years
Payments Due by Period
$
$
31,066 $
982
20
716
5,761
139
1,320
40,004 $
1,679 $
197
11
9
975
6
270
3,147 $
3,953 $
336
7
284
3,143
24
448
8,195 $
17,641 $
213
1
281
1,523
24
61
19,744 $
7,793
236
1
142
120
85
541
8,918
1
2
Includes estimated interest expense.
See Note 18, “Leases,” of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this Annual Report on Form 10-K.
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3
4
5
6
Represents low income housing tax credits.
Primarily consists of reserves for future policy benefits, projected other postretirement benefits, deferred compensation, supplemental executive retirement plan
liabilities and certain other miscellaneous long-term obligations. Estimated future payments for funded pension benefits have been excluded from this table, as we had
no funding requirements under ERISA at December 31, 2020 as a result of the value of the assets in the plans.
Includes estimated payments for future services under contractual arrangements from third-party service contracts.
Includes unfunded capital commitments for alternative investments.
The above table does not contain $282 of gross liabilities for uncertain tax positions and interest for which we cannot reasonably estimate the timing of
the resolutions with the respective taxing authorities. For further information, see Note 8, “Income Taxes,” of the Notes to Consolidated Financial
Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
In addition to the contractual obligations and commitments discussed above, we have a variety of other contractual agreements related to acquiring
materials and services used in our operations. However, we do not believe these other agreements contain material noncancelable commitments.
We believe that funds from future operating cash flows, cash and investments and funds available under our senior revolving credit facilities and/or
from public or private financing sources will be sufficient for future operations and commitments, and for capital acquisitions and other strategic
transactions.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet derivative instruments, guarantee transactions, agreements or other contractual arrangements or any
indemnification agreements that will require funding in future periods. We have not transferred assets to an unconsolidated entity that serves as credit,
liquidity or market risk support to such entity. We do not hold any variable interest in an unconsolidated entity where such entity provides us with
financing, liquidity, market risk or credit risk support.
Risk-Based Capital
Our regulated subsidiaries’ states of domicile have statutory risk-based capital (“RBC”) requirements for health and other insurance companies and
HMOs largely based on the National Association of Insurance Commissioners (“NAIC”) Risk-Based Capital (RBC) For Health Organizations Model Act
(“RBC Model Act”). These RBC requirements are intended to measure capital adequacy, taking into account the risk characteristics of an insurer’s
investments and products. The NAIC sets forth the formula for calculating the RBC requirements, which are designed to take into account asset risks,
insurance risks, interest rate risks and other relevant risks with respect to an individual insurance company’s business. In general, under the RBC Model
Act, an insurance company must submit a report of its RBC level to the state insurance department or insurance commissioner, as appropriate, at the end of
each calendar year. Our regulated subsidiaries’ respective RBC levels as of December 31, 2020, which was the most recent date for which reporting was
required, were in excess of all applicable mandatory RBC requirements. In addition to exceeding these RBC requirements, we are in compliance with the
liquidity and capital requirements for a licensee of the BCBSA and with the tangible net worth requirements applicable to certain of our California
subsidiaries.
For additional information, see Note 22, “Statutory Information,” of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this
Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
(In Millions, Except As Otherwise Stated Herein)
As a result of our investing and borrowing activities, we are exposed to financial market risks, including those resulting from changes in interest rates
and changes in market valuations. Potential impacts discussed below are based upon sensitivity analyses performed on our financial position as of
December 31, 2020. Actual results could vary from these estimates. Our primary objectives with our investment portfolio are to provide safety and
preservation of capital, sufficient liquidity to meet cash flow requirements, the integration of investment strategy with the business operations and an
attainment of a competitive after-tax total return.
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Investments
Our investment portfolio is exposed to three primary sources of risk: credit quality risk, interest rate risk and market valuation risk.
The primary risks associated with our fixed maturity securities, which are classified as available-for-sale, are credit quality risk and interest rate risk.
Credit quality risk is defined as the risk of a credit event, such as a ratings downgrade or default, to an individual fixed maturity security and the potential
loss attributable to that event. Credit quality risk is managed through our investment policy, which establishes credit quality limitations on the overall
portfolio as well as diversification and percentage limits on securities of individual issuers. The result is a well-diversified portfolio of fixed maturity
securities, with an average credit rating of approximately “A.” Interest rate risk is defined as the potential for economic losses on fixed maturity securities
due to a change in market interest rates. Our fixed maturity portfolio is invested primarily in U.S. government securities, corporate bonds, asset-backed
bonds, mortgage-related securities and municipal bonds, all of which have exposure to changes in the level of market interest rates. Interest rate risk is
managed by maintaining asset duration within a band based upon our liabilities, operating performance and liquidity needs. Additionally, we have the
capability of holding any security to maturity, which would allow us to realize full par value.
Investments in fixed maturity securities include corporate securities, which account for 45.4% of our total fixed maturity securities at December 31,
2020 and are subject to credit/default risk. In a declining economic environment, corporate yields will usually increase, prompted by concern over the
ability of corporations to make interest payments, thus causing a decrease in the price of corporate securities, and the decline in value of the corporate fixed
maturity portfolio. We manage this risk through fundamental credit analysis, diversification of issuers and industries and an average credit rating of our
corporate fixed maturity portfolio of approximately “BBB.”
Market risk for fixed maturity securities is addressed by actively managing the duration, allocation and diversification of our investment portfolio. We
have evaluated the impact on the fixed maturity portfolio’s fair value considering an immediate 100 basis point change in interest rates. A 100 basis point
increase in interest rates would result in an approximate $998 decrease in fair value, whereas a 100 basis point decrease in interest rates would result in an
approximate $1,039 increase in fair value. While we classify our fixed maturity securities as “available-for-sale” for accounting purposes, we believe our
cash flows and the duration of our portfolio should allow us to hold securities to maturity, thereby avoiding the recognition of losses should interest rates
rise significantly.
Our equity portfolio is comprised of large capitalization and small capitalization domestic equities, foreign equities, exchange-traded funds and index
mutual funds. Our equity portfolio is subject to the volatility inherent in the stock market, driven by concerns over economic conditions, earnings and sales
growth, inflation, and consumer confidence. These systemic risks cannot be managed through diversification alone. However, more routine risks, such as
stock/industry specific risks, are managed by investing in a diversified equity portfolio.
Our other invested assets, reported within our long-term investments, are primarily subject to private market exposures, including private equity, real
estate, and private credit investments. These investments are also indirectly subject to market valuation risk, as public market valuations will form a basis
for valuations for these investments. Given their illiquid nature, we focus on appropriate sizing of these investments relative to our liquidity needs and risk
tolerance. Our risk tolerance is formed by the level of illiquidity and short-term price movements from market valuation risk we are willing to accept
relative to the higher long-term expected returns over the life of these investments.
As of December 31, 2020, 6.1% of our marketable investments were equity securities. An immediate 10% decrease in each equity investment’s value,
arising from market movement, would result in a fair value decrease of $156. Alternatively, an immediate 10% increase in each equity investment’s value,
attributable to the same factor, would result in a fair value increase of $156.
For additional information regarding our investments, see Note 5, “Investments,” of the Notes to Consolidated Financial Statements included in Part II,
Item 8 and “Critical Accounting Policies and Estimates - Investments” within Part II, Item 7 “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included in this Annual Report on Form 10-K.
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Long-Term Debt
Our total long-term debt at December 31, 2020 consisted of senior unsecured notes, convertible debentures, commercial paper and subordinated
surplus notes issued by one of our insurance subsidiaries. At December 31, 2020, the carrying value and estimated fair value of our long-term debt was
$20,035 and $24,269, respectively. This debt is subject to interest rate risk, as these instruments have fixed interest rates and the fair value is affected by
changes in market interest rates. Should interest rates increase or decrease in the future, the estimated fair value of our fixed rate debt would decrease or
increase accordingly.
For additional information regarding our long-term debt, see Note 7, “Fair Value” and Note 13, “Debt,” of the Notes to Consolidated Financial
Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Derivatives
We have exposure to economic losses due to interest rate risk arising from changes in the level or volatility of interest rates. We attempt to mitigate our
exposure to interest rate risk through the use of derivative financial instruments. These strategies include the use of interest rate swaps and forward
contracts, which are used to lock-in interest rates or to hedge (on an economic basis) interest rate risks associated with variable rate debt. We have used
these types of instruments as designated hedges against specific liabilities.
Changes in interest rates will affect the estimated fair value of these derivatives. As of December 31, 2020, we recorded a net asset of $37, the
estimated fair value of the swaps at that date. We have evaluated the impact on the interest rate swaps’ fair value considering an immediate 100 basis point
change in interest rates. A 100 basis point increase in interest rates would result in an approximate $18 decrease in fair value, whereas a 100 basis point
decrease in interest rates would result in an approximate $18 increase in fair value.
For additional information regarding our derivatives, see Note 6, “Derivative Financial Instruments” of the Notes to Consolidated Financial Statements
included in Part II, Item 8 of this Annual Report on Form 10-K.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ANTHEM, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2020, 2019 and 2018
Contents
Report of Independent Registered Public Accounting Firm
Audited Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders’ Equity
Notes to Consolidated Financial Statements
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74
76
77
78
79
80
81
Report of Independent Registered
Public Accounting Firm
To the Shareholders and the Board of Directors of Anthem, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Anthem, Inc. (the Company) as of December 31, 2020 and 2019, the related
consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(c) (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at
December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s
internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 18, 2021 expressed an unqualified
opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the account or disclosures to which it relates.
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Valuation of Incurred but Not Paid Claims
Description of the Matter Medical claims payable was $11,359 million at December 31, 2020, a significant portion of which related to the Company’s
How We Addressed the
Matter in Our Audit
estimate for claims that are incurred but not paid. As discussed in Note 2 to the consolidated financial statements, the
Company’s liability for incurred but not paid claims is determined using actuarial methods that include a number of factors
and assumptions, including completion factors, which represent the average percentage of total incurred claims that have
been paid through a given date after being incurred based on historical paid claims data, and trend factors, which represent
an estimate of claims expense based on recent claims expense levels and healthcare cost levels. There is significant
uncertainty inherent in determining management’s best estimate of completion and trend factors, which are used to calculate
actuarial estimates of incurred but not paid claims.
Auditing management’s estimate of incurred but not paid claims was complex and required the involvement of our actuarial
specialists due to the highly judgmental nature of the completion and trend factor assumptions used in the valuation process.
The significant judgment was primarily due to the sensitivity of management’s best estimate of completion and trend factor
assumptions, which have a significant impact on the valuation of incurred but not paid claims.
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s
actuarial process for estimating the liability for incurred but not paid claims. These audit procedures included among others,
testing management review controls over completion and trend factor assumptions and the review and approval processes
that management has in place for estimating the liability for incurred but not paid claims.
To test the Company’s liability for incurred but not paid claims, our audit procedures included, among others, testing the
completeness and accuracy of the underlying claims and membership data recorded in the source claims processing and
disbursement systems to the data used by management in developing completion and trend factor assumptions and agreeing
a sample of incurred and paid claims to source documentation. With the support of actuarial specialists, we analyzed the
Company’s completion and trend factor assumptions based on historical claim experience and emerging cost trends, and
independently calculated a range of reasonable reserve estimates for comparison to management’s best estimate of the
liability for incurred but not paid claims. Additionally, we performed a review of the prior period liabilities for incurred but
not paid claims to subsequent claims development.
/s/ ERNST & YOUNG LLP
We have served as the Company’s auditor since 1944.
Indianapolis, Indiana
February 18, 2021
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Anthem, Inc.
Consolidated Balance Sheets
December 31,
2020
December 31,
2019
(In millions, except share data)
Assets
Current assets:
Cash and cash equivalents
Fixed maturity securities, current (amortized cost of $22,222 and $19,021; allowance for credit losses of $7 and $0)
Equity securities
Premium receivables
Self-funded receivables
Other receivables
Other current assets
Total current assets
Long-term investments:
Fixed maturity securities (amortized cost of $532 and $487; allowance for credit losses of $0 and $0)
Other invested assets
Property and equipment, net
Goodwill
Other intangible assets
Other noncurrent assets
Total assets
Liabilities and shareholders’ equity
Liabilities
Current liabilities:
Medical claims payable
Other policyholder liabilities
Unearned income
Accounts payable and accrued expenses
Short-term borrowings
Current portion of long-term debt
Other current liabilities
Total current liabilities
Long-term debt, less current portion
Reserves for future policy benefits
Deferred tax liabilities, net
Other noncurrent liabilities
Total liabilities
Commitments and contingencies—Note 14
Shareholders’ equity
Preferred stock, without par value, shares authorized - 100,000,000; shares issued and outstanding - none
Common stock, par value $0.01, shares authorized - 900,000,000; shares issued and outstanding - 245,401,430 and 252,922,161
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
$
$
$
$
5,741
23,433
1,559
5,279
2,849
2,830
4,060
45,751
562
4,285
3,483
21,691
9,405
1,438
86,615
11,359
4,590
1,259
5,493
—
700
6,052
29,453
19,335
794
2,019
1,815
53,416
—
3
9,244
23,802
150
33,199
86,615
$
$
$
$
4,937
19,676
1,009
5,014
2,570
2,807
3,020
39,033
505
4,258
3,133
20,500
8,674
1,350
77,453
8,842
3,050
1,017
4,198
700
1,598
4,127
23,532
17,787
759
2,227
1,420
45,725
—
3
9,448
22,573
(296)
31,728
77,453
See accompanying notes.
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Anthem, Inc.
Consolidated Statements of Income
(In millions, except per share data)
Revenues
Premiums
Product revenue
Administrative fees and other revenue
Total operating revenue
Net investment income
Net realized gains (losses) on financial instruments
Total revenues
Expenses
Benefit expense
Cost of products sold
Selling, general and administrative expense
Interest expense
Amortization of other intangible assets
Loss on extinguishment of debt
Total expenses
Income before income tax expense
Income tax expense
Net income
Net income per share
Basic
Diluted
Dividends per share
2020
Years Ended December 31
2019
2018
$
$
$
$
$
104,109 $
10,384
6,315
120,808
877
182
121,867
88,045
8,953
17,450
784
361
36
115,629
6,238
1,666
4,572 $
18.23 $
17.98 $
3.80 $
94,173 $
2,760
6,208
103,141
1,005
67
104,213
81,786
1,992
13,364
746
338
2
98,228
5,985
1,178
4,807 $
18.81 $
18.47 $
3.20 $
85,421
—
5,920
91,341
970
(206)
92,105
71,895
—
14,020
753
358
11
87,037
5,068
1,318
3,750
14.53
14.19
3.00
See accompanying notes.
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Anthem, Inc.
Consolidated Statements of Comprehensive Income
(In millions)
Net income
Other comprehensive income (loss), net of tax:
Change in net unrealized gains/losses on investments
Change in non-credit component of impairment losses on investments
Change in net unrealized gains/losses on cash flow hedges
Change in net periodic pension and postretirement costs
Foreign currency translation adjustments
Other comprehensive income (loss)
Total comprehensive income
Years Ended December 31
2019
2018
2020
$
4,572 $
4,807 $
3,750
428
—
12
(1)
7
446
5,018 $
680
—
(16)
26
—
690
5,497 $
(418)
(2)
37
(90)
(1)
(474)
3,276
$
See accompanying notes.
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Anthem, Inc.
Consolidated Statements of Cash Flows
(In millions)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Years Ended December 31
2020
2019
2018
$
4,572
$
4,807
$
Net realized (gains) losses on financial instruments
Depreciation and amortization
Deferred income taxes
Impairment of property and equipment
Share-based compensation
Changes in operating assets and liabilities:
Receivables, net
Other invested assets
Other assets
Policy liabilities
Unearned income
Accounts payable and other liabilities
Income taxes
Other, net
Net cash provided by operating activities
Investing activities
Purchases of investments
Proceeds from sale of investments
Maturities, calls and redemptions from investments
Changes in securities lending collateral
Purchases of subsidiaries, net of cash acquired
Purchases of property and equipment
Other, net
Net cash used in investing activities
Financing activities
Net repayments of commercial paper borrowings
Proceeds from long-term borrowings
Repayments of long-term borrowings
Proceeds from short-term borrowings
Repayments of short-term borrowings
Changes in securities lending payable
Proceeds from issuance of common stock under Equity Units stock purchase contracts
Repurchase and retirement of common stock
Cash dividends
Proceeds from issuance of common stock under employee stock plans
Taxes paid through withholding of common stock under employee stock plans
Other, net
Net cash used in financing activities
Effect of foreign exchange rates on cash and cash equivalents
Change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(182)
1,154
(540)
198
283
(256)
(32)
(283)
3,528
202
1,978
72
(6)
10,688
(19,492)
11,318
4,741
(849)
(1,976)
(1,021)
(45)
(7,324)
(150)
2,484
(1,932)
970
(1,670)
849
—
(2,700)
(954)
176
(128)
488
(2,567)
7
804
4,937
(67)
1,133
81
—
294
(1,053)
(48)
(170)
1,826
115
(445)
(325)
(87)
6,061
(22,954)
18,598
2,437
254
—
(1,077)
(50)
(2,792)
(297)
2,473
(1,123)
7,590
(8,035)
(254)
—
(1,701)
(818)
187
(84)
(204)
(2,266)
—
1,003
3,934
$
5,741
$
4,937
$
3,750
206
1,132
91
—
226
(695)
(1)
(26)
(1,059)
(36)
97
323
(181)
3,827
(9,671)
9,662
1,938
(149)
(1,760)
(1,208)
(71)
(1,259)
(107)
835
(1,684)
9,120
(9,250)
150
1,250
(1,685)
(776)
173
(81)
(186)
(2,241)
(2)
325
3,609
3,934
See accompanying notes.
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Anthem, Inc.
Consolidated Statements of Shareholders’ Equity
Common Stock
Number
of Shares
Par
Value
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shareholders’
Equity
256.1 $
—
—
3 $
—
—
8,547 $
—
—
18,374 $
3,750
—
(421) $
—
(474)
6.0
—
(6.8)
—
2.1
—
—
257.4
—
257.4
—
—
(6.3)
—
1.8
—
252.9
—
252.9
—
—
(9.4)
—
—
—
—
—
—
—
—
3
—
3
—
—
—
—
—
—
3
—
3
—
—
—
—
1,250
1
(243)
—
318
(337)
—
9,536
—
9,536
—
—
(275)
—
396
(209)
9,448
—
9,448
—
—
(353)
—
—
—
(1,442)
(785)
—
—
91
19,988
26
20,014
4,807
—
(1,426)
(822)
—
—
22,573
(35)
22,538
4,572
—
(2,347)
(961)
—
—
—
—
—
—
(91)
(986)
—
(986)
—
690
—
—
—
—
(296)
—
(296)
—
446
—
—
1.9
—
245.4 $
—
—
3 $
330
(181)
9,244 $
—
—
23,802 $
—
—
150 $
26,503
3,750
(474)
1,250
1
(1,685)
(785)
318
(337)
—
28,541
26
28,567
4,807
690
(1,701)
(822)
396
(209)
31,728
(35)
31,693
4,572
446
(2,700)
(961)
330
(181)
33,199
(In millions)
January 1, 2018
Net income
Other comprehensive loss
Issuance of common stock under Equity Units stock purchase
contracts
Premiums for and settlement of equity options
Repurchase and retirement of common stock
Dividends and dividend equivalents
Issuance of common stock under employee stock plans, net of
related tax benefits
Convertible debenture conversions
Adoption of Accounting Standards Update No. 2018-02
December 31, 2018
Adoption of Accounting Standards Update No. 2016-02
January 1, 2019
Net income
Other comprehensive income
Repurchase and retirement of common stock
Dividends and dividend equivalents
Issuance of common stock under employee stock plans, net of
related tax benefits
Convertible debenture conversions
December 31, 2019
Adoption of Accounting Standards Update No. 2016-13
(Note 2)
January 1, 2020
Net income
Other comprehensive income
Repurchase and retirement of common stock
Dividends and dividend equivalents
Issuance of common stock under employee stock plans, net of
related tax benefits
Convertible debenture repurchases and conversions
December 31, 2020
See accompanying notes.
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Anthem, Inc.
Notes to Consolidated Financial Statements
December 31, 2020
(In Millions, Except Per Share Data or As Otherwise Stated Herein)
1. Organization
References to the terms “we,” “our,” “us” or “Anthem” used throughout these Notes to Consolidated Financial Statements refer to Anthem, Inc., an
Indiana corporation, and unless the context otherwise requires, its direct and indirect subsidiaries.
We are one of the largest health benefits companies in the United States in terms of medical membership, serving approximately 43 medical members
through our affiliated health plans as of December 31, 2020. We offer a broad spectrum of network-based managed care plans to Large Group, Small
Group, Individual, Medicaid and Medicare markets. Our managed care plans include: Preferred Provider Organizations (“PPOs”); Health Maintenance
Organizations (“HMOs”); Point-of-Service plans; traditional indemnity plans and other hybrid plans, including Consumer-Driven Health Plans; and
hospital only and limited benefit products. In addition, we provide a broad array of managed care services to self-funded customers, including claims
processing, stop loss insurance, actuarial services, provider network access, medical cost management, disease management, wellness programs and other
administrative services. We provide an array of specialty and other insurance products and services such as pharmacy benefits management (“PBM”),
dental, vision, life and disability insurance benefits, radiology benefit management and analytics-driven personal healthcare. We also provide services to the
federal government in connection with our Federal Health Products & Services business, which administers the Federal Employees Health Benefits
(“FEHB”) Program.
We are an independent licensee of the Blue Cross and Blue Shield Association (“BCBSA”), an association of independent health benefit plans. We
serve our members as the Blue Cross licensee for California and as the Blue Cross and Blue Shield (“BCBS”) licensee for Colorado, Connecticut, Georgia,
Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (in the New York City
metropolitan area and upstate New York), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. In a majority of
these service areas, we do business as Anthem Blue Cross, Anthem Blue Cross and Blue Shield, and Empire Blue Cross Blue Shield or Empire Blue Cross.
We also conduct business through arrangements with other BCBS licensees as well as other strategic partners. Through our subsidiaries, we also serve
customers in numerous states across the country as AIM Specialty Health, Amerigroup, Aspire Health, Beacon, CareMore, Freedom Health, HealthLink,
HealthSun, Optimum HealthCare, Simply Healthcare, and/or UniCare. Also, in the second quarter of 2019, we began providing PBM services through our
IngenioRx subsidiary. We are licensed to conduct insurance operations in all 50 states and the District of Columbia through our subsidiaries.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation: The accompanying consolidated financial statements include the accounts of Anthem and its subsidiaries and have been
prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). All significant intercompany accounts and transactions have been
eliminated in consolidation.
Certain of our subsidiaries operate outside of the United States and have functional currencies other than the U.S. dollar (“USD”). We translate the
assets and liabilities of those subsidiaries to USD using the exchange rate in effect at the end of the period. We translate the revenues and expenses of those
subsidiaries to USD using the average exchange rates in effect during the period. The net effect of these translation adjustments is included in “Foreign
currency translation adjustments” in our consolidated statements of comprehensive income.
Reclassifications: Certain prior year amounts have been reclassified to conform to the current year presentation.
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Use of Estimates: The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that
affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents: Cash and cash equivalents includes available cash and all highly liquid investments with maturities of three months or
less when purchased. We control a number of bank accounts that are used exclusively to hold customer funds for the administration of customer benefits,
and we have cash and cash equivalents on deposit to meet certain regulatory requirements. These amounts totaled $170 and $215 at December 31, 2020 and
2019, respectively, and are included in the cash and cash equivalents line on our consolidated balance sheets.
Investments: We classify fixed maturity securities in our investment portfolio as “available-for-sale” and report those securities at fair value. Certain
fixed maturity securities are available to support current operations and, accordingly, we classify such investments as current assets without regard to their
contractual maturity. Investments used to satisfy contractual, regulatory or other requirements are classified as long-term, without regard to contractual
maturity.
Prior to 2020, our fixed maturity securities were evaluated for other-than-temporary impairment where credit-related impairments were presented
within the other-than-temporary impairment losses recognized in our consolidated statements of income with an adjustment to the security’s amortized cost
basis. Effective January 1, 2020, if a fixed maturity security is in an unrealized loss position and we have the intent to sell the fixed maturity security, or it
is more likely than not that we will have to sell the fixed maturity security before recovery of its amortized cost basis, we write down the fixed maturity
security’s cost basis to fair value and record an impairment loss in our consolidated statements of income. For impaired fixed maturity securities that we do
not intend to sell or if it is more likely than not that we will not have to sell such securities, but we expect that we will not fully recover the amortized cost
basis, we recognize the credit component of the impairment as an allowance for credit loss in our consolidated balance sheets and record an impairment
loss in our consolidated statements of income. The non-credit component of the impairment is recognized in accumulated other comprehensive income.
Furthermore, unrealized losses entirely caused by non-credit-related factors related to fixed maturity securities for which we expect to fully recover the
amortized cost basis continue to be recognized in accumulated other comprehensive income.
The credit component of an impairment is determined primarily by comparing the net present value of projected future cash flows with the amortized
cost basis of the fixed maturity security. The net present value is calculated by discounting our best estimate of projected future cash flows at the effective
interest rate implicit in the fixed maturity security at the date of purchase. For mortgage-backed and asset-backed securities, cash flow estimates are based
on assumptions regarding the underlying collateral, including prepayment speeds, vintage, type of underlying asset, geographic concentrations, default
rates, recoveries and changes in value. For all other securities, cash flow estimates are driven by assumptions regarding probability of default, including
changes in credit ratings and estimates regarding timing and amount of recoveries associated with a default.
For asset-backed securities included in fixed maturity securities, we recognize income using an effective yield based on anticipated prepayments and
the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date
and anticipated future payments. The net investment in the securities is adjusted to the amount that would have existed had the new effective yield been
applied since the purchase date of the securities. Such adjustments are reported within net investment income.
In accordance with the Financial Accounting Standards Board (“FASB”) guidance, the changes in fair value of our marketable equity securities are
recognized in our results of operations within net realized gains and losses on financial instruments.
We have corporate-owned life insurance policies on certain participants in our deferred compensation plans and other members of management. The
cash surrender value of the corporate-owned life insurance policies is reported under the caption “Other invested assets” in our consolidated balance sheets.
We use the equity method of accounting for investments in companies in which our ownership interest may enable us to influence the operating or
financial decisions of the investee company. Our proportionate share of equity in net income of these unconsolidated affiliates is reported within net
investment income. The equity method investments are reported under the caption “Other invested assets” in our consolidated balance sheets.
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Investment income is recorded when earned. All securities sold resulting in investment gains and losses are recorded on the trade date. Realized gains
and losses are determined on the basis of the cost or amortized cost of the specific securities sold.
We participate in securities lending programs whereby marketable securities in our investment portfolio are transferred to independent brokers or
dealers in exchange for cash and securities collateral. Under FASB guidance related to accounting for transfers and servicing of financial assets and
extinguishments of liabilities, we recognize the collateral as an asset, which is reported as securities lending collateral on our consolidated balance sheets,
and we record a corresponding liability for the obligation to return the collateral to the borrower, which is reported as securities lending payable. The
securities on loan are reported in the applicable investment category on our consolidated balance sheets. Unrealized gains or losses on securities lending
collateral are included in accumulated other comprehensive income as a separate component of shareholders’ equity. The market value of loaned securities
and that of the collateral pledged can fluctuate in non-synchronized fashions. To the extent the loaned securities’ value appreciates faster or depreciates
slower than the value of the collateral pledged, we are exposed to the risk of the shortfall. As a primary mitigating mechanism, the loaned securities and
collateral pledged are marked to market on a daily basis and the shortfall, if any, is collected accordingly. Secondarily, the collateral level is set at 102% of
the value of the loaned securities, which provides a cushion before any shortfall arises. The investment of the cash collateral is subject to market risk, which
is managed by limiting the investments to higher quality and shorter duration instruments.
Receivables: Receivables are reported net of amounts for expected credit losses. The allowance for doubtful accounts is based on historical collection
trends, future forecasts and our judgment regarding the ability to collect specific accounts.
Premium receivables include the uncollected amounts from insured groups, individuals and government programs. Premium receivables are reported
net of an allowance for doubtful accounts of $146 and $237 at December 31, 2020 and 2019, respectively.
Self-funded receivables include administrative fees, claims and other amounts due from self-funded customers. Self-funded receivables are reported
net of an allowance for doubtful accounts of $54 and $46 at December 31, 2020 and 2019, respectively.
Other receivables include pharmacy rebates, provider advances, claims recoveries, reinsurance receivables, proceeds due from brokers on investment
trades, other government receivables and other miscellaneous amounts due to us. These receivables are reported net of an allowance for doubtful accounts
of $374 and $242 at December 31, 2020 and 2019, respectively.
Income Taxes: We file a consolidated income tax return. Deferred income tax assets and liabilities are recognized for temporary differences between
the financial statement and tax return basis of assets and liabilities based on enacted tax rates and laws. The deferred tax benefits of the deferred tax assets
are recognized to the extent realization of such benefits is more likely than not. Deferred income tax expense or benefit generally represents the net change
in deferred income tax assets and liabilities during the year, excluding the impact from amounts initially recorded for business combinations, if any, and
amounts recorded to accumulated other comprehensive income. Current income tax expense represents the tax consequences of revenues and expenses
currently taxable or deductible on various income tax returns for the year reported.
We account for income tax contingencies in accordance with FASB guidance that contains a model to address uncertainty in tax positions and clarifies
the accounting for income taxes by prescribing a minimum recognition threshold, which all income tax positions must achieve before being recognized in
the financial statements.
Property and Equipment: Property and equipment is recorded at cost, net of accumulated depreciation. Depreciation is computed principally by the
straight-line method over estimated useful lives ranging from fifteen to thirty-nine years for buildings and improvements, three to five years for computer
equipment and software, and the lesser of the remaining life of the building lease, if any, or seven years for furniture and other equipment. Leasehold
improvements are depreciated over the term of the related lease. Certain costs related to the development or purchase of internal-use software are
capitalized and amortized over estimated useful lives ranging from five to ten years.
Goodwill and Other Intangible Assets: FASB guidance requires business combinations to be accounted for using the acquisition method of
accounting, and it also specifies the types of acquired intangible assets that are required to be
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
recognized and reported separately from goodwill. Goodwill represents the excess of the cost of acquisition over the fair value of net assets acquired. Other
intangible assets represent the values assigned to customer relationships, provider and hospital networks, Blue Cross and Blue Shield and other trademarks,
licenses and other agreements, such as non-compete. Goodwill and other intangible assets are allocated to reportable segments based on the relative fair
value of the components of the businesses acquired.
Goodwill and other intangible assets with indefinite lives are not amortized but are tested for impairment at least annually. Goodwill and other
intangible assets are allocated to reporting units for purposes of the annual goodwill impairment test. Other intangible assets with indefinite lives, such as
trademarks, are tested for impairment separately. We complete our annual impairment tests of existing goodwill and other intangible assets with indefinite
lives during the fourth quarter of each year. Our impairment tests require us to make assumptions and judgments regarding the estimated fair value of our
reporting units, including goodwill and other intangible assets with indefinite lives. Certain interim impairment tests are also performed when potential
impairment indicators exist or changes in our business or other triggering events occur.
FASB guidance allows for qualitative assessments of whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount for purposes of a goodwill impairment analysis and whether it is more likely than not that an indefinite-lived intangible asset is impaired for
purposes of an indefinite-lived intangible asset impairment analysis. Estimated fair values developed based on our assumptions and judgments might be
different if other reasonable assumptions and estimates were to be used. Qualitative analysis involves assessing situations and developments that could
affect key drivers used to evaluate whether the fair value of our goodwill and indefinite-lived intangible assets are impaired. Our procedures include
assessing our financial performance, macroeconomic conditions, industry and market considerations, various asset specific factors, and entity specific
events.
Quantitative analysis must be performed if qualitative analyses are not conclusive. Entities also have the option to bypass the assessment of qualitative
factors and proceed directly to performing quantitative analyses. Fair value for purposes of a quantitative goodwill impairment test is calculated using a
blend of the projected income and market valuation approaches. The projected income approach is developed using assumptions about future revenue,
expenses and net income derived from our internal planning process. Our assumed discount rate is based on our industry’s weighted-average cost of capital
and reflects volatility associated with the cost of equity capital. Market valuations include market comparisons to publicly traded companies in our industry
and are based on observed multiples of certain measures including revenue; earnings before interest, taxes, depreciation and amortization (“EBITDA”); and
book value of invested capital.
A goodwill impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. This determination is made at the
reporting unit level and consists of one step. The fair value of a reporting unit is determined and compared to its carrying amount. If the carrying amount of
a reporting unit exceeds its fair value, an impairment loss is recognized. This goodwill impairment loss is equal to the excess of the reporting unit’s
carrying amount over its fair value.
Fair value for purposes of a quantitative impairment test for indefinite-lived intangible assets is estimated using a projected income approach. We
recognize an impairment loss when the estimated fair value of indefinite-lived intangible assets is less than the carrying value. If significant impairment
indicators are noted relative to other intangible assets subject to amortization, we may be required to record impairment losses against future income.
Derivative Financial Instruments: We primarily invest in the following types of derivative financial instruments: interest rate swaps, futures, forward
contracts, put and call options, swaptions, embedded derivatives and warrants. Derivatives embedded within non-derivative instruments, such as options
embedded in convertible fixed maturity securities, are bifurcated from the host instrument when the embedded derivative is not clearly and closely related
to the host instrument. Our use of derivatives is limited by statutes and regulations promulgated by the various regulatory bodies to which we are subject,
and by our own derivative policy. Our derivative use is generally limited to hedging purposes, on an economic basis, and we generally do not use derivative
instruments for speculative purposes.
We have exposure to economic losses due to interest rate risk arising from changes in the level or volatility of interest rates. We attempt to mitigate our
exposure to interest rate risk through active portfolio management, including rebalancing our existing portfolios of assets and liabilities, as well as changing
the characteristics of investments to be purchased or sold in the future. In addition, derivative financial instruments are used to modify the interest rate
exposure of certain liabilities or forecasted transactions. These strategies include the use of interest rate swaps and forward contracts, which are used to
lock-
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
in interest rates or to hedge, on an economic basis, interest rate risks associated with variable rate debt. We have used these types of instruments as
designated hedges against specific liabilities.
All investments in derivatives are recorded as assets or liabilities at fair value. If certain correlation, hedge effectiveness and risk reduction criteria are
met, a derivative may be specifically designated as a hedge of exposure to changes in fair value or cash flow. The accounting for changes in the fair value
of a derivative depends on the intended use of the derivative and the nature of any hedge designation thereon. Amounts excluded from the assessment of
hedge effectiveness, if any, are reported in results of operations immediately. If the derivative is not designated as a hedge, the gain or loss resulting from
the change in the fair value of the derivative is recognized in results of operations in the period of change. Cash flows associated with the settlement of non-
designated derivatives are shown on a net basis in investing activity in our consolidated statements of cash flow.
From time to time, we may also purchase derivatives to hedge, on an economic basis, our exposure to foreign currency exchange fluctuations
associated with the operations of certain of our subsidiaries. We generally use futures or forward contracts for these transactions. We generally do not
designate these contracts as hedges and, accordingly, the changes in fair value of these derivatives are recognized in results of operations immediately.
Credit exposure associated with non-performance by the counterparties to derivative instruments is generally limited to the uncollateralized fair value
of the asset related to instruments recognized in the consolidated balance sheets. We attempt to mitigate the risk of non-performance by selecting
counterparties with high credit ratings and monitoring their creditworthiness and by diversifying derivatives among multiple counterparties. At
December 31, 2020, we believe there were no material concentrations of credit risk with any individual counterparty.
We generally enter into master netting agreements, which reduce credit risk by permitting net settlement of transactions with the same counterparty.
Certain of our derivative agreements also contain credit support provisions that require us or the counterparty to post collateral if there are declines in the
derivative fair value or our credit rating. The derivative assets and derivative liabilities are reported at their fair values net of collateral and netting by the
counterparty.
Retirement Benefits: We recognize the funded status of pension and other postretirement benefit plans on the consolidated balance sheets based on
fiscal-year-end measurements of plan assets and benefit obligations. Prepaid pension benefits represent prepaid costs related to defined benefit pension
plans and are reported with other noncurrent assets. Postretirement benefits represent outstanding obligations for retiree medical, life, vision and dental
benefits. Liabilities for pension and other postretirement benefits are reported with current and noncurrent liabilities based on the amount by which the
actuarial present value of benefits payable in the next twelve months included in the benefit obligation exceeds the fair value of plan assets.
We determine the expected return on plan assets using the calculated value of plan assets, which recognizes changes in the fair value of plan assets in a
systematic manner over three years. We apply a corridor approach to amortize unrecognized actuarial gains or losses. Under this approach, only
accumulated net actuarial gains or losses in excess of 10% of the greater of the projected benefit obligation or the fair value of plan assets are amortized
over the average remaining service or lifetime of the workforce as a component of net periodic benefit cost.
The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year based on our most recent
measurement date. We use the annual spot rate approach for setting our discount rate. Under the spot rate approach, individual spot rates from a full yield
curve of published rates are used to discount each plan’s cash flows to determine the plan’s obligations.
The assumed healthcare cost trend rates used to measure the expected cost of other postretirement benefits are based on an initial assumed healthcare
cost trend rate declining to an ultimate healthcare cost trend rate over a select number of years.
Medical Claims Payable: Liabilities for medical claims payable include estimated provisions for incurred but not paid claims on an undiscounted
basis, as well as estimated provisions for expenses related to the processing of claims. Incurred but not paid claims include (1) an estimate for claims that
are incurred but not reported, as well as claims reported to us but not yet processed through our systems; and (2) claims reported to us and processed
through our systems but not yet paid.
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Liabilities for both claims incurred but not reported and reported but not yet processed through our systems are determined in the aggregate, employing
actuarial methods that are commonly used by health insurance actuaries and meet Actuarial Standards of Practice. Actuarial Standards of Practice require
that the claim liabilities be appropriate under moderately adverse circumstances. We determine the amount of the liability for incurred but not paid claims
by following a detailed actuarial process that uses both historical claim payment patterns as well as emerging medical cost trends to project our best
estimate of claim liabilities. Under this process, historical paid claims data is formatted into “claim triangles,” which compare claim incurred dates to the
dates of claim payments. This information is analyzed to create “completion factors” that represent the average percentage of total incurred claims that
have been paid through a given date after being incurred. Completion factors are applied to claims paid through the period-end date to estimate the ultimate
claim expense incurred for the period. Actuarial estimates of incurred but not paid claim liabilities are then determined by subtracting the actual paid claims
from the estimate of the ultimate incurred claims.
For the most recent incurred months (typically the most recent two months), the percentage of claims paid for claims incurred in those months is
generally low. This makes the completion factor methodology less reliable for such months. Therefore, incurred claims for recent months are not projected
from historical completion and payment patterns; rather, they are projected by estimating the claims expense for those months based on recent claims
expense levels and healthcare trend levels (“trend factors”).
We regularly review and set assumptions regarding cost trends and utilization when initially establishing claim liabilities. We continually monitor and
adjust the claims liability and benefit expense based on subsequent paid claims activity. If it is determined that our assumptions regarding cost trends and
utilization are materially different than actual results, our income statement and financial position could be impacted in future periods.
Premium deficiencies are recognized when it is probable that expected claims and administrative expenses will exceed future premiums on existing
medical insurance contracts without consideration of investment income. Determination of premium deficiencies for longer duration life and disability
contracts includes consideration of investment income. For purposes of premium deficiencies, contracts are deemed to be either short or long duration and
are grouped in a manner consistent with our method of acquiring, servicing and measuring the profitability of such contracts. Once established, premium
deficiencies are released commensurate with actual claims experience over the remaining life of the contract. No premium deficiencies were established at
December 31, 2020 or 2019.
Benefit expense includes incurred medical claims as well as quality improvement expenses for our fully-insured members. Quality improvement
activities are those designed to improve member health outcomes, prevent hospital readmissions and improve patient safety. They also include expenses for
wellness and health promotion provided to our members.
Reserves for Future Policy Benefits: Reserves for future policy benefits include liabilities for life and long-term disability insurance policy benefits
based upon interest, mortality and morbidity assumptions from published actuarial tables, modified based upon our experience. Future policy benefits also
include liabilities for insurance policies for which some of the premiums received in earlier years are intended to pay anticipated benefits to be incurred in
future years. Future policy benefits are continually monitored and reviewed, and when reserves are adjusted, differences are reflected in benefit expense.
The current portion of reserves for future policy benefits relates to the portion of such reserves that we expect to pay within one year. We believe that
our liabilities for future policy benefits, along with future premiums received, are adequate to satisfy our ultimate benefit liability; however, these estimates
are inherently subject to a number of variable circumstances. Consequently, the actual results could differ materially from the amounts recorded in our
consolidated financial statements.
Other Policyholder Liabilities: Other policyholder liabilities include rate stabilization reserves associated with retrospectively rated insurance
contracts and certain case-specific reserves. Other policyholder liabilities also include liabilities for premium refunds based upon the minimum medical loss
ratio (“MLR”), the relative health risk of members, and other contractual or regulatory requirements. Rate stabilization reserves represent accumulated
premiums that exceed what customers owe us based on actual claim experience. The timing of payment of these retrospectively rated refunds is based on
the contractual terms with our customers and can vary from period to period based on the specific contractual requirements.
We are required to meet certain minimum MLR thresholds prescribed by the Patient Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act of 2010, as amended (collectively the “ACA”). If we do not meet or
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
exceed the minimum MLR thresholds specified by the ACA, we are required to pay rebates to certain customers. Minimum MLR rebates are calculated by
subsidiary, state and applicable line of business (Large Group, Small Group, Individual and Medicare) in accordance with regulations issued by the
Department of Health and Human Services (“HHS”). Such calculations are made using estimated calendar year medical loss expense and premiums, as
defined by HHS.
We follow HHS guidelines for determining the types of expenses that may be included in our minimum MLR rebate calculations, which differ from
benefit expense and premiums as reported in our consolidated financial statements prepared in conformity with GAAP. Certain amounts reported as
expense in our consolidated GAAP financial statements may be reported as a reduction of premiums in accordance with HHS regulations. In addition,
profit amounts included in our payments to third-party administrative service providers are recorded as benefit expense in our consolidated GAAP financial
statements, while HHS does not allow for the inclusion of these expenses within the medical loss expense for purposes of calculating minimum MLR.
Revenue Recognition: Premiums for fully-insured contracts are recognized as revenue over the period insurance coverage is provided, and, if
applicable, net of amounts recognized for MLR rebates, risk adjustment, reinsurance and risk corridor under contractual premium stabilization
arrangements, the ACA or other regulatory requirements. Premium payments from contracted government agencies are based on eligibility lists produced
by the government agencies. Premiums related to the unexpired contractual coverage periods are reflected in the accompanying consolidated balance sheets
as unearned income. Premiums include revenue adjustments for retrospectively rated contracts where revenue is based on the estimated loss experience of
the contract. Premium rates for certain lines of business are subject to approval by the Department of Insurance of each respective state. Additionally,
delays in annual premium rate changes from contracted government agencies require that we defer the recognition of any increases to the period in which
the premium rates become final. The value of the impact can be significant in the period in which it is recognized depending on the magnitude of the
premium rate increase, the membership to which it applies and the length of the delay between the effective date of the rate increase and the final contract
date. Premium rate decreases are recognized in the period the change in premium rate becomes effective and the change in the rate is known, which may be
prior to the period when the contract amendment affecting the rate is finalized.
Administrative fees and other revenue include revenue from certain group contracts that provide for the group to be at risk for all, or with supplemental
insurance arrangements, a portion, of their claims experience. We charge these self-funded groups an administrative fee, which is based on the number of
members in a group or the group’s claim experience. In addition, administrative fees and other revenue include amounts received for the administration of
Medicare or certain other government programs. Under our self-funded arrangements, revenue is recognized as administrative services are performed. All
benefit payments under these programs are excluded from benefit expense.
Product revenue includes revenue for services performed by our IngenioRx PBM for unaffiliated PBM customers. Unaffiliated PBM customers include
our self-funded groups that have contracted with IngenioRx for PBM services and, beginning on January 1, 2020, third-party health plans. Product
revenues and costs of goods sold for our affiliated health plans are eliminated in consolidation. Product revenue for PBM services is recognized using the
gross method at the negotiated contract price when IngenioRx has concluded that it is the principal and it controls the services before prescription drugs are
transferred to the customer. IngenioRx determined it is the principal due to its contractual rights to design and develop a listing of prescription drugs
offered to the customer (formulary management); its control over establishing the pharmacy network available to the customer to have its prescription
fulfilled (network management); and its discretion over establishing the pricing for prescription drugs. Overall, control over these activities indicate
IngenioRx is primarily responsible for fulfilling the promise to provide PBM services. Product revenue includes ingredient costs (net of any rebates or
discounts), including any co-payments made by or on behalf of the customer, and administrative fees. IngenioRx recognizes revenue when control of the
prescription drugs is transferred to customers, in an amount it expects to be entitled to in exchange for the products or services provided.
For our non-fully-insured contracts, we had no material contract assets, contract liabilities or deferred contract costs recorded on our consolidated
balance sheet at December 31, 2020. Revenue recognized in 2020 and 2019 from performance obligations related to prior years, such as due to changes in
transaction price, was not material. For contracts that have an original expected duration of greater than one year, revenue expected to be recognized in
future periods related to unfulfilled contractual performance obligations and contracts with variable consideration related to undelivered performance
obligations is not material.
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Cost of Products Sold: IngenioRx’s cost of products sold includes the cost of prescription drugs dispensed to unaffiliated PBM customers (net of
rebates or discounts). This cost includes any co-payments made by or on behalf of the customer. Cost of products sold also includes per-claim
administrative fees for prescription fulfillment by its vendor and certain IngenioRx direct costs related to sales and administration of customer contracts.
Share-Based Compensation: Our current compensation philosophy provides for share-based compensation, including stock options, restricted stock
awards and an employee stock purchase plan. Stock options are granted for a fixed number of shares with an exercise price at least equal to the fair value of
the shares at the date of the grant. Restricted stock awards are issued at the fair value of the stock on the grant date. The employee stock purchase plan
allows for a purchase price per share which is 90% of the fair value of a share of common stock on the lower of the first or last trading day of the plan
quarter. The employee stock purchase plan discount is recognized as compensation expense based on GAAP guidance. All other share-based payments to
employees are recognized as compensation expense in our consolidated statements of income based on their fair values. Additionally, excess tax benefits,
which result from actual tax benefits realized when awards vest or options are exercised exceeding deferred tax benefits previously recognized based on
grant date fair value, are recognized as tax benefits in the income statement. Our share-based employee compensation plans and assumptions are described
in Note 15, “Capital Stock.”
Advertising and Marketing Costs: We use print, broadcast and other advertising to promote our products and to develop our corporate image. We
market our products through direct marketing activities and an extensive network of independent agents, brokers and retail partnerships for Individual and
Medicare customers, and for certain Local Group customers with a smaller employee base. Products for National Accounts and Local Group customers
with a larger employee base are generally sold through independent brokers or consultants retained by the customer who work with industry specialists
from our in-house sales force. In the Individual and Small Group markets, we offer products through state or federally facilitated marketplaces, or public
exchanges, and off-exchange products. The cost of advertising and marketing for product promotion is expensed as incurred, while advertising and
marketing costs associated with our corporate image are expensed when first aired. Total advertising and marketing expense was $558, $467 and $385 for
the years ended December 31, 2020, 2019 and 2018, respectively.
Health Insurance Provider Fee: The ACA imposed an annual Health Insurance Provider Fee (“HIP Fee”) on health insurers that write certain types of
health insurance on U.S. risks, which has been permanently repealed effective January 1, 2021. The HIP Fee was allocated to health insurers based on the
ratio of the amount of an insurer’s net premium revenues written during the preceding calendar year to the amount of health insurance premium for all U.S.
health risk for those certain lines of business written during the preceding calendar year. We recorded our estimated liability for the HIP Fee in full at the
beginning of the year with a corresponding deferred asset that was amortized on a straight-line basis to selling, general and administrative expense. The
final calculation and payment of the annual HIP Fee was due by September 30 of each fee year. The HIP Fee was non-deductible for federal income tax
purposes. Our affected products were priced to cover the increased selling, general and administrative and income tax expenses associated with the HIP Fee
when it was in effect. The total amount due from allocations to health insurers was $14,300 for 2018. The HIP Fee was suspended for 2019, resumed and
increased to $15,523 for 2020 and has been permanently eliminated beginning in 2021. For the years ended December 31, 2020 and 2018, we recognized
$1,570 and $1,544, respectively, as selling, general and administrative expense related to the HIP Fee. There was no corresponding expense for 2019 due to
the suspension of the HIP Fee for 2019.
th
Leases: We lease office space and certain computer and related equipment under noncancelable operating leases. We determine whether an
arrangement is or contains a lease at its inception. We recognize lease liabilities based on the present value of the minimum lease payments not yet paid by
using the lease term, any amounts probable of being owed under any residual value guarantees and the discount rate determined at lease commencement.
As our leases do not generally provide an implicit rate, we use our incremental secured borrowing rate commensurate with the underlying lease terms to
determine the present value of our lease payments. Our lease liabilities may include amounts for options to extend or terminate a lease when it is reasonably
certain that we will exercise that option. We recognize operating right-of-use (“ROU”) assets at an amount equal to the lease liability adjusted for prepaid
or accrued rent, the remaining balance of any lease incentives and unamortized initial direct costs.
The operating lease liabilities are reported in other current liabilities and other noncurrent liabilities and the related ROU assets are reported in other
noncurrent assets on our consolidated balance sheets. Lease expense for our operating leases is calculated on a straight-line basis over the lease term and is
reported in selling, general and administrative expense on our
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
consolidated statements of income. For our office space leases, we account for the lease and non-lease components (such as common area maintenance) as
a single lease component. We also do not recognize a lease liability or ROU asset for our office space leases whose lease terms, at commencement, are
twelve months or less and that do not include a purchase option or option to extend that we are reasonably certain to exercise.
We assess our ROU assets for impairment when there are indicators and compare the carrying amount of the ROU asset to its estimated undiscounted
future cash flows. If the estimated undiscounted future cash flows are less than the carrying amount of the ROU asset, an impairment calculation is
performed. An impairment loss is recorded for the difference of the ROU asset’s carrying value that exceeds its estimated discounted cash flows. During
2020, we recorded $258 for impairment and abandonment of ROU assets. See Note 18, “Leases” for additional information about the ROU asset
impairment and abandonment charges.
Earnings per Share: Earnings per share amounts, on a basic and diluted basis, have been calculated based upon the weighted-average common shares
outstanding for the period.
Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted earnings per share may include the dilutive effect of stock options, restricted stock, convertible
debentures and Equity Units, using the treasury stock method. See Note 13, “Debt,” for a description of our Equity Units. The treasury stock method
assumes exercise of stock options and vesting of restricted stock, with the assumed proceeds used to purchase common stock at the average market price
for the period. The difference between the number of shares assumed issued and number of shares assumed purchased represents the dilutive shares.
Recently Adopted Accounting Guidance: The FASB issued Accounting Standards Update No. 2021-01, Reference Rate Reform (Topic 848) (“ASU
2021-01”) in January 2021, and Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting (“ASU 2020-04”) in March 2020. ASU 2021-01 and ASU 2020-04 provide optional expedients and exceptions for
applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate
(“LIBOR”) or another reference rate expected to be discontinued because of the reference rate reform. The provisions must be applied at a Topic, Subtopic,
or Industry Subtopic level for all transactions other than derivatives, which may be applied at a hedging relationship level. We adopted ASU 2021-01 on
January 7, 2021 and ASU 2020-04 on November 2, 2020, and the adoptions did not have an impact on our consolidated financial position, results of
operations or cash flows.
In November 2019, the FASB issued Accounting Standards Update No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—
Credit Losses. In May 2019, the FASB issued Accounting Standards Update No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted
Transition Relief. In April 2019, the FASB issued Accounting Standards Update No. 2019-04, Codification Improvements to Topic 326, Financial
Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. In November 2018, the FASB issued Accounting
Standards Update No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. These updates provide an option to
irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost and provide additional clarification and
implementation guidance on certain aspects of the previously issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13") and have the same effective date and transition requirements as
ASU 2016-13. ASU 2016-13 introduces a current expected credit loss model for measuring expected credit losses for certain types of financial instruments
held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. ASU 2016-13 replaces the incurred loss
model for measuring expected credit losses, requires expected losses on available-for-sale debt securities to be recognized through an allowance for credit
losses rather than as reductions in the amortized cost of the securities and provides for additional disclosure requirements. ASU 2016-13 requires a
cumulative-effect adjustment to the opening balance of retained earnings on the balance sheet at the date of adoption and a prospective transition approach
for debt securities for which an other-than-temporary impairment had been recognized before the adoption date. The effect of a prospective transition
approach is to maintain the same amortized cost basis before and after the date of adoption. We adopted ASU 2016-13 on January 1, 2020, and recognized
a cumulative-effect adjustment of $35 to our opening retained earnings for credit related allowances on receivables. The adoption did not have an impact on
our consolidated statements of income or cash flows.
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (“ASU 2018-15”). The
amendments in ASU 2018-15 require implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the
term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance.
The amendments also require an entity to disclose the nature of its hosting arrangements and adhere to certain presentation requirements in its balance
sheet, income statement and statement of cash flows. We adopted ASU 2018-15 on January 1, 2020 using a prospective approach for all implementation
costs incurred after the date of adoption, and the adoption did not have an impact on our consolidated financial position, results of operations or cash flows.
In August 2018, the FASB issued Accounting Standards Update No. 2018-14, Compensation—Retirement Benefits - Defined Benefit Plans—General
(Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). The amendments in
ASU 2018-14 eliminate, add, and modify certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.
We adopted the disclosure requirements of ASU 2018-14 on December 31, 2020, and the adoption did not have an impact on our consolidated financial
position, results of operations or cash flows.
In August 2018, the FASB issued Accounting Standards Update No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes
to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in ASU 2018-13 eliminate, add, and modify certain
disclosure requirements for fair value measurements. The amendments became effective for interim and annual periods beginning after December 15, 2019,
with early adoption permitted for either the entirety of ASU 2018-13 or only the provisions that eliminate or modify disclosure requirements. We early
adopted the provisions that eliminate and modify disclosure requirements, on a retrospective basis, effective in our 2018 Annual Report on Form 10-K. We
adopted the new disclosure requirements on January 1, 2020, on a prospective basis.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment (“ASU 2017-04”). This update removes Step 2 of the goodwill impairment test under the then-existing guidance, which required a
hypothetical purchase price allocation. The new guidance requires an impairment charge to be recognized for the amount by which the carrying amount
exceeds the reporting unit’s fair value. We adopted ASU 2017-04 on January 1, 2020, and the adoption did not have an impact on our consolidated financial
position, results of operations or cash flows.
Recent Accounting Guidance Not Yet Adopted: In November 2020, the FASB issued Accounting Standards Update No. 2020-11, Financial Services
—Insurance (Topic 944): Effective Date and Early Application (“ASU 2020-11”). The amendments in ASU 2020-11 make changes to the effective date and
early application of Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for
Long-Duration Contracts (“ASU 2018-12”) which was issued in November 2018. The amendments in ASU 2020-11 have extended the original effective
date by one year and now the amendments are required for our interim and annual reporting periods beginning after December 15, 2022. The amendments
in ASU 2018-12 make changes to a variety of areas to simplify or improve the existing recognition, measurement, presentation and disclosure requirements
for long-duration contracts issued by an insurance entity. The amendments require insurers to annually review the assumptions they make about their
policyholders and update the liabilities for future policy benefits if the assumptions change. The amendments also simplify the amortization of deferred
contract acquisition costs and add new disclosure requirements about the assumptions insurers use to measure their liabilities and how they may affect
future cash flows. The amendments related to the liability for future policy benefits for traditional and limited-payment contracts and deferred acquisition
costs are to be applied to contracts in force as of the beginning of the earliest period presented, with an option to apply such amendments retrospectively
with a cumulative-effect adjustment to the opening balance of retained earnings as of the earliest period presented. The amendments for market risk
benefits are to be applied retrospectively. We are currently evaluating the effects the adoption of ASU 2020-11 and ASU 2018-12 will have on our
consolidated financial position, results of operations, cash flows, and related disclosures.
In October 2020, the FASB issued Accounting Standards Update No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables—
Nonrefundable Fees and Other Costs (“ASU 2020-08”). The amendments clarify when an entity should assess whether a callable debt security is within the
scope of accounting guidance, which impacts the amortization period for nonrefundable fees and other costs. ASU 2020-08 is effective for interim and
annual reporting periods beginning
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
after December 15, 2020, with early adoption permitted. Upon adoption, the amendments are to be applied on a prospective basis as of the beginning of the
period of adoption for existing or newly purchased callable debt securities. We adopted ASU 2020-08 on January 1, 2021, and the adoption did not have an
impact on our consolidated financial position, results of operations or cash flows.
In August 2020, the FASB issued Accounting Standards Update No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own
Equity (“ASU 2020-06”). The amendments eliminate two of the three accounting models that require separate accounting for convertible features of debt
securities, simplify the contract settlement assessment for equity classification, require the use of the if-converted method for all convertible instruments in
the diluted earnings per share calculation and expand disclosure requirements. The amendments are effective for our annual and interim reporting periods
beginning after December 15, 2021, with early adoption permitted for reporting periods beginning after December 15, 2020. The guidance can be applied
on a full retrospective basis to all periods presented or a modified retrospective basis with a cumulative effect adjustment to the opening balance of retained
earnings during the period of adoption. We are currently evaluating the effects the adoption of ASU 2020-06 will have on our consolidated financial
statements and disclosures.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes (“ASU 2019-12”). The amendments in ASU 2019-12 remove certain exceptions to the general principles in Accounting Standards Codification Topic
740. The amendments also clarify and amend existing guidance to improve consistent application. The amendments are effective for our annual reporting
periods beginning after December 15, 2020, with early adoption permitted. The transition method (retrospective, modified retrospective, or prospective
basis) related to the amendments depends on the applicable guidance, and all amendments for which there is no transition guidance specified are to be
applied on a prospective basis. We adopted ASU 2019-12 on January 1, 2021, and the adoption did not have an impact on our consolidated financial
position, results of operations or cash flows.
There were no other new accounting pronouncements that were issued or became effective during the year ended December 31, 2020 that had, or are
expected to have, a material impact on our financial position, results of operations, cash flows or financial statement disclosures.
3. Business Acquisitions
Pending Acquisition of MMM Holdings LLC and Affiliates
On February 2, 2021, we announced our entrance into an agreement with InnovaCare Health, L.P. to acquire its Puerto Rico-based subsidiaries,
including MMM Holdings, LLC (“MMM”) and its Medicare Advantage plan MMM Healthcare, LLC, Medicaid plan and other affiliated companies.
MMM is an integrated healthcare organization and seeks to provide its Medicare Advantage and Medicaid members with a whole health experience
through its network of specialized clinics and wholly owned independent physician associations. This acquisition aligns with our vision to be an innovative,
valuable and inclusive healthcare partner by providing care management programs that improve the lives of the people we serve. The acquisition is
expected to close by the end of the second quarter of 2021 and is subject to standard closing conditions and customary approvals.
Beacon Health Options, Inc.
On February 28, 2020, we completed our acquisition of Beacon Health Options, Inc. (“Beacon”) the largest independently held behavioral health
organization in the country. At the time of acquisition, Beacon served more than thirty-four million individuals across all fifty states. This acquisition
aligned with our strategy to diversify into health services and deliver both integrated solutions and care delivery models that personalize care for people
with complex and chronic conditions.
In accordance with FASB accounting guidance for business combinations, the consideration transferred was allocated to the preliminary fair value of
Beacon’s assets acquired and liabilities assumed, including identifiable intangible assets. The excess of the consideration transferred over the preliminary
fair value of net assets acquired resulted in preliminary goodwill of $1,072 at December 31, 2020, all of which was allocated to our Other segment.
Preliminary goodwill recognized from the acquisition of Beacon primarily relates to the future economic benefits arising from the assets acquired and is
consistent with
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
our stated intentions and strategy. As of December 31, 2020, the initial accounting for the acquisition has not been finalized. Any additional payments or
receipts of cash resulting from contractual purchase price adjustments or any subsequent adjustments made to the assets acquired or liabilities assumed
during the measurement period will continue to be recorded as an adjustment to goodwill.
The preliminary fair value of the net assets acquired from Beacon includes $752 of other intangible assets at December 31, 2020, which primarily
consist of finite-lived customer relationships with amortization periods ranging from 9 to 21 years. The results of operations of Beacon are included in our
consolidated financial statements within our Other segment for the period following February 28, 2020. The pro forma effects of this acquisition for prior
periods were not material to our consolidated results of operations.
4. Business Optimization Initiatives
During 2020, our management introduced enterprise-wide initiatives to optimize our business and, as a result, we recorded a charge of $653 in selling,
general and administrative expenses. This charge includes $258 for impairment and abandonment of operating-lease related right-of-use assets, $198 for
impairment and abandonment of property and equipment and $197 for future payments for employee termination costs in connection with the repositioning
and reskilling of our workforce. The charges recognized in the Commercial & Specialty Business, Government Business, IngenioRx and Other segments in
2020, were $311, $205, $4 and $133, respectively. See also Note 20, “Segment Information”. We expect most of the employee termination costs to be paid
by the end of 2021. We believe these initiatives largely represent the next step forward in our progression towards becoming a more agile organization,
including process automation and a reduction in our office space footprint.
A summary of the employee termination costs activity for the year ended December 31, 2020 and ending balance at December 31, 2020 is as follows:
2020 Business Optimization Initiatives
Employee termination costs:
Costs incurred in 2020
Payments made in 2020
Total liabilities for employee termination costs ending balance at
December 31, 2020
Commercial &
Specialty
Business
Government
Business
IngenioRx
Other
Total
$
$
96 $
(4)
92 $
92 $
(4)
88 $
1 $
—
1 $
8 $
(2)
6 $
197
(10)
187
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
5. Investments
A summary of current and long-term fixed maturity securities, available-for-sale, at December 31, 2020 and 2019 is as follows:
Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross Unrealized Losses
Less than
12 Months
12 Months
or Greater
Allowance
For Credit
Losses
Estimated
Fair Value
Non-Credit
Component of
Impairment
Recognized in
Accumulated
Other
Comprehensive
Loss
December 31, 2020:
Fixed maturity securities:
United States Government securities
Government sponsored securities
Foreign government securities
States, municipalities and political
subdivisions, tax-exempt
Corporate securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Other securities
Total fixed maturity securities
December 31, 2019
Fixed maturity securities:
United States Government securities
Government sponsored securities
States, municipalities and political
subdivisions, tax-exempt
Corporate securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Other securities
Total fixed maturity securities
$
$
$
$
765 $
63
290
5,185
10,233
4,208
73
1,937
22,754 $
524 $
136
4,592
8,870
3,654
84
1,648
19,508 $
11 $
6
17
395
697
154
3
33
1,316 $
4 $
5
262
339
87
2
21
720 $
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(2) $
—
(2)
(1)
(20)
(8)
(1)
(5)
(39) $
(3) $
—
(3)
(9)
(6)
—
(3)
(24) $
— $
—
—
—
(11)
(9)
(3)
(6)
(29) $
— $
—
—
(15)
(3)
—
(5)
(23) $
— $
—
—
—
(7)
—
—
—
(7) $
— $
—
—
—
—
—
—
— $
774 $
69
305
5,579
10,892
4,345
72
1,959
23,995 $
525 $
141
4,851
9,185
3,732
86
1,661
20,181 $
—
—
—
—
(1)
(2)
—
—
(3)
—
—
—
(3)
—
—
—
(3)
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
For fixed maturity securities in an unrealized loss position at December 31, 2020 and 2019, the following table summarizes the aggregate fair values
and gross unrealized losses by length of time those securities have continuously been in an unrealized loss position.
Less than 12 Months
12 Months or Greater
Number of
Securities
Estimated
Fair Value
Gross
Unrealized
Loss
Number of
Securities
Estimated
Fair Value
Gross
Unrealized
Loss
(Securities are whole amounts)
December 31, 2020:
Fixed maturity securities:
United States Government securities
Government sponsored securities
Foreign government securities
States, municipalities and political subdivisions, tax-
exempt
Corporate securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Other securities
Total fixed maturity securities
December 31, 2019
Fixed maturity securities:
United States Government securities
Government sponsored securities
States, municipalities and political subdivisions, tax-
exempt
Corporate securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Other securities
Total fixed maturity securities
27 $
—
55
36
646
224
6
207
1,201 $
27 $
14
114
386
321
1
166
1,029 $
301 $
—
35
57
765
442
16
509
2,125 $
250 $
12
306
558
635
3
415
2,179 $
(2)
—
(2)
(1)
(20)
(8)
(1)
(5)
(39)
(3)
—
(3)
(9)
(6)
—
(3)
(24)
— $
1
9
1
150
90
3
79
333 $
2 $
3
14
224
189
4
113
549 $
— $
—
4
3
169
110
4
179
469 $
1 $
1
11
286
237
8
358
902 $
—
—
—
—
(11)
(9)
(3)
(6)
(29)
—
—
—
(15)
(3)
—
(5)
(23)
Below are discussions by security type for unrealized losses and credit losses as of December 31, 2020:
Corporate securities: An allowance for credit losses on certain retail, travel and entertainment, energy, and basic materials sector fixed maturity corporate
securities has been determined based on qualitative and quantitative factors including credit rating, decline in fair value and industry condition along with
other available market data. With multiple risk factors present, these securities were reviewed for expected future cash flow to determine the portion of
unrealized losses that were credit related and to record an allowance for credit losses. Unrealized losses on our other corporate securities were largely due
to market conditions relating to the COVID-19 pandemic; however, qualitative factors did not indicate a credit loss as of December 31, 2020. We do not
intend to sell these investments and it is likely we will not have to sell these investments prior to maturity or recovery of amortized cost.
As for the remaining securities shown in the table above, unrealized losses on these securities have not been recognized into income because we do not
intend to sell these investments and it is likely that we will not be required to sell these investments prior to their anticipated recovery. The decline in fair
value is largely due to changes in interest rates and other market conditions. We have evaluated these securities for any change in credit rating and have
determined that no allowance is necessary. The fair value is expected to recover as the securities approach maturity.
-94-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
The table below presents a roll-forward by major security type of the allowance for credit losses on fixed maturity securities available-for-sale held at
period end for the year ended December 31, 2020:
Year Ended December 31, 2020
Allowance for credit losses:
Beginning balance
Additions for securities for which no previous expected credit losses were recognized
Securities sold during the period
Decreases to the allowance for credit losses on securities
Total allowance for credit losses
Corporate
Securities
Foreign
Government
Securities
Total
$
$
— $
64
(17)
(40)
7 $
— $
1
(1)
—
— $
—
65
(18)
(40)
7
The amortized cost and fair value of fixed maturity securities at December 31, 2020, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations.
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed securities
Total fixed maturity securities
Equity Securities
A summary of current equity securities at December 31, 2020 and 2019 is as follows:
Equity Securities:
Exchange traded funds
Fixed maturity mutual funds
Common equity securities
Private equity securities
Total
Amortized
Cost
Estimated
Fair Value
592 $
5,981
6,874
5,026
4,281
22,754 $
595
6,261
7,296
5,426
4,417
23,995
December 31, 2020
December 31, 2019
1,154 $
144
201
60
1,559 $
44
643
237
85
1,009
$
$
$
$
-95-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Investment Income
The major categories of net investment income for the years ended December 31, 2020, 2019 and 2018 are as follows:
Fixed maturity securities
Equity securities
Cash equivalents
Other
Investment income
Investment expense
Net investment income
Investment Gains
2020
2019
2018
725 $
71
28
91
915
(38)
877 $
721 $
100
64
149
1,034
(29)
1,005 $
681
86
51
193
1,011
(41)
970
$
$
Net realized investment gains/losses and the net change in unrealized appreciation/depreciation on investments for the years ended December 31, 2020,
2019 and 2018 are as follows:
Net realized gains (losses):
Fixed maturity securities:
Gross realized gains from sales
Gross realized losses from sales
Impairment losses recognized in income
Net realized gains (losses) from sales of fixed maturity securities
Equity securities:
Gross realized gains
Gross realized losses
Net realized gains (losses) on equity securities
Other investments:
Gross realized gains from sales
Gross realized losses from sales
Impairment losses recognized in income
Net realized gains (losses) from sales of other investments
Net realized gains (losses) on investments
Change in net unrealized gains (losses) on investments:
Fixed maturity securities
Equity securities
Other investments
Total change in net unrealized gains (losses) on investments
Deferred income tax (expense) benefit
Change in net unrealized gains (losses) on investments
2020
2019
2018
$
175 $
(105)
(7)
63
125 $
(59)
(13)
53
269
(75)
194
18
—
(91)
(73)
184
575
—
(5)
570
(142)
428
147
(84)
63
3
(1)
(34)
(32)
84
874
—
—
874
(194)
680
85
(116)
(9)
(40)
77
(276)
(199)
27
—
(17)
10
(229)
(529)
—
5
(524)
106
(418)
Net realized gains (losses) on investments and change in net unrealized gains (losses) on
investments
$
612 $
764 $
(647)
-96-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
The gains and losses related to equity securities for the years ended December 31, 2020 and 2019 are as follows:
Net realized gains (losses) recognized on equity securities
Less: Net realized (gains) losses recognized on equity securities sold during the period
Unrealized gains (losses) recognized in income on equity securities still held at
December 31
$
$
2020
2019
2018
194 $
(61)
133 $
63 $
(39)
24 $
(199)
57
(142)
A primary objective in the management of our fixed maturity and equity portfolios is to maximize total return relative to underlying liabilities and
respective liquidity needs. In achieving this goal, assets may be sold to take advantage of market conditions or other investment opportunities as well as tax
considerations. Sales will generally produce realized gains and losses. In the ordinary course of business, we may sell securities at a loss for a number of
reasons, including, but not limited to: (i) changes in the investment environment; (ii) expectations that the fair value could deteriorate further; (iii) desire to
reduce exposure to an issuer or an industry; (iv) changes in credit quality; or (v) changes in expected cash flow.
Proceeds from sales, maturities, calls or redemptions of fixed maturity securities and the related gross realized gains and gross realized losses for the
years ended December 31 are as follows:
Proceeds
Gross realized gains
Gross realized losses
2020
2019
2018
$
11,122 $
175
(105)
8,351 $
125
(59)
8,380
85
(116)
A significant judgment in the valuation of investments is the determination of when a credit loss has occurred. We follow a consistent and systematic
process for recognizing impairments on securities that sustain credit declines in value. We have established a committee responsible for the impairment
review process. The decision to impair a security incorporates both quantitative criteria and qualitative information. The impairment review process
considers a number of factors including, but not limited to: (i) the extent to which the fair value is less than book value, (ii) the financial condition and near
term prospects of the issuer, (iii) our intent and ability to retain impaired investments for a period of time sufficient to allow for any anticipated recovery in
fair value, (iv) our intent to sell or the likelihood that we will need to sell a fixed maturity security before recovery of its amortized cost basis, (v) whether
the debtor is current on interest and principal payments, (vi) the reasons for the decline in value (i.e., credit event compared to liquidity, general credit
spread widening, currency exchange rate or interest rate factors) and (vii) general market conditions and industry or sector specific factors. For securities
that are deemed to be credit impaired, an allowance is created.
Investment securities are exposed to various risks, such as interest rate, market and credit. Due to the level of risk associated with certain investment
securities and the level of uncertainty related to changes in the value of investment securities, it is possible that changes in these risk factors in the near term
could have a material adverse impact on our results of operations or shareholders’ equity.
At December 31, 2020 and 2019, there were no individual investments that exceeded 10% of shareholders’ equity.
At December 31, 2020 and 2019, there were three and zero, respectively, fixed maturity investments that did not produce income during the years then
ended.
As of December 31, 2020 and 2019, we had committed approximately $1,320 and $999, respectively, to future capital calls from various third-party
investments in exchange for an ownership interest in the related entities.
At December 31, 2020 and 2019, securities with carrying values of approximately $562 and $505, respectively, were deposited by our insurance
subsidiaries under requirements of regulatory authorities.
-97-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Securities Lending Programs
The fair value of the collateral received at the time of the securities lending transactions amounted to $1,199 and $351 at December 31, 2020 and 2019,
respectively. The value of the collateral represented 102% and 103% of the market value of the securities on loan at December 31, 2020 and 2019,
respectively.
The remaining contractual maturities of our securities lending transactions at December 31, 2020 is as follows:
Securities lending transactions
Cash
United States Government securities
Total
Overnight and
Continuous
$
$
1,056
143
1,199
-98-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
6. Derivative Financial Instruments
We primarily invest in the following types of derivative financial instruments: interest rate swaps, futures, forward contracts, put and call options,
swaptions, embedded derivatives and warrants. We also enter into master netting agreements which reduce credit risk by permitting net settlement of
transactions. At December 31, 2020 and 2019, we had received collateral of $37 and $22, respectively, related to our derivative financial instruments.
A summary of the aggregate contractual or notional amounts and estimated fair values related to derivative financial instruments at December 31, 2020
and 2019 is as follows:
Contractual/
Notional
Amount
Balance Sheet Location
Estimated Fair Value
Asset
(Liability)
575
Other assets/other liabilities
$
37 $
—
December 31, 2020
Hedging instruments
Interest rate swaps - fixed to floating
Non-hedging instruments
Interest rate swaps
Futures
Subtotal non-hedging
Total derivatives
December 31, 2019
Hedging instruments
Interest rate swaps - fixed to floating
Non-hedging instruments
Interest rate swaps
Futures
Subtotal non-hedging
Total derivatives
$
$
27
183
210
785
Equity securities
Equity securities
Subtotal non-hedging
Total derivatives
Amounts netted
Net derivatives
$
1,200
Other assets/other liabilities
1
134
135
1,335
$
Equity securities
Equity securities
Subtotal non-hedging
Total derivatives
Amounts netted
Net derivatives
-99-
—
6
6
43
—
43 $
—
(5)
(5)
(5)
—
(5)
22 $
(1)
—
1
1
23
(1)
22 $
—
—
—
(1)
1
—
$
$
$
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Fair Value Hedges
We have entered into various interest rate swap contracts to convert a portion of our interest rate exposure on our long-term debt from fixed rates to
floating rates. The floating rates payable on all of our fair value hedges are benchmarked to the LIBOR. A summary of our outstanding fair value hedges at
December 31, 2020 and 2019 is as follows:
Type of Fair Value Hedges
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Total notional amount outstanding
Year
Entered
Into
2020
2018
2018
2018
2017
2015
2014
2013
2012
$
$
Outstanding Notional Amount
2020
2019
Interest Rate
Received
Expiration Date
75 $
50
450
—
—
—
—
—
—
575 $
—
50
450
90
50
200
150
10
200
1,200
4.101 %
4.101
3.300
4.350
4.350
4.350
4.350
4.350
4.350
September 1, 2027
September 1, 2027
January 15, 2023
August 15, 2020
August 15, 2020
August 15, 2020
August 15, 2020
August 15, 2020
August 15, 2020
The following amounts were recorded on our consolidated balance sheets related to cumulative basis adjustments for fair value hedges at
December 31, 2020 and 2019:
Balance Sheet Classification in Which Hedged Item
is Included
Current portion of long term-debt
Long-term debt
$
Cash Flow Hedges
Carrying Amount of Hedged Liability
Cumulative Amount of Fair Value Hedging Adjustment
Included in the Carrying Amount of the Hedged Liability
2020
2019
2020
2019
700 $
19,335
1,598 $
17,787
37 $
—
22
(1)
We have entered into a series of forward starting pay fixed interest rate swaps with the objective of eliminating the variability of cash flows in the
interest payments on future financings that were anticipated at the time of entering into the swaps. During 2020, swaps in the notional amount of $725 were
terminated. All swaps have expired or were terminated as of December 31, 2020.
The unrecognized loss for all expired and terminated cash flow hedges included in accumulated other comprehensive income (loss), net of tax, was
$250 and $262 at December 31, 2020 and 2019, respectively. As of December 31, 2020, the total amount of amortization over the next twelve months for
all cash flow hedges is estimated to increase interest expense by approximately $14. No amounts were excluded from effectiveness testing.
-100-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
A summary of the effect of cash flow hedges in accumulated other comprehensive income (loss) for the years ended December 31, 2020, 2019 and
2018 is as follows:
Type of Cash Flow Hedge
Year ended December 31, 2020
Forward starting pay fixed swaps
Year ended December 31, 2019
Forward starting pay fixed swaps
Year ended December 31, 2018
Forward starting pay fixed swaps
Hedge
Loss
Recognized
in Other
Comprehensive
Income (Loss)
$
Income Statement
Location of
Loss
Reclassification
from Accumulated
Other Comprehensive
Income (Loss)
Hedge Loss
Reclassified from
Accumulated
Other
Comprehensive
Income (Loss)
—
(35)
(33)
Interest expense
$
Interest expense
Interest expense
(15)
(15)
(14)
Income Statement Relationship of Fair Value and Cash Flow Hedging
A summary of the relationship between the effects of fair value and cash flow hedges on the total amount of income and expense presented in our
consolidated statements of income for the years ended December 31, 2020, 2019 and 2018 is as follows:
Classification and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging
Relationships
2019
2018
2020
Total amount of income or expense in the income statement
in which the effects of fair value or cash flow hedges are
recorded
Gain (loss) on fair value hedging relationships:
Interest rate swaps:
Hedged items
Derivatives designated as hedging instruments
Loss on cash flow hedging relationships:
Forward starting pay fixed swaps:
Amount of loss reclassified from accumulated other
comprehensive loss into net income
Net Realized
Gains (Losses) on
Financial
Instruments
Interest
Expense
Net Realized
Gains (Losses) on
Financial
Instruments
Interest
Expense
Net Realized
Gains (Losses) on
Financial
Instruments
Interest
Expense
$
182 $
(784) $
67 $
(746) $
(206) $
(753)
—
—
(15)
15
—
—
2
(2)
—
—
—
—
—
(15)
—
(15)
—
(14)
-101-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Non-Hedging Derivatives
A summary of the effect of non-hedging derivatives on our consolidated statements of income for the years ended December 31, 2020, 2019 and 2018
is as follows:
Year ended December 31, 2020
Type of Non-hedging Derivatives
Interest rate swaps
Options
Futures
Total
Year ended December 31, 2019
Interest rate swaps
Options
Futures
Total
Year ended December 31, 2018
Interest rate swaps
Options
Futures
Total
7. Fair Value
Income Statement Location of
Gain (Loss) Recognized
Derivative
Gain (Loss)
Recognized
Net realized gains (losses) on financial instruments
Net realized gains (losses) on financial instruments
Net realized gains (losses) on financial instruments
Net realized gains (losses) on financial instruments
Net realized gains (losses) on financial instruments
Net realized gains (losses) on financial instruments
Net realized gains (losses) on financial instruments
Net realized gains (losses) on financial instruments
Net realized gains (losses) on financial instruments
$
$
$
$
$
$
(1)
(5)
4
(2)
1
(8)
(10)
(17)
14
1
8
23
Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the
inputs used to measure their fair value. Level inputs, as defined by FASB guidance for fair value measurements and disclosures, are as follows:
Level Input:
Level I
Level II
Level III
Input Definition:
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data
at the measurement date.
Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at
the measurement date.
The following methods, assumptions and inputs were used to determine the fair value of each class of the following assets and liabilities recorded at
fair value in the consolidated balance sheets:
Cash equivalents: Cash equivalents primarily consist of highly rated money market funds with maturities of three months or less, and are purchased
daily at par value with specified yield rates. Due to the high ratings and short-term nature of the funds, we designate all cash equivalents as Level I.
Fixed maturity securities, available-for-sale: Fair values of available-for-sale fixed maturity securities are based on quoted market prices, where
available. These fair values are obtained primarily from third-party pricing services, which generally use Level I or Level II inputs for the determination of
fair value to facilitate fair value measurements and disclosures. Level II securities primarily include corporate securities, securities from states,
municipalities and political subdivisions, mortgage-backed securities, United States Government securities, foreign government securities, and certain other
asset-backed securities. For securities not actively traded, the pricing services may use quoted market prices of
-102-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. We have
controls in place to review the pricing services’ qualifications and procedures used to determine fair values. In addition, we periodically review the pricing
services’ pricing methodologies, data sources and pricing inputs to ensure the fair values obtained are reasonable. Inputs that are often used in the valuation
methodologies include, but are not limited to, broker quotes, benchmark yields, credit spreads, default rates and prepayment speeds. We also have certain
fixed maturity securities, primarily corporate debt securities, that are designated Level III securities. For these securities, the valuation methodologies may
incorporate broker quotes or discounted cash flow analyses using assumptions for inputs such as expected cash flows, benchmark yields, credit spreads,
default rates and prepayment speeds that are not observable in the markets.
Equity securities: Fair values of equity securities are generally designated as Level I and are based on quoted market prices. For certain equity
securities, quoted market prices for the identical security are not always available, and the fair value is estimated by reference to similar securities for which
quoted prices are available. These securities are designated Level II. We also have certain equity securities, including private equity securities, for which
the fair value is estimated based on each security’s current condition and future cash flow projections. Such securities are designated Level III. The fair
values of these private equity securities are generally based on either broker quotes or discounted cash flow projections using assumptions for inputs such
as the weighted-average cost of capital, long-term revenue growth rates and earnings before interest, taxes, depreciation and amortization, and/or revenue
multiples that are not observable in the markets.
Securities lending collateral: Fair values of securities lending collateral are based on quoted market prices, where available. These fair values are
obtained primarily from third-party pricing services, which generally use Level I or Level II inputs for the determination of fair value, to facilitate fair value
measurements and disclosures.
Derivatives: Fair values are based on the quoted market prices by the financial institution that is the counterparty to the derivative transaction. We
independently verify prices provided by the counterparties using valuation models that incorporate market observable inputs for similar derivative
transactions. Derivatives are designated as Level II securities. Derivatives presented within the fair value hierarchy table below are presented on a gross
basis and not on a master netting basis by counterparty.
In addition, the following methods and assumptions were used to determine the fair value of each class of pension benefit plan assets and other benefit
plan assets not defined above (see Note 11, “Retirement Benefits,” for fair values of benefit plan assets):
Mutual funds: Fair values are based on quoted market prices, which represent the net asset value (“NAV”) of the shares held.
Partnership investments: Fair values are estimated based on the plan’s proportionate share of the undistributed partners’ capital as reported in audited
financial statements of the partnership. In accordance with FASB guidance, certain investments that are measured at fair value using the NAV per share as a
practical expedient have been classified in the fair value hierarchy. The fair value amounts presented are intended to permit reconciliation of the fair value
hierarchy to the total investments of the master trust.
Commingled fund: Fair value is based on NAV per fund share, primarily derived from the quoted prices in active markets on the underlying equity
securities.
Contract with insurance company: Fair value of the contract in the insurance company general investment account is determined by the insurance
company based on the fair value of the underlying investments of the account.
Investment in DOL 103-12 trust: Fair value is based on the plan’s proportionate share of the fair value of investments held by the trust, qualified as a
Department of Labor Regulation 2520.103-12 entity (“DOL 103-12 trust”) as reported in the audited financial statements of the trust, where the trustee
applies fair value measurements to the underlying investments of the trust.
Life insurance contracts: Fair value is based on the cash surrender value of the policies as reported by the insurer.
-103-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
A summary of fair value measurements by level for assets and liabilities measured at fair value on a recurring basis at December 31, 2020 and 2019 is
as follows:
December 31, 2020
Assets:
Cash equivalents
Fixed maturity securities, available-for-sale:
United States Government securities
Government sponsored securities
Foreign government securities
States, municipalities and political subdivisions, tax-exempt
Corporate securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Other securities
Total fixed maturity securities, available-for-sale
Equity securities:
Exchange traded funds
Fixed maturity mutual funds
Common equity securities
Private equity securities
Total equity securities
Securities lending collateral
Derivatives
Total assets
Liabilities:
Derivatives
Total liabilities
December 31, 2019
Assets:
Cash equivalents
Fixed maturity securities, available-for-sale:
United States Government securities
Government sponsored securities
States, municipalities and political subdivisions, tax-exempt
Corporate securities
Residential mortgage-backed securities
Commercial mortgage-backed securities
Other securities
Total fixed maturity securities, available-for-sale
Equity securities:
Exchange traded funds
Fixed maturity mutual funds
Common equity securities
Private equity securities
Total equity securities
Securities lending collateral
Derivatives
Total assets
Liabilities:
Derivatives
Total liabilities
-104-
Level I
Level II
Level III
Total
$
3,163 $
— $
— $
3,163
—
—
—
—
—
—
—
—
—
774
69
305
5,579
10,567
4,343
72
1,954
23,663
1,154
—
171
—
1,325
—
—
4,488 $
—
144
30
—
174
1,199
43
25,079 $
— $
— $
(5) $
(5) $
—
—
—
—
325
2
—
5
332
—
—
—
60
60
—
—
392 $
— $
— $
774
69
305
5,579
10,892
4,345
72
1,959
23,995
1,154
144
201
60
1,559
1,199
43
29,959
(5)
(5)
2,015 $
— $
— $
2,015
—
—
—
—
—
—
—
—
525
141
4,851
8,882
3,730
86
1,654
19,869
44
—
206
—
250
—
—
2,265 $
—
643
31
—
674
353
23
20,919 $
— $
— $
(1) $
(1) $
—
—
—
303
2
—
7
312
—
—
—
85
85
—
—
397 $
— $
— $
525
141
4,851
9,185
3,732
86
1,661
20,181
44
643
237
85
1,009
353
23
23,581
(1)
(1)
$
$
$
$
$
$
$
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level III inputs for the years ended
December 31, 2020, 2019 and 2018 is as follows:
Year ended December 31, 2020
Beginning balance at January 1, 2020
Total gains (losses):
Recognized in net income
Recognized in accumulated other comprehensive income
Purchases
Sales
Settlements
Transfers into Level III
Transfers out of Level III
Ending balance at December 31, 2020
Change in unrealized gains or losses included in net income related to assets still held
at December 31, 2020
Year ended December 31, 2019
Beginning balance at January 1, 2019
Total gains (losses):
Recognized in net income
Recognized in accumulated other comprehensive loss
Purchases
Sales
Settlements
Transfers into Level III
Transfers out of Level III
Ending balance at December 31, 2019
Change in unrealized gains or losses included in net income related to assets still held
at December 31, 2019
Year ended December 31, 2018
Beginning balance at January 1, 2018
Total gains (losses):
Recognized in net income
Recognized in accumulated other comprehensive loss
Purchases
Sales
Settlements
Transfers into Level III
Transfers out of Level III
Ending balance at December 31, 2018
Change in unrealized gains or losses included in net income related to assets still held
at December 31, 2018
Corporate
Securities
Residential
Mortgage-
backed
Securities
Other
Securities
Equity
Securities
Total
$
303
$
2
$
7
$
85
$
(3)
(5)
85
(19)
(44)
10
(2)
325
—
$
$
—
—
—
—
—
—
—
2
—
$
$
—
—
—
—
(2)
—
—
5
—
$
$
(19)
—
16
(22)
—
—
—
60
(19)
$
$
287
$
6
$
17
$
313
$
(7)
3
122
(22)
(71)
—
(9)
303
—
$
$
—
—
—
—
(2)
—
(2)
2
—
$
$
—
—
2
—
(6)
3
(9)
7
—
$
$
(6)
—
65
(79)
—
2
(210)
85
6
$
$
229
$
5
$
16
$
287
$
1
(5)
120
(33)
(88)
65
(2)
287
—
$
$
—
—
2
—
(1)
—
—
6
—
$
$
—
—
18
(1)
(10)
9
(15)
17
—
$
$
(229)
—
290
(35)
—
—
—
313
30
$
$
$
$
$
$
$
$
$
$
397
(22)
(5)
101
(41)
(46)
10
(2)
392
(19)
623
(13)
3
189
(101)
(79)
5
(230)
397
6
537
(228)
(5)
430
(69)
(99)
74
(17)
623
30
There were no individually material transfers into or out of Level III during the years ended December 31, 2020, 2019 or 2018.
Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing
basis but are subject to fair value adjustments only in certain circumstances. As disclosed in Note 3, “Business Acquisitions,” we completed our
acquisition of Beacon on February 28, 2020. The preliminary values of net assets acquired in our acquisition of Beacon and resulting goodwill and other
intangible assets were recorded at fair
-105-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
value primarily using Level III inputs. The majority of Beacon’s assets acquired and liabilities assumed were recorded at their carrying values as of
the respective date of acquisition, as their carrying values approximated their fair values due to their short-term nature. The preliminary fair values of
goodwill and other intangible assets acquired in our acquisition of Beacon were internally estimated based on the income approach. The income approach
estimates fair value based on the present value of the cash flows that the assets could be expected to generate in the future. We developed internal estimates
for the expected cash flows and discount rate in the present value calculation. Other than the assets acquired and liabilities assumed in our acquisition of
Beacon described above, there were no material assets or liabilities measured at fair value on a nonrecurring basis during the years ended December 31,
2020 or 2019.
Our valuation policy is determined by members of our treasury and accounting departments. Whenever possible, our policy is to obtain quoted market
prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair
values are estimated using discounted cash flow analyses, broker quotes, unobservable inputs or other valuation techniques. These techniques are
significantly affected by our assumptions, including discount rates and estimates of future cash flows. The use of assumptions for unobservable inputs for
the determination of fair value involves a level of judgment and uncertainty. Changes in assumptions that reasonably could have been different at the
reporting date may result in a higher or lower determination of fair value. Changes in fair value measurements, if significant, may affect performance of
cash flows.
Potential taxes and other transaction costs are not considered in estimating fair values. Our valuation policy is generally to obtain quoted prices for
each security from third-party pricing services, which are derived through recently reported trades for identical or similar securities making adjustments
through the reporting date based upon available market observable information. As we are responsible for the determination of fair value, we perform
analysis on the prices received from the pricing services to determine whether the prices are reasonable estimates of fair value. This analysis is performed
by our internal treasury personnel who are familiar with our investment portfolios, the pricing services engaged and the valuation techniques and inputs
used. Our analysis includes procedures such as a review of month-to-month price fluctuations and price comparisons to secondary pricing services. There
were no adjustments to quoted market prices obtained from the pricing services during the years ended December 31, 2020, 2019 or 2018.
In addition to the preceding disclosures on assets recorded at fair value in the consolidated balance sheets, FASB guidance also requires the disclosure
of fair values for certain other financial instruments for which it is practicable to estimate fair value, whether or not such values are recognized in the
consolidated balance sheets.
Non-financial instruments such as real estate, property and equipment, other current assets, deferred income taxes, intangible assets and certain
financial instruments, such as policy liabilities, are excluded from the fair value disclosures. Therefore, the fair value amounts cannot be aggregated to
determine our underlying economic value.
The carrying amounts reported in the consolidated balance sheets for cash, accrued investment income, premium receivables, self-funded receivables,
other receivables, income taxes receivable, unearned income, accounts payable and accrued expenses, security trades pending payable, securities lending
payable and certain other current liabilities approximate fair value because of the short-term nature of these items. These assets and liabilities are not listed
in the table below.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument that is recorded at its carrying value
on the consolidated balance sheets:
Other invested assets: Other invested asset primarily include our investments in limited partnerships, joint ventures and other non-controlled
corporations, as well as the cash surrender value of corporate-owned life insurance policies. Investments in limited partnerships, joint ventures and other
non-controlled corporations are carried at our share in the entities’ undistributed earnings, which approximates fair value. The carrying value of corporate-
owned life insurance policies represents the cash surrender value as reported by the respective insurer, which approximates fair value.
Short-term borrowings: The fair value of our short-term borrowings is based on quoted market prices for the same or similar debt, or if no quoted
market prices were available, on the current market interest rates estimated to be available to us for debt of similar terms and remaining maturities.
Long-term debt—commercial paper: The carrying amount for commercial paper approximates fair value, as the underlying instruments have variable
interest rates at market value.
-106-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Long-term debt—senior unsecured notes and surplus notes: The fair values of our notes are based on quoted market prices in active markets for the
same or similar debt, or, if no quoted market prices are available, on the current market observable rates estimated to be available to us for debt of similar
terms and remaining maturities.
Long-term debt—convertible debentures: The fair value of our convertible debentures is based on the quoted market price in the active private market
in which the convertible debentures trade.
A summary of the estimated fair values by level of each class of financial instrument that is recorded at its carrying value on our consolidated balance
sheets at December 31, 2020 and 2019 is as follows:
December 31, 2020
Assets:
Other invested assets
Liabilities:
Debt:
Commercial paper
Notes
Convertible debentures
December 31, 2019
Assets:
Other invested assets
Liabilities:
Debt:
Short-term borrowings
Commercial paper
Notes
Convertible debentures
Carrying
Value
Level I
Level II
Level III
Total
Estimated Fair Value
$
4,285 $
— $
— $
4,285 $
4,285
250
19,677
108
—
—
—
250
23,307
712
—
—
—
250
23,307
712
$
4,258 $
— $
— $
4,258 $
4,258
700
400
18,840
145
—
—
—
—
700
400
20,470
904
—
—
—
—
700
400
20,470
904
-107-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
8. Income Taxes
The components of deferred income taxes at December 31, 2020 and 2019 are as follows:
Deferred income tax assets:
Accrued expenses
Bad debt reserves
Insurance reserves
Lease liabilities
Retirement liabilities
Deferred compensation
Federal and state operating loss carryforwards
Other
Subtotal
Less: valuation allowance
Total deferred income tax assets
Deferred income tax liabilities:
Federal and state intangible assets
Capitalized software
Depreciation and amortization
Investment basis
Retirement assets
Lease right-of-use asset
Prepaid expenses
Total deferred income tax liabilities
Net deferred income tax liabilities
2020
2019
$
$
588 $
143
187
204
205
31
274
113
1,745
(84)
1,661
2,073
670
37
407
260
131
102
3,680
2,019 $
331
89
139
180
216
28
124
71
1,178
(45)
1,133
1,999
554
62
230
249
164
102
3,360
2,227
In the table above, certain amounts for the year ended December 31, 2019 have been reclassified from a net to gross presentation to more fully reflect
the federal and state tax effects by type of temporary difference. This reclassification does not impact amounts presented in the financial statements.
As of December 31, 2020, the Company’s undistributed earnings from non-U.S. subsidiaries are intended to be indefinitely reinvested in non-U.S.
operations, and therefore no U.S. deferred taxes have been recorded.
Significant components of the provision for income taxes for the years ended December 31, 2020, 2019 and 2018 consist of the following:
Current tax expense:
Federal
State and local
Total current tax expense
Deferred tax (benefit) expense
Total income tax expense
2020
2019
2018
$
$
1,731 $
461
2,192
(526)
1,666 $
1,019 $
84
1,103
75
1,178 $
1,128
78
1,206
112
1,318
-108-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
State and local current tax expense is reported gross of federal benefit, and includes amounts related to audit settlements, uncertain tax positions, state
tax credits and true up of prior years’ tax. Such items are included in multiple lines in the following rate reconciliation table on a net of federal tax basis.
A reconciliation of income tax expense recorded in the consolidated statements of income and amounts computed at the statutory federal income tax
rate for the years ended December 31, 2020, 2019 and 2018 is as follows:
2020
2019
2018
Amount
Percent
Amount
Percent
Amount
Percent
Amount at statutory rate
State and local income taxes net of federal tax
expense/benefit
Tax exempt interest and dividends received deduction
HIP fee
Basis adjustments from recent acquisitions
Tax Cuts and Jobs Act
Other, net
Total income tax expense
$
1,310
21.0 % $
1,257
21.0 % $
1,064
235
(22)
330
(110)
—
(77)
1,666
$
3.8
(0.4)
5.3
(1.8)
—
(1.2)
26.7 % $
138
(24)
—
—
—
(193)
1,178
2.3
(0.4)
—
—
—
(3.2)
19.7 % $
63
(27)
324
(28)
(28)
(50)
1,318
21.0 %
1.2
(0.5)
6.4
(0.6)
(0.6)
(0.9)
26.0 %
During the year ended December 31, 2020, we recognized income tax expense of $1,666, or $6.55 per diluted share, which included income tax
expense of $330, or $1.30 per diluted share as a result of the non-tax deductibility of the HIP Fee payment, which was reinstated for 2020.
During the year ended December 31, 2019, we recognized income tax expense of $1,178, or $4.53 per diluted share. The HIP Fee payment was
suspended for 2019.
During the year ended December 31, 2018, we recognized income tax expense of $324, or $1.23 per diluted share, as a result of the non-tax
deductibility of the HIP Fee payment.
On December 22, 2017, the federal government enacted the Tax Cuts and Jobs Act, which contains significant changes to corporate taxation,
including, but not limited to, reducing the U.S. federal corporate income tax rate from 35% to 21% and modifying or limiting many business deductions. At
December 31, 2018, we completed our accounting for the tax effects of enactment of the Tax Cuts and Jobs Act and there was no material change to our
2017 provisional amount. In addition we reclassified, for our interim and annual reporting periods beginning on January 1, 2018, $91 of stranded tax effects
from accumulated other comprehensive loss to retained earnings on our consolidated balance sheets.
The change in the carrying amount of gross unrecognized tax benefits from uncertain tax positions for the years ended December 31, 2020 and 2019 is
as follows:
Balance at January 1
Additions based on:
Tax positions related to current year
Tax positions related to prior years
Reductions based on:
Tax positions related to prior years
Settlements with taxing authorities
Balance at December 31
2020
2019
$
$
146 $
76
40
(13)
—
249 $
241
1
—
(63)
(33)
146
The table above excludes interest, net of related tax benefits, which is treated as income tax expense (benefit) under our accounting policy. The interest
is included in the amounts described in the following paragraph.
-109-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
The amount of unrecognized tax benefits that would impact our effective tax rate in future periods, if recognized, was $227 and $140 at December 31,
2020 and 2019, respectively. Also included in the table above, at December 31, 2020, is $2 that would be recognized as an adjustment to additional paid-in
capital, which would not affect our effective tax rate. In addition to the contingent liabilities included in the table above, during 2017 we filed protective
state income tax refund claims of approximately $310. There were no equivalent protective state income tax refund claims filed in 2020, 2019, or 2018.
For the year ended December 31, 2020, we recognized a net interest expense of $7. For the years ended December 31, 2019 and 2018, we recognized a
net interest (benefit) expense of $(11) and $15, respectively. We had accrued approximately $33 and $26 for the payment of interest at December 31, 2020
and 2019, respectively.
As of December 31, 2020, as further described below, certain tax years remain open to examination by the Internal Revenue Service (“IRS”) and
various state and local authorities. As a result of these examinations and discussions with taxing agencies, we have recorded amounts for uncertain tax
positions. It is anticipated that the amount of unrecognized tax benefits will change in the next twelve months due to possible settlements of audits and
changes in temporary items. However, the ultimate resolution of these items is dependent on the completion of negotiations with various taxing authorities.
While it is difficult to determine when other tax settlements will actually occur, it is reasonably possible that one could occur in the next twelve months and
our unrecognized tax benefits could change within a range of approximately ($15) to ($147).
We are a member of the IRS Compliance Assurance Process (“CAP”). The objective of CAP is to reduce taxpayer burden and uncertainty while
assuring the IRS of the accuracy of tax returns prior to filing, thereby reducing or eliminating the need for post-filing examinations.
As of December 31, 2020, the IRS examination of our 2020 and 2019 tax years continues to be in process.
In certain states, we pay premium taxes in lieu of state income taxes. Premium taxes are reported in selling, general and administrative expense.
At December 31, 2020, we had federal net operating loss carryforwards of $40 that will expire beginning 2033 through 2037 and $7 that have an
indefinite carryforward period; state net operating loss carryforwards expire beginning 2022 through 2040, with some having an indefinite carryforward
period.
During 2020, 2019 and 2018, federal income taxes paid totaled $1,790, $1,403 and $738, respectively.
9. Property and Equipment
A summary of property and equipment at December 31, 2020 and 2019 is as follows:
Computer software, purchased and internally developed
Computer equipment, furniture and other equipment
Leasehold improvements
Building and improvements
Land and improvements
Property and equipment, gross
Accumulated depreciation and amortization
Property and equipment, net
2020
2019
5,247 $
1,218
671
174
17
7,327
(3,844)
3,483 $
4,314
1,264
715
169
17
6,479
(3,346)
3,133
$
$
Depreciation expense for 2020, 2019 and 2018 was $176, $147 and $124, respectively. Amortization expense on computer software and leasehold
improvements for 2020, 2019 and 2018 was $462, $528 and $528, respectively, which includes amortization expense on computer software, both
purchased and internally developed, for 2020, 2019 and 2018 of $412, $450 and $465, respectively. Capitalized costs related to the internal development of
software of $4,783 and $3,939 at December 31, 2020 and 2019, respectively, are reported with computer software.
-110-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Our activities as disclosed in Note 4, “Business Optimization Initiatives”, include impairment of property and equipment. We recorded an impairment
charge of $198 for property and equipment in 2020 which is in selling, general and administrative expenses.
10. Goodwill and Other Intangible Assets
A summary of the change in the carrying amount of goodwill for our segments (see Note 20, “Segment Information”) for 2020 and 2019 is as follows:
Balance as of January 1, 2019
Adjustments
Balance as of December 31, 2019
Acquisitions and adjustments
Balance as of December 31, 2020
Accumulated impairment as of December 31, 2020
Commercial
and Specialty
Business
Government
Business
$
$
$
11,551 $
—
11,551
42
11,593 $
(41) $
8,953 $
(674)
8,279
52
8,331 $
— $
IngenioRx
Other
Total
— $
—
—
48
48 $
— $
— $
670
670
1,049
1,719 $
— $
20,504
(4)
20,500
1,191
21,691
(41)
Goodwill adjustments in 2019 include certain reclassifications made for changes in segment reporting. For additional information, see Note 20,
“Segment Information”.
As required by FASB guidance, we completed annual impairment tests of existing goodwill and other intangible assets with indefinite lives during
2020, 2019 and 2018. We perform these annual impairment tests during the fourth quarter. FASB guidance also requires interim impairment testing to be
performed when potential impairment indicators exist. These tests involve the use of estimates related to the fair value of goodwill and intangible assets
with indefinite lives and require a significant degree of management judgment and the use of subjective assumptions. Qualitative testing procedures include
assessing our financial performance, macroeconomic conditions, industry and market considerations, various asset specific factors and entity specific
events. For quantitative testing, the fair values are estimated using the projected income and market valuation approaches, incorporating Level III internal
estimates for inputs, including, but not limited to, revenue projections, income projections, cash flows and discount rates. We did not incur any impairment
losses in 2020, 2019 or 2018, as the estimated fair values of our reporting units were substantially in excess of their carrying values.
The components of other intangible assets as of December 31, 2020 and 2019 are as follows:
Gross
Carrying
Amount
2020
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
2019
Accumulated
Amortization
Net
Carrying
Amount
Intangible assets with finite lives:
Customer relationships
Provider and hospital relationships
Other
Total
Intangible assets with indefinite lives:
Blue Cross and Blue Shield and other trademarks
State Medicaid licenses
Total
Other intangible assets
$
$
5,180 $
323
444
5,947
6,299
1,216
7,515
13,462 $
(3,766) $
(114)
(177)
(4,057)
—
—
—
(4,057) $
1,414 $
209
267
1,890
6,299
1,216
7,515
9,405 $
4,500 $
228
352
5,080
6,299
991
7,290
12,370 $
(3,469) $
(98)
(129)
(3,696)
—
—
—
(3,696) $
1,031
130
223
1,384
6,299
991
7,290
8,674
-111-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
As of December 31, 2020, the estimated amortization expense for each of the five succeeding years is as follows: 2021, $324; 2022, $271; 2023, $233;
2024, $196; and 2025, $159.
11. Retirement Benefits
We sponsor various non-contributory employee defined benefit plans through certain subsidiaries.
The Anthem Cash Balance Plan A and the Anthem Cash Balance Plan B are cash balance pension plans covering certain eligible employees of the
affiliated companies that participate in these plans. Effective January 1, 2006, benefits were curtailed, with the result that most participants stopped
accruing benefits but continue to earn interest on benefits accrued prior to the curtailment. Certain participants subject to collective bargaining and certain
other participants who met grandfathering rules continued to accrue benefits. Participants who did not receive credits and/or benefit accruals were included
in the Anthem Cash Balance Plan A, while employees who were still receiving credits and/or benefits participated in the Anthem Cash Balance Plan B.
Effective January 1, 2019, benefits under the Anthem Cash Balance Plan B were curtailed. All grandfathered participants no longer have pay credits added
to their accounts but continue to earn interest on existing account balances. Participants continue to earn years of pension service for vesting purposes.
Several pension plans acquired through various corporate mergers and acquisitions were merged into these plans in prior years.
The Employees’ Retirement Plan of Blue Cross of California (the “BCC Plan”) is a defined benefit pension plan that covers eligible employees of Blue
Cross of California who are covered by a collective bargaining agreement. Effective January 1, 2007, benefits were curtailed under the BCC Plan with the
result that no Blue Cross of California employees hired or rehired after December 31, 2006 are eligible to participate in the BCC Plan.
All of the plans’ assets consist primarily of equity securities, fixed maturity securities, investment funds and cash. The funding policies for all plans are
to contribute amounts at least sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), as further amended by the Pension Protection Act of 2006, and in accordance with income tax regulations, plus such additional
amounts as are necessary to provide assets sufficient to meet the benefits to be paid to plan participants.
The following tables disclose consolidated “pension benefits,” which include the defined benefit pension plans described above, and consolidated
“other benefits,” which include postretirement health and welfare benefits including medical, vision and dental benefits offered to certain employees.
Calculations were computed using assumptions at the December 31 measurement dates.
The reconciliation of the benefit obligation is as follows:
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participant contributions
Actuarial loss (gain)
Settlements
Benefits paid
Benefit obligation at end of year
Pension Benefits
Other Benefits
2020
2019
2020
2019
$
$
1,880 $
—
47
—
219
(80)
(57)
2,009 $
1,743 $
—
62
—
200
(35)
(90)
1,880 $
423 $
1
10
18
(15)
—
(38)
399 $
431
1
15
17
5
—
(46)
423
-112-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
The changes in the fair value of plan assets are as follows:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participant contributions
Settlements
Benefits paid
Fair value of plan assets at end of year
The net amount included in the consolidated balance sheets is as follows:
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net amount at December 31
Pension Benefits
Other Benefits
2020
2019
2020
2019
2,026 $
290
7
—
(80)
(57)
2,186 $
1,818 $
329
4
—
(35)
(90)
2,026 $
367 $
33
11
18
—
(38)
391 $
Pension Benefits
Other Benefits
2020
2019
2020
2019
248 $
(6)
(65)
177 $
212 $
(6)
(60)
146 $
— $
—
(8)
(8) $
336
55
5
17
—
(46)
367
—
—
(56)
(56)
$
$
$
$
The net amounts included in accumulated other comprehensive income (loss) that have not been recognized as components of net periodic benefit
costs are as follows:
Net actuarial loss
Prior service cost (credit)
Net amount before tax at December 31
Pension Benefits
Other Benefits
2020
2019
2020
2019
$
$
749 $
—
749 $
734 $
1
735 $
3 $
(12)
(9) $
25
(19)
6
The accumulated benefit obligation for the defined benefit pension plans was $2,007 and $1,878 at December 31, 2020 and 2019, respectively.
As of December 31, 2020, certain pension plans had accumulated benefit obligations in excess of plan assets. Such plans had accumulated benefit
obligation and fair value of plan assets of $111 and $42, respectively. For those same plans, the projected benefit obligation was also in excess of plan
assets. Such plans had projected benefit obligation and fair value of plan assets of $113 and $42, respectively.
The weighted-average assumptions used in calculating the benefit obligations for all plans are as follows:
Discount rate
Rate of compensation increase
Expected rate of return on plan assets
Interest crediting rate
Pension Benefits
Other Benefits
2020
2019
2020
2019
2.24 %
3.00 %
6.72 %
3.82 %
3.11 %
3.00 %
7.33 %
3.82 %
1.99 %
3.00 %
6.60 %
0.87 %
2.93 %
3.00 %
7.00 %
1.81 %
-113-
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
The components of net periodic benefit credit included in the consolidated statements of income are as follows:
Pension Benefits
Service cost
Interest cost
Expected return on assets
Recognized actuarial loss
Settlement loss
Net periodic benefit credit
Other Benefits
Service cost
Interest cost
Expected return on assets
Recognized actuarial loss
Amortization of prior service credit
Net periodic benefit credit
2020
2019
2018
$
$
$
$
— $
47
(138)
24
29
(38) $
1 $
10
(25)
—
(7)
(21) $
— $
62
(138)
17
9
(50) $
1 $
15
(22)
2
(12)
(16) $
8
55
(147)
22
5
(57)
1
15
(24)
3
(12)
(17)
During the years ended December 31, 2020, 2019 and 2018, we incurred total settlement losses of $29, $9 and $5, respectively, as lump-sum payments
exceeded the service cost and interest cost components of net periodic benefit cost for certain of our plans.
The weighted-average assumptions used in calculating the net periodic benefit cost for all plans are as follows:
Pension Benefits
Discount rate
Rate of compensation increase
Expected rate of return on plan assets
Interest crediting rate
Other Benefits
Discount rate
Rate of compensation increase
Expected rate of return on plan assets
Interest crediting rate
2020
2019
2018
3.11 %
3.00 %
7.33 %
3.82 %
2.93 %
3.00 %
7.00 %
1.81 %
4.15 %
3.00 %
7.44 %
3.83 %
4.04 %
3.00 %
7.00 %
3.12 %
3.44 %
3.00 %
7.83 %
3.82 %
3.42 %
3.00 %
7.00 %
2.35 %
The assumed healthcare cost trend rates used to measure the expected cost of pre-Medicare (those who are not currently eligible for Medicare benefits)
other benefits at our December 31, 2020 measurement date was 7.00% for 2021 with a gradual decline to 4.50% by the year 2033. The assumed healthcare
cost trend rates used to measure the expected cost of post-Medicare (those who are currently eligible for Medicare benefits) other benefits at our
December 31, 2020 measurement date was 5.50% for 2021 with a gradual decline to 4.50% by the year 2033. These estimated trend rates are subject to
change in the future.
Plan assets include a diversified mix of equity securities, investment grade fixed maturity securities and other types of investments across a range of
sectors and levels of capitalization to maximize long-term return for a prudent level of risk. The weighted-average target allocation for pension benefit plan
assets is 44% equity securities, 48% fixed maturity securities, and 8% to all other types of investments. Equity securities primarily include a mix of
domestic securities, foreign securities and
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
mutual funds invested in equities. Fixed maturity securities primarily include treasury securities, corporate bonds and asset-backed investments issued by
corporations and the U.S. government. Other types of investments primarily include insurance contracts designed specifically for employee benefit plans
and a commingled fund comprised primarily of equity securities. As of December 31, 2020, there were no significant concentrations of investments in the
pension benefit assets or other benefit assets. No plan assets were invested in Anthem common stock.
The partnerships hold various types of underlying assets such as real estate and investments in oil and gas companies. Generally, the partnership
interests are not redeemable and are transferable only with the consent of the general partner. Unfunded commitments related to all partnership interests
totaled approximately $3 and $29 at December 31, 2020 and 2019, respectively.
Pension benefit assets and other benefit assets recorded at fair value are categorized based upon the level of judgment associated with the inputs used
to measure their fair value.
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
The fair values of our pension benefit assets and other benefit assets by asset category and level inputs at December 31, 2020, excluding cash,
investment income receivable and amounts due to/from brokers, resulting in a net asset of $64, are as follows (see Note 7, “Fair Value,” for additional
information regarding the definition of level inputs):
Level I
Level II
Level III
Total
December 31, 2020
Pension Benefit Assets:
Equity securities:
U.S. securities
Foreign securities
Mutual funds
Fixed maturity securities:
Government securities
Corporate securities
Asset-backed securities
Other types of investments:
Commingled fund
Insurance company contracts
Total pension benefit assets at fair value
Partnership investments
Total pension benefit assets
Other Benefit Assets:
Equity securities:
U.S. securities
Foreign securities
Mutual funds
Fixed maturity securities:
Government securities
Corporate securities
Asset-backed securities
Other types of investments:
Commingled fund
Life insurance contracts
Investment in DOL 103-12 trust
Total other benefit assets
$
$
$
$
710 $
238
42
—
—
—
—
—
990 $
9 $
3
23
—
—
—
—
—
—
35 $
— $
—
—
237
394
137
112
—
880 $
— $
—
—
2
4
3
2
—
11
22 $
— $
—
—
—
—
—
—
189
189
$
— $
—
—
—
—
—
—
323
—
323 $
710
238
42
237
394
137
112
189
2,059
74
2,133
9
3
23
2
4
3
2
323
11
380
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
The fair values of our pension benefit assets and other benefit assets by asset category and level inputs at December 31, 2019, excluding cash,
investment income receivable and amounts due to/from brokers, resulting in a net asset of $64, are as follows:
Level I
Level II
Level III
Total
December 31, 2019
Pension Benefit Assets:
Equity securities:
U.S. securities
Foreign securities
Mutual funds
Fixed maturity securities:
Government securities
Corporate securities
Asset-backed securities
Other types of investments:
Insurance company contracts
Commingled fund
Total pension benefit assets at fair value
Partnership investments
Total pension benefit assets
Other Benefit Assets:
Equity securities:
U.S. securities
Foreign securities
Mutual funds
Fixed maturity securities:
Government securities
Corporate securities
Asset-backed securities
Other types of investments:
Life insurance contracts
Investment in DOL 103-12 trust
Commingled fund
Total other benefit assets at fair value
$
$
$
$
626 $
197
38
—
—
—
—
—
861 $
8 $
2
25
—
—
—
—
—
—
35 $
— $
—
—
252
339
163
—
136
890 $
— $
—
—
2
4
3
—
12
1
22 $
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— $
—
—
—
—
—
175
—
175
626
197
38
252
339
163
175
136
1,926
52
1,978
$
— $
—
—
—
—
—
294
—
—
294 $
8
2
25
2
4
3
294
12
1
351
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
A reconciliation of the beginning and ending balances of plan assets measured at fair value using Level III inputs for the years ended December 31,
2020, 2019 and 2018 is as follows:
Year ended December 31, 2020
Beginning balance at January 1, 2020
Actual return on plan assets relating to assets still held at the reporting date
Purchases
Sales
Ending balance at December 31, 2020
Year ended December 31, 2019
Beginning balance at January 1, 2019
Actual return on plan assets relating to assets still held at the reporting date
Purchases
Sales
Ending balance at December 31, 2019
Year ended December 31, 2018
Beginning balance at January 1, 2018
Actual return on plan assets relating to assets still held at the reporting date
Purchases
Sales
Ending balance at December 31, 2018
Insurance
Company
Contracts
Life
Insurance
Contracts
Total
$
$
$
$
$
$
175 $
7
15
(8)
189 $
166 $
12
6
(9)
175 $
173 $
(7)
8
(8)
166 $
294 $
29
—
—
323 $
249 $
45
—
—
294 $
269 $
(15)
—
(5)
249 $
469
36
15
(8)
512
415
57
6
(9)
469
442
(22)
8
(13)
415
There were no other transfers into or out of Level III during the years ended December 31, 2020, 2019 or 2018.
Our current funding strategy is to fund an amount at least equal to the minimum required funding as determined under ERISA with consideration of
maximum tax deductible amounts. We may elect to make discretionary contributions up to the maximum amount deductible for income tax purposes. For
the years ended December 31, 2020, 2019 and 2018, no material contributions were necessary to meet ERISA required funding levels. However, during
each of the years ended December 31, 2020, 2019 and 2018, we made tax deductible discretionary contributions to the pension benefit plans of $7, $4, and
$4. Employer contributions to other benefit plans represent discretionary contributions and do not include payments to retirees for current benefits.
Our estimated future payments for pension benefits and postretirement benefits, which reflect expected future service, as appropriate, are as follows:
2021
2022
2023
2024
2025
2026 - 2030
$
Pension
Benefits
Other
Benefits
131 $
128
126
121
119
552
35
34
32
31
30
125
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
In addition to the defined benefit plans, we maintain the Anthem 401(k) Plan, which is a qualified defined contribution plan covering substantially all
employees. Voluntary employee contributions are matched by us subject to certain limitations. Contributions made by us totaled $221, $201 and $211
during 2020, 2019 and 2018, respectively. Contributions in 2018 include approximately $58 for a one time contribution made to employees following the
enactment of the Tax Cuts and Jobs Act.
12. Medical Claims Payable
A reconciliation of the beginning and ending balances for medical claims payable, by segment (see Note 20, “Segment Information”), for the year
ended December 31, 2020 is as follows:
Commercial
& Specialty
Business
Government
Business
Other
Total
$
$
3,039
(14)
3,025
—
24,894
(375)
24,519
21,736
2,527
24,263
3,281
13
3,294
$
$
5,608 $
(19)
5,589
141
58,912
(262)
58,650
51,602
5,165
56,767
7,613
33
7,646 $
— $
—
—
198
1,288
—
1,288
1,291
—
1,291
195
—
195 $
8,647
(33)
8,614
339
85,094
(637)
84,457
74,629
7,692
82,321
11,089
46
11,135
Gross medical claims payable, beginning of year
Ceded medical claims payable, beginning of year
Net medical claims payable, beginning of year
Business combinations and purchase adjustments
Net incurred medical claims:
Current year
Prior years redundancies
Total net incurred medical claims
Net payments attributable to:
Current year medical claims
Prior years medical claims
Total net payments
Net medical claims payable, end of year
Ceded medical claims payable, end of year
Gross medical claims payable, end of year
Activity in our Other segment resulted from our acquisition of Beacon.
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
A reconciliation of the beginning and ending balances for medical claims payable, by segment, for the year ended December 31, 2019 is as follows:
Gross medical claims payable, beginning of year
Ceded medical claims payable, beginning of year
Net medical claims payable, beginning of year
Net incurred medical claims:
Current year
Prior years redundancies
Total net incurred medical claims
Net payments attributable to:
Current year medical claims
Prior years medical claims
Total net payments
Net medical claims payable, end of year
Ceded medical claims payable, end of year
Gross medical claims payable, end of year
Commercial
& Specialty
Business
Government
Business
Total
$
$
$
2,586
(10)
2,576
25,942
(190)
25,752
23,026
2,277
25,303
3,025
14
3,039
$
4,680 $
(24)
4,656
52,753
(310)
52,443
47,268
4,242
51,510
5,589
19
5,608 $
7,266
(34)
7,232
78,695
(500)
78,195
70,294
6,519
76,813
8,614
33
8,647
A reconciliation of the beginning and ending balances for medical claims payable, by segment, for the year ended December 31, 2018 is as follows:
Gross medical claims payable, beginning of year
Ceded medical claims payable, beginning of year
Net medical claims payable, beginning of year
Business combinations and purchase adjustments
Net incurred medical claims:
Current year
Prior years redundancies
Total net incurred medical claims
Net payments attributable to:
Current year medical claims
Prior years medical claims
Total net payments
Net medical claims payable, end of year
Ceded medical claims payable, end of year
Gross medical claims payable, end of year
Commercial
& Specialty
Business
Government
Business
Total
$
$
3,383
(78)
3,305
—
24,094
(456)
23,638
21,633
2,734
24,367
2,576
10
2,586
$
$
4,431 $
(27)
4,404
199
45,487
(474)
45,013
41,115
3,845
44,960
4,656
24
4,680 $
7,814
(105)
7,709
199
69,581
(930)
68,651
62,748
6,579
69,327
7,232
34
7,266
Amounts incurred related to prior years vary from previously estimated liabilities as the claims are ultimately settled. Liabilities at any period-end are
continually reviewed and re-estimated as information regarding actual claims payments, or runout, becomes known. This information is compared to the
originally established year end liability. Negative amounts reported for incurred medical claims related to prior years result from claims being settled for
amounts less than originally estimated. The prior year redundancy of $637 shown above for the year ended December 31, 2020 represents an estimate
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
based on paid claim activity from January 1, 2020 to December 31, 2020. Medical claim liabilities are usually described as having a “short tail,” which
means that they are generally paid within twelve months of the member receiving service from the provider. Accordingly, the majority of the $637
redundancy relates to claims incurred in calendar year 2019.
The following table provides a summary of the two key assumptions having the most significant impact on our incurred but not paid liability estimates
for the years ended December 31, 2020, 2019 and 2018, which are the completion and trend factors. These two key assumptions can be influenced by
utilization levels, unit costs, mix of business, benefit plan designs, provider reimbursement levels, processing system conversions and changes, claim
inventory levels, claim processing patterns, claim submission patterns and operational changes resulting from business combinations. The impact from
COVID-19 on healthcare utilization and medical claims submission patterns has increased estimation uncertainty on our incurred but not reported liability
at December 31, 2020. Slowdowns in claims submission patterns and increases in utilization levels for COVID-19 testing and treatment during the fourth
quarter of 2020 are the primary factors that lead to the increased estimation uncertainty.
Assumed trend factors
Assumed completion factors
Total
Favorable Developments
by Changes in Key Assumptions
2019
2018
2020
$
$
(599) $
(38)
(637) $
(325) $
(175)
(500) $
(515)
(415)
(930)
The favorable development recognized in 2020 resulted primarily from trend factors in late 2019 developing more favorably than originally expected
as well as a smaller contribution from completion factor development.
The favorable development recognized in 2019 resulted primarily from trend in late 2018 developing more favorably than originally expected as well
as a smaller but significant contribution from completion factor development.
The favorable development recognized in 2018 resulted from trend and completion factors developing more favorably than originally expected.
The reconciliation of net incurred medical claims to benefit expense included in the consolidated statements of income is as follows:
Net incurred medical claims:
Commercial & Specialty Business
Government Business
Other
Total net incurred medical claims
Quality improvement and other claims expense
Benefit expense
2020
Years Ended December 31
2019
2018
$
$
24,519 $
58,650
1,288
84,457
3,588
88,045 $
25,752 $
52,443
—
78,195
3,591
81,786 $
23,638
45,013
—
68,651
3,244
71,895
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Incurred claims development, net of reinsurance, for the Commercial & Specialty Business for the years ended December 31, 2020, 2019 and 2018 is
as follows:
Commercial & Specialty Business
Claim Years
2018 & Prior
2019
2020
Total
Cumulative Incurred Claims and Allocated Claim Adjustment
Expenses, Net of Reinsurance
2019
(Unaudited)
2018
(Unaudited)
2020
$
26,943 $
26,753 $
25,942
$
26,747
25,572
24,894
77,213
Paid claims development, net of reinsurance, for the Commercial & Specialty Business for the years ended December 31, 2020, 2019 and 2018 is as
follows:
Commercial & Specialty Business
Claim Years
2018 & Prior
2019
2020
Total
Cumulative Paid Claims and Allocated Claim Adjustment
Expenses, Net of Reinsurance
2019
(Unaudited)
2018
(Unaudited)
2020
$
24,367 $
26,643 $
23,026
$
26,721
25,475
21,736
73,932
At December 31, 2020, the total of incurred but not reported liabilities plus expected development on reported claims for the Commercial & Specialty
Business was $26, $97 and $3,158 for the claim years 2018 and prior, 2019 and 2020, respectively.
At December 31, 2020, the cumulative number of reported claims for the Commercial & Specialty Business was 93, 87 and 74 for the claim years
2018 and prior, 2019 and 2020, respectively.
Incurred claims development, net of reinsurance, for the Government Business as of and for the years ended December 31, 2020, 2019 and 2018 is as
follows:
Government Business
2018 & Prior
2019
2020
Total
Claim Years
Cumulative Incurred Claims and Allocated Claim Adjustment
Expenses, Net of Reinsurance
2019
(Unaudited)
2018
(Unaudited)
2020
$
49,616 $
49,306 $
52,753
$
49,278
52,518
59,053
160,849
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Paid claims development, net of reinsurance, for the Government Business as of and for the years ended December 31, 2020, 2019 and 2018 is as
follows:
Government Business
2018 & Prior
2019
2020
Total
Claim Years
Cumulative Paid Claims and Allocated Claim Adjustment
Expenses, Net of Reinsurance
2019
(Unaudited)
2018
(Unaudited)
2020
$
44,959 $
49,201 $
47,269
$
49,231
52,403
51,602
153,236
At December 31, 2020, the total of incurred but not reported liabilities plus expected development on reported claims for the Government Business
was $47, $115 and $7,451 for the claim years 2018 and prior, 2019 and 2020, respectively.
At December 31, 2020, the cumulative number of reported claims for the Government Business was 225, 241 and 236 for the claim years 2018 and
prior, 2019 and 2020, respectively.
Incurred claims development, net of reinsurance, for Other as of and for the years ended December 31, 2020, 2019 and 2018 is as follows:
Other
2018 & Prior
2019
2020
Total
Claim Years
Cumulative Incurred Claims and Allocated Claim Adjustment
Expenses, Net of Reinsurance
2019
(Unaudited)
2018
(Unaudited)
2020
$
— $
— $
—
$
—
—
1,486
1,486
Paid claims development, net of reinsurance, for Other as of and for the years ended December 31, 2020, 2019 and 2018 is as follows:
Other
2018 & Prior
2019
2020
Total
Claim Years
Cumulative Paid Claims and Allocated Claim Adjustment
Expenses, Net of Reinsurance
2019
(Unaudited)
2018
(Unaudited)
2020
$
— $
— $
—
$
—
—
1,291
1,291
At December 31, 2020, the total of incurred but not reported liabilities plus expected development on reported claims for Other was $0, $0 and $195
for the claim years 2018 and prior, 2019 and 2020, respectively.
At December 31, 2020, the cumulative number of reported claims for Other was $0, $0, and $27 for the claim years 2018 and prior, 2019 and 2020,
respectively.
The information about incurred claims development, paid claims development and cumulative number of reported claims for the years ended
December 31, 2018 and 2019 for our Commercial & Specialty Business, Government Business and Other, is unaudited and presented as supplementary
information.
The cumulative number of reported claims for each claim year for our Commercial & Specialty Business, Government Business and Other have been
developed using historical data captured by our claim payment systems. The provided claim
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
amounts are not a precise tool for understanding utilization of medical services. They could be impacted by a variety of factors including changes in
provider billing practices, provider reimbursement arrangements, mix of services, benefit design or processing systems. The cumulative number of reported
claims has been provided to comply with FASB accounting standards and is not used by management in its claims analysis. Our cumulative number of
reported claims may not be comparable to similar measures reported by other health benefits companies.
The reconciliation of the Commercial & Specialty Business, Government Business and Other incurred and paid claims development information for
the three years ended December 31, 2020, reflected in the tables above, to the consolidated ending balance for medical claims payable included in the
consolidated balance sheet, as of December 31, 2020, is as follows:
Cumulative incurred claims and allocated claim adjustment expenses, net of
reinsurance
Less: Cumulative paid claims and allocated claim adjustment expenses, net of
reinsurance
Net medical claims payable, end of year
Ceded medical claims payable, end of year
Insurance lines other than short duration
Gross medical claims payable, end of year
13. Debt
Short-term Borrowings
Commercial
& Specialty
Business
Government
Business
Other
Total
$
77,213 $
160,849 $
1,486 $
239,548
73,932
3,281
13
—
3,294 $
153,236
7,613
33
224
7,870 $
$
1,291
195
—
—
195 $
228,459
11,089
46
224
11,359
We are a member, through certain subsidiaries, of the Federal Home Loan Bank of Indianapolis, the Federal Home Loan Bank of Cincinnati, the
Federal Home Loan Bank of Atlanta and the Federal Home Loan Bank of New York, (collectively, the “FHLBs”). As a member we have the ability to
obtain short-term cash advances, subject to certain minimum collateral requirements. At December 31, 2020 and 2019, $0 and $650, respectively, were
outstanding under our short-term FHLB borrowings. Outstanding short-term FHLB borrowings at December 31, 2019 had fixed interest rates of 1.664%.
Through certain subsidiaries, we have entered into multiple 364-day lines of credit (the “Subsidiary Credit Facilities”) with separate lenders for general
corporate purposes. The Subsidiary Credit Facilities provide combined credit of up to $300. The interest rate on each line of credit is based on the LIBOR
rate plus a predetermined rate. Our ability to borrow under the lines of credit is subject to compliance with certain covenants. At December 31, 2020 and
2019, $0 and $50, respectively, were outstanding under our Subsidiary Credit Facilities.
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Long-term Debt
The carrying value of long-term debt at December 31, 2020 and 2019 consists of the following:
Senior unsecured notes:
2.500%, due 2020
4.350%, due 2020
3.700%, due 2021
2.950%, due 2022
3.125%, due 2022
3.300%, due 2023
3.350%, due 2024
3.500%, due 2024
2.375%, due 2025
3.650%, due 2027
4.101%, due 2028
2.875%, due 2029
2.250%, due 2030
5.950%, due 2034
5.850%, due 2036
6.375%, due 2037
5.800%, due 2040
4.625%, due 2042
4.650%, due 2043
4.650%, due 2044
5.100%, due 2044
4.375%, due 2047
4.550%, due 2048
3.700%, due 2049
3.125%, due 2050
4.850%, due 2054
Surplus note:
9.000%, due 2027
Senior convertible debentures:
2.750%, due 2042
Variable rate debt:
Commercial paper program
Total long-term debt
Current portion of long-term debt
Long-term debt, less current portion
$
2020
2019
— $
—
700
749
848
1,027
847
796
1,253
1,591
1,257
819
1,089
334
396
366
114
873
978
779
565
1,387
839
811
987
247
25
108
899
699
699
747
847
1,013
846
795
845
1,590
1,253
819
—
334
396
366
124
888
987
792
594
1,386
838
811
—
247
25
145
250
20,035
(700)
19,335 $
400
19,385
(1,598)
17,787
$
All debt is a direct obligation of Anthem, Inc., except for the surplus note, the FHLB borrowings and the Subsidiary Credit Facilities.
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
We generally issue senior unsecured notes (“Notes”) for long-term borrowing purposes. Certain of these Notes may have a call feature that allows us to
redeem the Notes at any time at our option and/or a put feature that allows a Note holder to redeem the Notes upon the occurrence of both a change in
control event and a downgrade of the Notes below an investment grade rating.
On November 23, 2020, we repaid, at maturity, the $900 outstanding balance of our 2.500% senior unsecured notes. On August 17, 2020, we repaid, at
maturity, the $700 outstanding balance of our 4.350% senior unsecured notes.
Additionally, during the year ended December 31, 2020, we repurchased $79 of outstanding principal amount of certain other senior unsecured notes,
plus applicable premium for early redemption plus accrued and unpaid interest, for cash totaling $109. We recognized a loss on extinguishment of debt of
$30 for the repurchase of these notes.
On May 5, 2020, we issued $400 aggregate principal amount of additional senior notes pursuant to a reopening of our existing 2.375% Notes due 2025
(the “2025 Notes”), $1,100 aggregate principal amount of 2.250% Notes due 2030 (the “2030 Notes”), and $1,000 aggregate principal amount of 3.125%
Notes due 2050 (the “2050 Notes”) under our shelf registration statement. The 2025 Notes constitute an additional issuance of our 2.375% notes due 2025,
of which $850 aggregate principal amount was issued on September 9, 2019. Interest on the 2025 Notes is deemed to have accrued from January 15, 2020
and is payable semi-annually in arrears on January 15 and July 15 of each year, commencing July 15, 2020. Interest on the 2030 Notes and 2050 Notes is
payable semi-annually in arrears on May 15 and November 15 of each year, commencing November 15, 2020. The proceeds were used for working capital
and general corporate purposes, including, but not limited to, repayment of short-term and long-term debt, repurchase of our common stock pursuant to our
share repurchase program and to fund acquisitions.
On September 9, 2019, we issued $850 aggregate principal amount of the 2025 Notes, $825 aggregate principal amount of 2.875% Notes due 2029
(the “2029 Notes”), and $825 aggregate principal amount of 3.700% Notes due 2049 (the “2049 Notes”) under our shelf registration statement. Interest on
the 2025 Notes is payable semi-annually in arrears on January 15 and July 15 of each year, commencing January 15, 2020. Interest on the 2029 Notes and
the 2049 Notes is payable semi-annually in arrears on March 15 and September 15 each year, commencing March 15, 2020. The proceeds were used for
working capital and general corporate purposes, including, but not limited to, the repurchase of our common stock pursuant to our share repurchase
program, repayment of short-term and long-term debt and to fund acquisitions.
On August 15, 2019, we repaid, at maturity, the $850 outstanding balance of our 2.250% senior unsecured notes.
On July 16, 2018, we repaid, at maturity, the $650 outstanding balance of our 2.300% senior unsecured notes. On January 15, 2018, we repaid, at
maturity, the $625 outstanding balance of our 1.875% senior unsecured notes.
On May 1, 2018, we settled our Equity Units stock purchase contracts at a settlement rate of 0.2412 shares of our common stock, using a market value
formula set forth in the Equity Units purchase contracts. This resulted in the issuance of approximately 6 shares. We had issued 25 Equity Units on May 12,
2015, pursuant to an underwriting agreement dated May 6, 2015, in an aggregate principal amount of $1,250. Each Equity Unit had a stated amount of $50
(whole dollars) and consisted of a purchase contract obligating the holder to purchase a certain number of shares of our common stock on May 1, 2018,
subject to earlier termination or settlement, for a price in cash of $50 (whole dollars); and a 5% undivided beneficial ownership interest in $1,000 (whole
dollars) principal amount of our 1.900% remarketable subordinated notes (“RSNs”), due 2028. On March 2, 2018, we remarketed the RSNs and used the
proceeds to purchase U.S. Treasury securities that were pledged to secure the stock purchase obligations of the holders of the Equity Units. The purchasers
of the RSNs transferred the RSNs to us in exchange for $1,250 principal amount of our 4.101% senior notes due 2028 (the “2028 Notes”), and a cash
payment of $4. We canceled the RSNs upon receipt and recognized a loss on extinguishment of debt of $18. At the remarketing, we also issued $850
aggregate principal amount of 4.550% notes due 2048 (the “2048 Notes”) under our shelf registration statement. We used the proceeds from the 2048 Notes
for working capital and general corporate purposes. Interest on the 2028 Notes and the 2048 Notes is payable semi-annually in arrears on March 1 and
September 1 of each year, commencing on September 1, 2018.
The surplus note is an unsecured obligation of Anthem Insurance Companies, Inc. (“Anthem Insurance”), a wholly owned subsidiary, and is
subordinate in right of payment to all of Anthem Insurance’s existing and future indebtedness. Any payment of interest or principal on the surplus note may
be made only with the prior approval of the Indiana Department of
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Notes to Consolidated Financial Statements (continued)
Insurance (“IDOI”) and only out of capital and surplus funds of Anthem Insurance that the IDOI determines to be available for the payment under Indiana
insurance laws.
We have a senior revolving credit facility (the “5-Year Facility”) with a group of lenders for general corporate purposes. The 5-Year Facility provides
credit up to $2,500 and matures in June 2024. We also have a 364-day senior revolving credit facility (the “364-Day Facility”) with a group of lenders for
general corporate purposes, which provides for credit in the amount of $1,000. In May 2020, we amended and extended the 364-Day Facility, which now
matures in June 2021. Our ability to borrow under these credit facilities is subject to compliance with certain covenants, including covenants requiring us to
maintain a defined debt-to-capital ratio of not more than 60%, subject to increase in certain circumstances set forth in the applicable credit agreement. As of
December 31, 2020, our debt-to-capital ratio, as defined and calculated under the credit facilities, was 37.6%. We do not believe the restrictions contained
in any of our credit facility covenants materially affect our financial or operating flexibility. As of December 31, 2020, we were in compliance with all of
the debt covenants under these credit facilities. There were no amounts outstanding under the 364-Day Facility at any time during the years ended
December 31, 2020 or the year ended December 31, 2019. At December 31, 2020 and December 31, 2019, there were no amounts outstanding under our 5-
Year Facility.
We have an authorized commercial paper program of up to $3,500, the proceeds of which may be used for general corporate purposes. At
December 31, 2020, we had $250 outstanding under our commercial paper program with a weighted-average interest rate of 0.1600%. At December 31,
2019, we had $400 outstanding under our commercial paper program with a weighted-average interest rate of 1.8528%. Commercial paper borrowings
have been classified as long-term debt at December 31, 2020 and 2019, as our general practice and intent is to replace short-term commercial paper
outstanding at expiration with additional short-term commercial paper for an uninterrupted period extending for more than one year, and we have the ability
to redeem our commercial paper with borrowings under the senior revolving credit facilities described above.
Convertible Debentures
On October 9, 2012, we issued $1,500 of senior convertible debentures (the “Debentures”) in a private offering to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The Debentures are governed by an indenture dated as of
October 9, 2012 between us and The Bank of New York Mellon Trust Company, N.A., as trustee (the “Indenture”). The Debentures bear interest at a rate of
2.750% per year, payable semi-annually in arrears in cash on April 15 and October 15 of each year, and mature on October 15, 2042, unless earlier
redeemed, repurchased or converted into shares of common stock at the applicable conversion rate. The Debentures also have a contingent interest feature
that will require us to pay additional interest based on certain thresholds and for certain events, as defined in the Indenture, beginning on October 15, 2022.
Holders may convert their Debentures at their option prior to the close of business on the business day immediately preceding April 15, 2042, only
under the following circumstances: (1) during any fiscal quarter if the last reported sale price of our common stock for at least 20 trading days during a
period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable
conversion price on each applicable trading day; (2) during the five business day period after any 10 consecutive trading day period (the “measurement
period”) in which the trading price per $1,000 (whole dollars) principal amount of Debentures for each trading day of that measurement period was less
than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on each such day; (3) if we call any or all of
the Debentures for redemption, at any time prior to the close of business on the third scheduled trading day prior to the redemption date; or (4) upon the
occurrence of specified corporate events, as defined in the Indenture. On and after April 15, 2042 and until the close of business on the third scheduled
trading day immediately preceding the Debentures’ maturity date of October 15, 2042, holders may convert their Debentures into common stock at any
time irrespective of the preceding circumstances. The Debentures are redeemable at our option at any time on or after October 20, 2022, upon the
occurrence of certain events, as defined in the Indenture.
Upon conversion of the Debentures, we will deliver cash up to the aggregate principal amount of the Debentures converted. With respect to any
conversion obligation in excess of the aggregate principal amount of the Debentures converted, we have the option to settle the excess with cash, shares of
our common stock or a combination thereof based on a daily conversion value, determined in accordance with the Indenture. The initial conversion rate for
the Debentures was 13.2319 shares of our common stock per Debenture, which represented a 25% conversion premium based on the closing price of
$60.46 per share of our common stock on October 2, 2012 (the date the Debentures’ terms were finalized) and is equivalent to an initial conversion price of
$75.575 per share of our common stock.
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Notes to Consolidated Financial Statements (continued)
During the year ended December 31, 2020, $56 aggregate principal amount of the Debentures was surrendered for conversion by certain holders in
accordance with the terms and provisions of the Indenture. We elected to settle the excess of the principal amount of the conversions with cash for total
payments of $222. We recognized a loss on the extinguishment of debt related to the Debentures of $6, based on the fair values of the debt on the
conversion settlement dates. During the year ended December 31, 2019, we repurchased $15 of the aggregate principal balance of the Debentures. In
addition, $57 aggregate principal amount of the Debentures was surrendered for conversion by certain holders in accordance with the terms and provisions
of the Indenture. We elected to settle the excess of the principal amount of the repurchases and conversions with cash for total payments of $273. We
recognized a loss on the extinguishment of debt related to the Debentures of $2. During the year ended December 31, 2018, $109 aggregate principal
amount of the Debentures was surrendered for conversion. We elected to settle the excess of the principal amount of the conversions with cash for total
payments of $402. We recognized a gain on the extinguishment of debt related to the Debentures of $7.
As of December 31, 2020, our common stock was last traded at a price of $321.09 per share. If the remaining Debentures had been converted or
matured at December 31, 2020, we would have been obligated to pay the principal of the Debentures plus an amount in cash or shares equal to $560. The
Debentures and underlying shares of our common stock have not been and will not be registered under the Securities Act, or any state securities laws, and
may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
We have accounted for the Debentures in accordance with the cash conversion guidance in FASB guidance for debt with conversion and other options.
As a result, the value of the embedded conversion option, net of deferred taxes and equity issuance costs, has been bifurcated from its debt host and
recorded as a component of additional paid-in capital in our consolidated balance sheets.
The following table summarizes, at December 31, 2020, the related balances, conversion rate and conversion price of the Debentures:
Outstanding principal amount
Unamortized debt discount
Net debt carrying amount
Equity component carrying amount
Conversion rate (shares of common stock per $1,000 of principal amount)
Effective conversion price (per $1,000 of principal amount)
$
$
$
$
$
159
49
108
58
14.0808
71.0187
The remaining amortization period of the unamortized debt discount as of December 31, 2020 is approximately 22 years. The unamortized discount
will be amortized into interest expense using the effective interest method based on an effective interest rate of 5.130%, which represents the market
interest rate for a comparable debt instrument that does not have a conversion feature. During the years ended December 31, 2020, 2019 and 2018, we
recognized $6, $9 and $12, respectively, of interest expense related to the Debentures, of which $5, $7 and $10, respectively, represented interest expense
recognized at the stated interest rate of 2.750% and $1, $2 and $2, respectively, represented interest expense resulting from amortization of the debt
discount.
Total interest paid during 2020, 2019 and 2018 was $794, $755, and $728, respectively.
We were in compliance with all applicable covenants under all of our outstanding debt agreements at December 31, 2020 and 2019.
Future maturities of all long-term debt outstanding at December 31, 2020 are as follows: 2021, $950; 2022, $1,597; 2023, $1,027; 2024, $1,643; 2025,
$1,253 and thereafter, $13,565.
14. Commitments and Contingencies
Litigation and Regulatory Proceedings
In the ordinary course of business, we are defendants in, or parties to, a number of pending or threatened legal actions or proceedings. To the extent a
plaintiff or plaintiffs in the following cases have specified in their complaint or in other court
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Notes to Consolidated Financial Statements (continued)
filings the amount of damages being sought, we have noted those alleged damages in the descriptions below. With respect to the cases described below, we
contest liability and/or the amount of damages in each matter and believe we have meritorious defenses.
Where available information indicates that it is probable that a loss has been incurred as of the date of the consolidated financial statements and we can
reasonably estimate the amount of that loss, we accrue the estimated loss by a charge to income. In many proceedings, however, it is difficult to determine
whether any loss is probable or reasonably possible. In addition, even where loss is possible or an exposure to loss exists in excess of the liability already
accrued with respect to a previously identified loss contingency, it is not always possible to reasonably estimate the amount of the possible loss or range of
loss.
With respect to many of the proceedings to which we are a party, we cannot provide an estimate of the possible losses, or the range of possible losses
in excess of the amount, if any, accrued, for various reasons, including but not limited to some or all of the following: (i) there are novel or unsettled
legal issues presented, (ii) the proceedings are in early stages, (iii) there is uncertainty as to the likelihood of a class being certified or decertified or the
ultimate size and scope of the class, (iv) there is uncertainty as to the outcome of pending appeals or motions, (v) there are significant factual issues to be
resolved, and/or (vi) in many cases, the plaintiffs have not specified damages in their complaint or in court filings. For those legal proceedings where a
loss is probable, or reasonably possible, and for which it is possible to reasonably estimate the amount of the possible loss or range of losses, we
currently believe that the range of possible losses, in excess of established reserves is, in the aggregate, from $0 to approximately $250 at December 31,
2020. This estimated aggregate range of reasonably possible losses is based upon currently available information taking into account our best estimate of
such losses for which such an estimate can be made.
Blue Cross Blue Shield Antitrust Litigation
We are a defendant in multiple lawsuits that were initially filed in 2012 against the BCBSA and Blue Cross and/or Blue Shield licensees (the “Blue
plans”) across the country. Cases filed in twenty-eight states were consolidated into a single, multi-district proceeding captioned In re Blue Cross Blue
Shield Antitrust Litigation that is pending in the United States District Court for the Northern District of Alabama (the “Court”). Generally, the suits allege
that the BCBSA and the Blue plans have conspired to horizontally allocate geographic markets through license agreements, best efforts rules that limit the
percentage of non-Blue revenue of each plan, restrictions on acquisitions, rules governing the BlueCard and National Accounts programs and other
arrangements in violation of the Sherman Antitrust Act (“Sherman Act”) and related state laws. The cases were brought by two putative nationwide classes
of plaintiffs, health plan subscribers and providers.
®
In response to cross motions for partial summary judgment by plaintiffs and defendants, the Court issued an order in April 2018 determining that the
®
defendants’ aggregation of geographic market allocations and output restrictions are to be analyzed under a per se standard of review, and the BlueCard
program and other alleged Section 1 Sherman Act violations are to be analyzed under the rule of reason standard of review. The Court also found that there
remain genuine issues of material fact as to whether the defendants operate as a single entity with regard to the enforcement of the Blue Cross Blue Shield
trademarks. In April 2019, plaintiffs filed their motions for class certification in conjunction with their supporting expert reports, and the defendants filed
their motions to exclude plaintiffs’ experts, as well as their opposition to plaintiffs’ motions for class certification, in July 2019.
The BCBSA and Blue plans have approved a settlement agreement and release (the “Subscriber Settlement Agreement”) with the subscriber plaintiffs.
If approved by the Court, the Subscriber Settlement Agreement will require the defendants to make a monetary settlement payment, our portion of which is
estimated to be $594, and will contain certain non-monetary terms including (i) eliminating the “national best efforts” rule in the BCBSA license
agreements (which rule limits the percentage of non-Blue revenue permitted for each Blue plan) and (ii) allowing for some large national employers with
self-funded benefit plans to request a bid for insurance coverage from a second Blue plan in addition to the local Blue plan. We recognized our estimated
payment obligation of $548, net of third party insurance coverage received as of December 31, 2020.
On November 30, 2020, the Court issued an order preliminarily approving the Subscriber Settlement Agreement, following which members of the
Subscriber class were provided notice of the Settlement Agreement and an opportunity to opt out of the class. All terms of the Subscriber Settlement
Agreement are subject to final approval by the Court before they
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Notes to Consolidated Financial Statements (continued)
become effective. Objections to the settlement as well as the deadline for those that wish to opt-out from the settlement must be submitted by July 28, 2021.
Claims must be filed by November 5, 2021. A final approval hearing has been scheduled for October 20, 2021. If the Court grants approval of the
Subscriber Settlement Agreement, and after all appellate rights have expired or have been exhausted in a manner that affirms the Court’s final order and
judgment, the defendants’ payment and non-monetary obligations under the Subscriber Settlement Agreement will become effective.
In October 2020, after the Court lifted the stay as to the provider litigation, provider plaintiffs filed a renewed motion for class certification, and
defendants filed an opposition to that motion. We intend to continue to vigorously defend the provider suit; however, its ultimate outcome cannot be
presently determined.
Blue Cross of California Taxation Litigation
In July 2013, our California affiliate Blue Cross of California (doing business as Anthem Blue Cross) (“BCC”) was named as a defendant in a
California taxpayer action filed in Los Angeles County Superior Court (the “Superior Court”) captioned Michael D. Myers v. State Board of Equalization,
et al. This action was brought under a California statute that permits an individual taxpayer to sue a governmental agency when the taxpayer believes the
agency has failed to enforce governing law. Plaintiff contends that BCC, a licensed Health Care Service Plan, is an “insurer” for purposes of taxation
despite acknowledging it is not an “insurer” under regulatory law. At the time, under California law, “insurers” were required to pay a gross premiums tax
(“GPT”) calculated as 2.35% on gross premiums. As a licensed Health Care Service Plan, BCC has paid the California Corporate Franchise Tax (“CFT”),
the tax paid by California businesses generally. Plaintiff contends that BCC must pay the GPT rather than the CFT, and seeks a writ of mandate directing
the taxing agencies to collect the GPT and an order requiring BCC to pay GPT back taxes, interest, and penalties for the eight-year period prior to the
filing of the complaint.
Because the GPT is constitutionally imposed in lieu of certain other taxes, BCC has filed protective tax refund claims with the City of Los Angeles,
the California Department of Health Care Services and the Franchise Tax Board to protect its rights to recover certain taxes previously paid should BCC
eventually be determined to be subject to the GPT for the tax periods at issue in the litigation.
In March 2018, the Superior Court denied BCC's motion for judgment on the pleadings and similar motions brought by other entities. BCC filed a
motion for summary judgment with the Superior Court, which was heard in October 2020. In December 2020, the Superior Court granted BCC's motion
for summary judgment, dismissing the plaintiff's lawsuit. We intend to vigorously defend any appeal of this lawsuit.
Express Scripts, Inc. Pharmacy Benefit Management Litigation
In March 2016, we filed a lawsuit against Express Scripts, Inc. (“Express Scripts”), our vendor at the time for PBM services, captioned Anthem, Inc. v.
Express Scripts, Inc., in the U.S. District Court for the Southern District of New York. The lawsuit seeks to recover over $14,800 in damages for pharmacy
pricing that is higher than competitive benchmark pricing under the agreement between the parties (the “ESI PBM Agreement”), over $158 in damages
related to operational breaches, as well as various declarations under the ESI PBM Agreement, including that Express Scripts: (i) breached its obligation to
negotiate in good faith and to agree in writing to new pricing terms; (ii) was required to provide competitive benchmark pricing to us through the term of
the ESI PBM Agreement; (iii) has breached the ESI PBM Agreement; and (iv) is required under the ESI PBM Agreement to provide post-termination
services, at competitive benchmark pricing, for one year following any termination.
Express Scripts has disputed our contractual claims and is seeking declaratory judgments: (i) regarding the timing of the periodic pricing review under
the ESI PBM Agreement, and (ii) that it has no obligation to ensure that we receive any specific level of pricing, that we have no contractual right to any
change in pricing under the ESI PBM Agreement and that its sole obligation is to negotiate proposed pricing terms in good faith. In the alternative, Express
Scripts claims that we have been unjustly enriched by its payment of $4,675 at the time we entered into the ESI PBM Agreement. In March 2017, the court
granted our motion to dismiss Express Scripts’ counterclaims for (i) breach of the implied covenant of good faith and fair dealing, and (ii) unjust
enrichment with prejudice. The only remaining claims are for breach of contract and declaratory relief. Rebuttal expert reports were submitted in October
2020, discovery must be completed in April 2021, and motions for summary judgment must be filed in May 2021. We intend to vigorously pursue our
claims and defend against any counterclaims, which we believe are without merit; however, the ultimate outcome cannot be presently determined.
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Notes to Consolidated Financial Statements (continued)
In re Express Scripts/Anthem ERISA Litigation
We are a defendant in a class action lawsuit that was initially filed in June 2016 against Anthem, Inc. and Express Scripts, which has been consolidated
into a single multi-district lawsuit captioned In Re Express Scripts/Anthem ERISA Litigation, in the U.S. District Court for the Southern District of New
York. The consolidated complaint was filed by plaintiffs against Express Scripts and us on behalf of all persons who are participants in or beneficiaries of
any ERISA or non-ERISA healthcare plan from December 1, 2009 to December 31, 2019 in which we provided prescription drug benefits through the ESI
PBM Agreement and paid a percentage based co-insurance payment in the course of using that prescription drug benefit. The plaintiffs allege that we
breached our duties, either under ERISA or with respect to the implied covenant of good faith and fair dealing implied in the health plans, (i) by failing to
adequately monitor Express Scripts’ pricing under the ESI PBM Agreement, (ii) by placing our own pecuniary interest above the best interests of our
insureds by allegedly agreeing to higher pricing in the ESI PBM Agreement in exchange for the purchase price for our NextRx PBM business, and (iii)
with respect to the non-ERISA members, by negotiating and entering into the ESI PBM Agreement that was allegedly detrimental to the interests of such
non-ERISA members. Plaintiffs seek to hold us and Express Scripts jointly and severally liable and to recover all losses suffered by the proposed class,
equitable relief, disgorgement of alleged ill-gotten gains, injunctive relief, attorney’s fees and costs and interest.
In April 2017, we filed a motion to dismiss the claims brought against us, and it was granted, without prejudice, in January 2018. Plaintiffs filed a
notice of appeal with the United States Court of Appeals for the Second Circuit (the “Second Circuit”), which was heard in October 2018. In December
2020, the Second Circuit affirmed the trial court's decision dismissing the ERISA complaint. Plaintiffs have filed a Petition for Rehearing and Rehearing En
Banc. We intend to vigorously defend this suit; however, its ultimate outcome cannot be presently determined.
Cigna Corporation Merger Litigation
In July 2015, we and Cigna Corporation (“Cigna”) announced that we entered into the Cigna Agreement and Plan of Merger (“Cigna Merger
Agreement”) pursuant to which we would acquire all outstanding shares of Cigna. In July 2016, the U.S. Department of Justice (“DOJ”) along with certain
state attorneys general, filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia (“District Court”) seeking to block the merger. In
February 2017, Cigna purported to terminate the Cigna Merger Agreement and commenced litigation against us in the Delaware Court of Chancery
(“Delaware Court”) seeking damages, including the $1,850 termination fee pursuant to the terms of the Cigna Merger Agreement, and a declaratory
judgment that its purported termination of the Cigna Merger Agreement was lawful, among other claims, which is captioned Cigna Corp. v. Anthem Inc.
Also in February 2017, we initiated our own litigation against Cigna in the Delaware Court seeking a temporary restraining order to enjoin Cigna from
terminating the Cigna Merger Agreement, specific performance compelling Cigna to comply with the Cigna Merger Agreement and damages, which is
captioned Anthem Inc. v. Cigna Corp. In April 2017, the U.S. Circuit Court of Appeals for the District of Columbia affirmed the ruling of the District
Court, which blocked the merger. In May 2017, after the Delaware Court denied our motion to enjoin Cigna from terminating the Cigna Merger
Agreement, we delivered to Cigna a notice terminating the Cigna Merger Agreement.
In the Delaware Court litigation, trial commenced in late February 2019 and concluded in March 2019. The Delaware Court held closing arguments in
November 2019 and took the matter under consideration. In August 2020, the Delaware Court issued an opinion finding that neither party was owed
damages and that we did not owe Cigna the $1,850 termination fee. The Delaware Court issued an order implementing its opinion in October 2020. Cigna
filed its notice of appeal in November 2020 challenging the Court's decision that Anthem did not owe Cigna a termination fee. Cigna filed its appellate
brief in December 2020, and we filed our response in January 2021. We believe Cigna’s allegations are without merit and we intend to vigorously defend
against Cigna’s allegations; however, the ultimate outcome of the appeal of this litigation with Cigna cannot be presently determined.
In October 2018, a shareholder filed a derivative lawsuit in the State of Indiana Marion County Superior Court, captioned Henry Bittmann,
Derivatively, et al. v. Joseph R Swedish, et al., purportedly on behalf of us and our shareholders against certain current and former directors and officers
alleging breaches of fiduciary duties, unjust enrichment and corporate waste associated with the Cigna Merger Agreement. This case has been stayed at the
request of the parties pending
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
the outcome of our litigation with Cigna in the Delaware Court. This lawsuit’s ultimate outcome cannot be presently determined.
Medicare Risk Adjustment Litigation
In March 2020, the DOJ filed a civil lawsuit against Anthem, Inc. in the U.S. District Court for the Southern District of New York in a case captioned
United States v. Anthem, Inc. The DOJ’s suit alleges, among other things, that we falsely certified the accuracy of the diagnosis data we submitted to the
Centers for Medicare and Medicaid Services (“CMS”) for risk-adjustment purposes under Medicare Part C and knowingly failed to delete inaccurate
diagnosis codes. The DOJ further alleges that, as a result of these purported acts, we caused CMS to calculate the risk-adjustment payments based on
inaccurate diagnosis information, which enabled us to obtain unspecified amounts of payments in Medicare funds in violation of the False Claims Act. The
DOJ filed an amended complaint in July 2020, alleging the same causes of action but revising some of its allegations. In September 2020, we filed a motion
to transfer the lawsuit to the Southern District of Ohio, a motion to dismiss part of the lawsuit, and a motion to strike certain allegations in the amended
complaint. The motions are fully briefed and no decision has been rendered. We intend to continue to vigorously defend this suit; however, the ultimate
outcome cannot be presently determined.
Investigations of CareMore and HealthSun
With the assistance of outside counsel, we are conducting investigations of risk-adjustment practices involving data submitted to CMS (unrelated to
our retrospective chart review program) at CareMore Health Plans, Inc. (“CareMore”), one of our California subsidiaries, and HealthSun Health Plans, Inc.
(“HealthSun”), one of our Florida subsidiaries. Our CareMore investigation has resulted in the termination of CareMore’s relationship with one contracted
provider in California. Our HealthSun investigation focuses on risk adjustment practices initiated prior to our acquisition of HealthSun in December 2017
that continued after the acquisition. We have voluntarily self-disclosed the existence of both of our investigations to CMS and the Criminal Division of the
DOJ, which then initiated an investigation. We are cooperating with the government's investigation. We are in the process of analyzing the scope of
potential data corrections to be submitted to CMS. We have also asserted indemnity claims for escrowed funds under the HealthSun purchase agreement
for, among other things, breach of healthcare and financial representation provisions, based on the conduct discovered during our investigation. We are in
active litigation with two groups of sellers regarding part of the escrowed funds in cases captioned Shareholder Representative Services, LLC v. ATH
Holding Company, LLC and Highland Acquisition Holdings, LLC and LPPAS Representative, LLC v. ATH Holding Company, LLC, both pending in the
Delaware Court.
Cyber Attack Regulatory Proceedings and Litigation
In February 2015, we reported that we were the target of a sophisticated external cyber attack during which the attackers gained unauthorized access to
certain of our information technology systems and obtained personal information related to many individuals and employees. To date, there is no evidence
that credit card or medical information was accessed or obtained. Upon discovery of the cyber attack, we took immediate action to remediate the security
vulnerability and have continued to implement security enhancements since this incident.
Federal and state agencies have investigated events related to the cyber attack, including how it occurred, its consequences and our responses. In
September 2020, we entered into a settlement to resolve the investigation by a multi-state group of attorneys general, which was the final outstanding
matter related to the 2015 cyber attack. We have undertaken commitments that align with our ongoing and consistent focus to protect information in
addition to a monetary payment of $39, which was fully accrued in a prior period.
We have contingency plans and insurance coverage for certain expenses and potential liabilities of this nature and will pursue coverage for all
applicable losses; however, the ultimate outcome of our pursuit of insurance coverage cannot be presently determined.
Other Contingencies
From time to time, we and certain of our subsidiaries are parties to various legal proceedings, many of which involve claims for coverage encountered
in the ordinary course of business. We, like HMOs and health insurers generally, exclude certain healthcare and other services from coverage under our
HMO, PPO and other plans. We are, in the ordinary course of
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Notes to Consolidated Financial Statements (continued)
business, subject to the claims of our enrollees arising out of decisions to restrict or deny reimbursement for uncovered services. The loss of even one such
claim, if it results in a significant punitive damage award, could have a material adverse effect on us. In addition, the risk of potential liability under
punitive damage theories may increase significantly the difficulty of obtaining reasonable reimbursement of coverage claims.
In addition to the lawsuits described above, we are also involved in other pending and threatened litigation of the character incidental to our business,
and are from time to time involved as a party in various governmental investigations, audits, reviews and administrative proceedings. These investigations,
audits, reviews and administrative proceedings include routine and special inquiries by state insurance departments, state attorneys general, the U.S.
Attorney General and subcommittees of the U.S. Congress. Such investigations, audits, reviews and administrative proceedings could result in the
imposition of civil or criminal fines, penalties, other sanctions and additional rules, regulations or other restrictions on our business operations. Any
liability that may result from any one of these actions, or in the aggregate, could have a material adverse effect on our consolidated financial position or
results of operations.
Contractual Obligations and Commitments
In March 2020, we entered into an agreement with a vendor for information technology infrastructure and related management and support services
through June 2025. The new agreement supersedes certain prior agreements for such services and includes provisions for additional services not provided
under those agreements. Our remaining commitment under this agreement at December 31, 2020 is approximately $1,426. We will have the ability to
terminate the agreement upon the occurrence of certain events, subject to early termination fees.
Beginning in the second quarter of 2019, we began using our pharmacy benefits manager IngenioRx, Inc. (“IngenioRx”) to market and offer PBM
services to our fully-insured and self-funded affiliated health plan customers, as well as to external customers outside of the health plans we own. The
comprehensive prescription benefits management services portfolio includes, but is not limited to, formulary management, pharmacy networks,
prescription drug database, member services and mail order capabilities. Also in the second quarter of 2019, IngenioRx began delegating certain PBM
administrative functions, such as claims processing and prescription fulfillment, to CaremarkPCS Health, L.L.C., which is a subsidiary of CVS Health
Corporation, pursuant to a five-year agreement. With IngenioRx, we retain the responsibilities for clinical and formulary strategy and development,
member and employer experiences, operations, sales, marketing, account management and retail network strategy.
Vulnerability from Concentrations
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, investment securities, premium
receivables and instruments held through hedging activities. All investment securities are managed by professional investment managers within policies
authorized by our Board of Directors. Such policies limit the amounts that may be invested in any one issuer and prescribe certain investee company
criteria. Concentrations of credit risk with respect to premium receivables are limited due to the large number of employer groups that constitute our
customer base in the states in which we conduct business. As of December 31, 2020, there were no significant concentrations of financial instruments in a
single investee, industry or geographic location.
15. Capital Stock
Stock Incentive Plans
Our Board of Directors has adopted the 2017 Anthem Incentive Compensation Plan (“2017 Incentive Plan”) which has been approved by our
shareholders. The term of the 2017 Incentive Plan is such that no awards may be granted on or after May 18, 2027. The 2017 Incentive Plan gives authority
to the Compensation Committee of the Board of Directors to make incentive awards to our non-employee directors, employees and consultants, consisting
of stock options, stock, restricted stock, restricted stock units, cash-based awards, stock appreciation rights, performance shares and performance units. The
2017 Incentive Plan limits the number of available shares for issuance to 37.5 shares, subject to adjustment as set forth in the 2017 Incentive Plan.
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Stock options are granted for a fixed number of shares with an exercise price at least equal to the fair value of the shares at the grant date. Stock
options vest over three years in equal annual installments and generally have a term of ten years from the grant date.
Certain option grants contain provisions whereby the employee continues to vest in the award subsequent to termination due to retirement. Our
attribution method for newly granted awards considers all vesting and other provisions, including retirement eligibility, in determining the requisite service
period over which the fair value of the awards will be recognized.
Awards of restricted stock or restricted stock units are issued at the fair value of the stock on the grant date and may also include one or more
performance measures that must be met for the award to vest. For restricted stock or restricted stock units without performance measures, the restrictions
lapse in three equal annual installments. Restricted stock or restricted stock units with performance measures vest in three year installments. Performance
units issued in 2020 will vest in 2023, based on certain revenue and earnings targets over the three year period of 2020 to 2022. Performance units issued in
2019 will vest in 2022, based on certain revenue and earnings targets over the three year period of 2019 to 2021. Performance units issued in 2018 will vest
in 2021, based on certain revenue and earnings targets over the three year period of 2018 to 2020.
For the years ended December 31, 2020, 2019 and 2018, we recognized share-based compensation expense of $283, $294 and $226, respectively, as
well as related tax benefits of $74, $78 and $61, respectively.
A summary of stock option activity for the year ended December 31, 2020 is as follows:
Outstanding at January 1, 2020
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2020
Exercisable at December 31, 2020
Number of
Shares
Weighted-Average
Option Price per
Share
Weighted-Average
Remaining
Contractual Life
(Years)
Aggregate
Intrinsic
Value
3.1 $
1.0
(0.9)
(0.1)
3.1
1.6
190.28
271.61
136.89
273.91
230.00
185.08
6.75 $
5.37 $
280
217
The intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 amounted to $147, $188 and $172, respectively.
We recognized tax benefits of $40, $52 and $47 during the years ended December 31, 2020, 2019 and 2018, respectively, from option exercises and
disqualifying dispositions. During the years ended December 31, 2020, 2019 and 2018, we received cash of $129, $143 and $141, respectively, from
exercises of stock options.
The total fair value of restricted stock awards that vested during the years ended December 31, 2020, 2019 and 2018 was $335, $245 and $237,
respectively.
A summary of the status of nonvested restricted stock activity, including restricted stock units, for the year ended December 31, 2020 is as follows:
Nonvested at January 1, 2020
Granted
Vested
Forfeited
Nonvested at December 31, 2020
Restricted
Stock Shares
and Units
Weighted-Average
Grant Date
Fair Value
per Share
1.4 $
1.3
(1.3)
(0.1)
1.3
242.54
272.37
196.25
272.50
272.51
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
During the year ended December 31, 2020, we granted approximately 0.3 restricted stock units that are contingent upon us achieving certain revenue
and earning targets over the three year period of 2020 to 2022. These grants have been included in the activity shown above, but will be subject to
adjustment at the end of 2022, based on results in the three year period.
As of December 31, 2020, the total remaining unrecognized compensation expense related to nonvested stock options and restricted stock, including
restricted stock units, amounted to $30 and $154, respectively, which will be amortized over the weighted-average remaining requisite service periods of 11
months and 13 months, respectively.
As of December 31, 2020, there were approximately 19.5 shares of common stock available for future grants under the 2017 Incentive Plan.
Fair Value
We use a binomial lattice valuation model to estimate the fair value of all stock options granted. Expected volatility assumptions used in the binomial
lattice model are based on an analysis of implied volatilities of publicly traded options on our stock and historical volatility of our stock price. The risk-free
interest rate is derived from the U.S. Treasury strip rates at the time of the grant. The expected term of the options was derived from the outputs of the
binomial lattice model, which incorporates post-vesting forfeiture assumptions based on an analysis of historical data. The dividend yield was based on our
estimate of future dividend yields. Similar groups of employees that have dissimilar exercise behavior are considered separately for valuation purposes. We
utilize the multiple-grant approach for recognizing compensation expense associated with each separately vesting portion of the share-based award.
The following weighted-average assumptions were used to estimate the fair values of options granted during the years ended December 31, 2020, 2019
and 2018:
Risk-free interest rate
Volatility factor
Dividend yield (annual)
Weighted-average expected life (years)
2020
2019
2018
1.30 %
26.00 %
1.40 %
4.30
2.69 %
25.00 %
1.00 %
4.40
2.90 %
30.00 %
1.30 %
3.70
The following weighted-average fair values were determined for the years ending December 31, 2020, 2019 and 2018:
Options granted during the year
Restricted stock awards granted during the year
2020
2019
2018
$
54.05 $
272.37
68.66 $
305.88
55.48
233.73
The binomial lattice option-pricing model requires the input of highly subjective assumptions including the expected stock price volatility. Because our
stock option grants have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in our opinion, existing models do not necessarily provide a reliable single measure of the fair value of our stock
option grants.
Employee Stock Purchase Plan
We have registered 14.0 shares of common stock for the Employee Stock Purchase Plan (the “Stock Purchase Plan”) which is intended to provide a
means to encourage and assist employees in acquiring a stock ownership interest in Anthem. Pursuant to the terms of the Stock Purchase Plan, an eligible
employee is permitted to purchase no more than $25,000 (actual dollars) worth of stock in any calendar year, based on the fair value of the stock at the end
of each plan quarter. Employees become participants by electing payroll deductions from 1% to 15% of gross compensation. Once purchased, the stock is
accumulated in the employee’s investment account. The Stock Purchase Plan allows participants to purchase shares of our common stock at a discounted
price per share of 90% of the fair value of a share of common stock on the lower of the first or last trading day of the plan quarter purchase period. The
Stock Purchase Plan discount was recognized as compensation expense for the year ended December 31, 2020, based on GAAP guidance. There were 0.2
shares issued during the year ended December 31, 2020. As of December 31, 2020, 4.6 shares were available for issuance under the Stock Purchase Plan.
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Use of Capital and Stock Repurchase Program
We regularly review the appropriate use of capital, including acquisitions, common stock and debt security repurchases and dividends to shareholders.
The declaration and payment of any dividends or repurchases of our common stock or debt is at the discretion of our Board of Directors and depends upon
our financial condition, results of operations, future liquidity needs, regulatory and capital requirements and other factors deemed relevant by our Board of
Directors.
A summary of the cash dividend activity for the years ended December 31, 2020 and 2019 is as follows:
Declaration Date
Record Date
Payment Date
Cash Dividend per
Share
Total
Year ended December 31, 2020
January 28, 2020
April 28, 2020
July 28, 2020
October 27, 2020
Year ended December 31, 2019
January 29, 2019
April 23, 2019
July 23, 2019
October 22, 2019
March 16, 2020
June 10, 2020
September 10, 2020
December 7, 2020
March 18, 2019
June 10, 2019
September 10, 2019
December 5, 2019
$
$
March 27, 2020
June 25, 2020
September 25, 2020
December 22, 2020
March 29, 2019
June 25, 2019
September 25, 2019
December 20, 2019
$
$
0.95
0.95
0.95
0.95
0.80
0.80
0.80
0.80
240
242
238
234
206
206
204
202
On January 26, 2021, our Audit Committee declared a quarterly cash dividend to shareholders of $1.13 per share on the outstanding shares of our
common stock. This quarterly dividend is payable on March 25, 2021 to the shareholders of record as of March 10, 2021.
Under our Board of Directors’ authorization, we maintain a common stock repurchase program. On January 26, 2021, our Audit Committee, pursuant
to authorization granted by the Board of Directors, authorized a $5,000 increase to our common stock repurchase program. Repurchases may be made from
time to time at prevailing market prices, subject to certain restrictions on volume, pricing and timing. The repurchases are effected from time to time in the
open market, through negotiated transactions, including accelerated share repurchase agreements, and through plans designed to comply with Rule 10b5-1
under the Securities Exchange Act of 1934, as amended. Our stock repurchase program is discretionary, as we are under no obligation to repurchase shares.
We repurchase shares under the program when we believe it is a prudent use of capital. The excess cost of the repurchased shares over par value is charged
on a pro rata basis to additional paid-in capital and retained earnings. We temporarily suspended our share repurchase program in March 2020 as a
precautionary measure in light of the COVID-19 pandemic, but resumed the program in late June 2020 after market conditions improved.
A summary of common stock repurchases for the years ended December 31, 2020 and 2019 is as follows:
Shares repurchased
Average price per share
Aggregate cost
Authorization remaining at end of year
Years Ended December 31
2020
2019
9.4
286.35 $
2,700 $
1,092 $
6.3
268.65
1,701
3,792
$
$
$
We expect to utilize the remaining authorized amount over a multi-year period, subject to market and industry conditions.
For additional information regarding the use of capital for debt security repurchases, see Note 13, “Debt.”
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
16. Accumulated Other Comprehensive Income
A reconciliation of the components of accumulated other comprehensive income (loss) at December 31, 2020 and 2019 is as follows:
2020
2019
Investments:
Gross unrealized gains
Gross unrealized losses
Net pretax unrealized gains
Deferred tax liability
Net unrealized gains on investments
Non-credit components of impairments on investments:
Gross unrealized losses
Deferred tax asset
Net unrealized non-credit component of impairments on investments
Cash flow hedges:
Gross unrealized losses
Deferred tax asset
Net unrealized losses on cash flow hedges
Defined benefit pension plans:
Deferred net actuarial loss
Deferred prior service cost
Deferred tax asset
Net unrecognized periodic benefit costs for defined benefit pension plans
Postretirement benefit plans:
Deferred net actuarial loss
Deferred prior service credits
Deferred tax (liability) asset
Net unrecognized periodic benefit credit (costs) for postretirement benefit plans
Foreign currency translation adjustments:
Gross unrealized gains (losses)
Deferred tax (liability) asset
Net unrealized gains (losses) on foreign currency translation adjustments
Accumulated other comprehensive income (loss)
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$
$
1,316 $
(65)
1,251
(302)
949
(3)
1
(2)
(316)
66
(250)
(749)
—
190
(559)
(3)
12
(2)
7
6
(1)
5
150 $
720
(44)
676
(155)
521
(3)
1
(2)
(331)
69
(262)
(734)
(1)
188
(547)
(25)
19
2
(4)
(3)
1
(2)
(296)
Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Other comprehensive income (loss) reclassification adjustments for the years ended December 31, 2020, 2019 and 2018 are as follows:
Investments:
Net holding gain (loss) on investment securities arising during the period, net of tax (expense)
benefit of $(160), $(198), and $133, respectively
Reclassification adjustment for net realized (gain) loss on investment securities, net of tax
expense (benefit) of $13, $4, and $(13), respectively
Total reclassification adjustment on investments
Non-credit component of impairments on investments:
Non-credit component of impairments on investments, net of tax benefit of $0, $0, and $1,
respectively
Cash flow hedges:
Holding gain (loss), net of tax (expense) benefit of $(3), $4, and $(10), respectively
Other:
Net change in unrecognized periodic benefit costs for defined benefit pension and postretirement
benefit plans, net of tax (expense) benefit of $(2), $(9), and $29, respectively
Foreign currency translation adjustment, net of tax expense of $2, $0, and $0, respectively
Net gain (loss) recognized in other comprehensive income (loss), net of tax (expense) benefit of
$(154), $(199), and $140, respectively
2020
2019
2018
$
478 $
695 $
(50)
428
—
12
(1)
7
(15)
680
—
(16)
26
—
$
446 $
690 $
(465)
47
(418)
(2)
37
(90)
(1)
(474)
17. Reinsurance
We reinsure certain risks with other companies and assume risk from other companies. We remain primarily liable to policyholders under ceded
insurance contracts and are contingently liable for amounts recoverable from reinsurers in the event that such reinsurers do not meet their contractual
obligations.
A summary of direct, assumed and ceded premiums written and earned for the years ended December 31, 2020, 2019 and 2018 is as follows:
Direct
Assumed
Ceded
Net premiums
Written
102,479
3,326
(79)
105,726
2020
$
$
$
$
2019
2018
Earned
100,832
3,356
(79)
104,109
$
$
Written
Earned
Written
Earned
91,579
3,196
(45)
94,730
$
$
91,131
3,087
(45)
94,173
$
$
83,652
1,447
(51)
85,048
$
$
84,030
1,442
(51)
85,421
Percentage—assumed to net premiums
3.1 %
3.2 %
3.4 %
3.3 %
1.7 %
1.7 %
The table above includes certain reclassifications between direct and assumed premiums for 2019 and 2018. These reclassifications did not impact any
amounts presented in the consolidated financial statements.
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
A summary of net premiums written and earned by segment (see Note 20, “Segment Information”) for the years ended December 31, 2020, 2019 and
2018 is as follows:
Reportable segments:
Commercial & Specialty Business
Government Business
Other
Net premiums
2020
2019
2018
Written
Earned
Written
Earned
Written
Earned
$
$
31,745 $
72,308
1,673
105,726 $
31,471 $
71,188
1,450
104,109 $
32,113 $
62,617
—
94,730 $
31,944 $
62,229
—
94,173 $
30,661 $
54,387
—
85,048 $
30,532
54,889
—
85,421
The effect of reinsurance on benefit expense for the years ended December 31, 2020, 2019 and 2018 is as follows:
Direct
Assumed
Ceded
Net benefit expense
2020
2019
2018
85,168 $
2,967
(90)
88,045 $
79,110 $
2,733
(57)
81,786 $
70,789
1,179
(73)
71,895
$
$
The effect of reinsurance on certain assets and liabilities at December 31, 2020 and 2019 is as follows:
Policy liabilities, assumed
Unearned income, assumed
Premiums payable, ceded
Premiums receivable, assumed
18. Leases
$
2020
2019
490 $
85
12
347
471
114
11
324
We lease office space and certain computer and related equipment using noncancelable operating leases. Our leases have remaining lease terms of 1
year to 14 years.
The information related to our leases is as follows:
Balance Sheet Location
December 31, 2020
December 31, 2019
Operating Leases
Right-of-use assets
Lease liabilities, current
Lease liabilities, noncurrent
Lease Expense
Operating lease expense
Short-term lease expense
Sublease income
Total lease expense
Lease expense for 2018 was $207.
Other noncurrent assets
Other current liabilities
Other noncurrent liabilities
$
$
$
646 $
110
847
Years Ended December 31
2020
2019
438
50
(9)
479
$
$
575
158
482
198
46
(16)
228
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
Our activities as disclosed in Note 4, “Business Optimization Initiatives”, include reducing our office space footprint. As a result, we performed an
interim impairment test and recorded an impairment charge of $258 for affected right-of-use assets in 2020 which is included in the operating lease expense
shown above.
Other information
Operating cash paid for amounts included in the measurement of lease liabilities, operating leases
Right-of-use assets obtained in exchange for new lease liabilities, operating leases
Weighted average remaining lease term in years, operating leases
Weighted average discount rate, operating leases
$
$
207
384
$
$
7
3.21 %
176
112
6
4.09 %
At December 31, 2020, future lease payments for noncancelable operating leases with initial or remaining terms of one year or more are as follows:
Years Ended December 31
2020
2019
2021
2022
2023
2024
2025
Thereafter
Total future minimum payments
Less imputed interest
Total lease liabilities
$
$
$
197
180
156
125
88
236
982
(25)
957
As of December 31, 2020, we have additional operating leases for building spaces that have not yet commenced, and some building spaces are being
constructed by the lessors and their agents. These leases have terms of up to 12 years and are expected to commence on various dates during 2021 when the
construction is complete and we take possession of the buildings. The undiscounted lease payments for these leases, which are not included in the tables
above, aggregate $139.
19. Earnings per Share
The denominator for basic and diluted earnings per share at December 31, 2020, 2019 and 2018 is as follows:
Denominator for basic earnings per share—weighted-average shares
Effect of dilutive securities—employee stock options, non-vested restricted stock awards, convertible
debentures and equity units
Denominator for diluted earnings per share
2020
2019
2018
250.8
3.5
254.3
255.5
4.8
260.3
258.1
6.1
264.2
During the years ended December 31, 2020, 2019 and 2018, weighted-average shares related to certain stock options of 1.2, 0.6 and 0.3, respectively,
were excluded from the denominator for diluted earnings per share because the stock options were anti-dilutive. The Equity Unit purchase contracts were
settled in May 2018, and approximately 6.0 shares of our common stock were issued and included in the basic earnings per share calculation.
During the years ended December 31, 2020, 2019 and 2018, we issued approximately 0.3, 0.2 and 0.3 restricted stock units, respectively, of which
vesting was contingent upon us meeting certain earnings targets. Contingent restricted stock units are excluded from the denominator for diluted earnings
per share and are included only if and when the contingency is met. The 2020 contingent restricted stock units are being measured over the three year
period of 2020 through 2022, the 2019 contingent restricted stock units are being measured over the three year period of 2019 through 2021 and the 2018
contingent restricted stock units are being measured over the three year period of 2018 through 2020. Contingent restricted stock units generally vest in
March of the year following each measurement period.
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
20. Segment Information
Beginning in 2020, IngenioRx meets the quantitative threshold for a reportable segment based on the FASB guidance. The results of our operations are
now described through four reportable segments: Commercial & Specialty Business, Government Business, IngenioRx and Other.
Our Commercial & Specialty Business segment includes our Local Group, National Accounts, Individual and Specialty businesses. Business units in
the Commercial & Specialty Business segment offer fully-insured health products; provide a broad array of managed care services to self-funded customers
including claims processing, stop loss insurance, provider network access, medical cost management, disease management, wellness programs,
underwriting, actuarial services and other administrative services; and provide an array of specialty and other insurance products and services such as
dental, vision, life and disability insurance benefits.
Our Government Business segment includes our Medicare and Medicaid businesses, National Government Services (“NGS”) and services provided to
the federal government in connection with the FEHB program. Our Medicare business includes services such as Medicare Supplement plans; Medicare
Advantage, including Special Needs Plans; Medicare Part D; and dual-eligible programs through Medicare-Medicaid Plans. Medicare Advantage
membership also includes Medicare Advantage members in our Group Retiree Solutions business who are related to National Accounts, retired members of
Local Group accounts, or retired members of groups who are not affiliated with our Commercial accounts who have selected a Medicare Advantage
product through us. Our Medicaid business includes our managed care alternatives through publicly funded healthcare programs, including Medicaid,
ACA-related Medicaid expansion programs, Temporary Assistance for Needy Families programs, programs for seniors and people with disabilities,
Children’s Health Insurance Programs, and specialty programs such as those focused on long-term services and support, HIV/AIDS, foster care, behavioral
health and/or substance abuse disorders, and intellectual disabilities or developmental disabilities. NGS acts as a Medicare contractor for the federal
government in several regions across the nation.
Our IngenioRx segment includes our PBM business, which began its operations during the second quarter of 2019. IngenioRx markets and offers PBM
services to our affiliated health plan customers, as well as to external customers outside of the health plans we own. IngenioRx has a comprehensive PBM
services portfolio, which includes services such as formulary management, pharmacy networks, prescription drug database, member services and mail
order capabilities. In 2019, IngenioRx was included in our Other reportable segment. Amounts for 2019 have been reclassified to conform to the current
year presentation for comparability.
Our Other segment includes our Diversified Business Group (“DBG”), which is our integrated health services business, and certain eliminations and
corporate expenses not allocated to our other reportable segments. Also, beginning on February 28, 2020, our Other segment includes Beacon.
We define operating revenues to include premium income, product revenue and administrative fees and other revenues. Operating revenues are derived
from premiums and fees received, primarily from the sale and administration of health benefit products. Operating gain is calculated as total operating
revenue less benefit expense, cost of products sold and selling, general and administrative expense.
Through our participation in various federal government programs, we generated approximately 20.3%, 20.7% and 19.8% of our total consolidated
revenues from agencies of the U.S. government for the years ended December 31, 2020, 2019, and 2018, respectively. These revenues are contained in the
Government Business segment.
The accounting policies of the segments are consistent with those described in the summary of significant accounting policies in Note 2, “Basis of
Presentation and Significant Accounting Policies,” except that certain shared administrative expenses for each segment are recognized on a pro rata
allocated basis, which in the aggregate approximates the consolidated expense. Any difference between the allocated expenses and actual consolidated
expense is included in other expenses not allocated to reportable segments. Affiliated revenues represent revenues or cost for services provided by
IngenioRx and DBG to our subsidiaries, are recorded at cost or management’s estimate of fair market value, and are eliminated in consolidation. We
evaluate performance of the reportable segments based on operating gain or loss as defined above. We evaluate net investment income, net realized gains
(losses) on financial instruments, interest expense, amortization expense, gain or loss on extinguishment of debt, income taxes and assets and liabilities on a
consolidated basis, as these items are managed in a corporate shared service environment and are not the responsibility of segment operating management.
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
For our 2019 segment reporting, operating gain generated from IngenioRx activities were allocated and included in our Commercial & Specialty
Business and Government Business based upon their utilization of those services, which aligns with the method by which we assessed the 2019 operating
performance of our reportable segments. Beginning January 1, 2020, we are managing the operating performance of each of our segments on a standalone
basis. Prior year 2019 allocations were not restated to conform to the 2020 presentation; however, operating margins for IngenioRx were approximately 8%
in 2019.
Financial data by reportable segment for the years ended December 31, 2020, 2019 and 2018 is as follows:
Year ended December 31, 2020
Operating revenue - unaffiliated
Operating revenue - affiliated
Operating gain (loss)
Depreciation and amortization of property and
equipment
Year ended December 31, 2019
Operating revenue - unaffiliated
Operating revenue - affiliated
Operating gain (loss)
Depreciation and amortization of property and
equipment
Year ended December 31, 2018
Operating revenue - unaffiliated
Operating revenue - affiliated
Operating gain (loss)
Depreciation and amortization of property and
equipment
Commercial &
Specialty
Business
Government
Business
IngenioRx
Other
Eliminations
Total
$
$
$
36,699 $
—
2,681
—
37,421 $
—
4,032
—
35,782 $
—
3,600
—
71,572
—
2,444
—
62,632
—
2,056
—
55,348
—
1,928
—
10,384 $
11,527
1,361
2,153 $
3,904
(126)
— $
(15,431)
—
120,808
—
6,360
—
638
—
638
2,007 $
3,395
—
1,081 $
1,212
(89)
— $
(4,607)
—
103,141
—
5,999
—
675
—
675
— $
—
—
—
211 $
— $
1,308
(102)
652
(1,308)
—
—
91,341
—
5,426
652
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
The major product revenues for each of the reportable segments for the years ended December 31, 2020, 2019 and 2018 are as follows:
Commercial & Specialty Business
Managed care products
Managed care services
Dental/Vision products and services
Other
Total Commercial & Specialty Business
Government Business
Managed care products
Managed care services
Total Government Business
IngenioRx
Pharmacy products and services
Other
Integrated health services
Other
Total Other Business
Eliminations
Eliminations
Total product revenues
2020
2019
2018
$
29,815 $
5,296
1,231
357
36,699
30,311 $
5,451
1,302
357
37,421
71,188
384
71,572
21,911
5,787
270
6,057
62,229
403
62,632
5,402
2,149
144
2,293
29,012
5,218
1,220
332
35,782
54,889
459
55,348
—
1,489
30
1,519
(15,431)
120,808 $
(4,607)
103,141 $
$
(1,308)
91,341
The classification between managed care products and managed care services in the above table primarily distinguishes between the levels of risk
assumed. Managed care products represent insurance products where we bear the insurance risk, whereas managed care services represent product
offerings where we provide claims adjudication and other administrative services to the customer, but the customer principally bears the insurance risk.
Asset, liability and equity details by reportable segment have not been disclosed, as we do not internally report such information.
A reconciliation of reportable segments’ operating revenue to the amounts of total revenues included in our consolidated statements of income for the
years ended December 31, 2020, 2019 and 2018 is as follows:
Reportable segments operating revenues
Net investment income
Net realized gains (losses) on financial instruments
Total revenues
2020
2019
2018
$
$
120,808 $
877
182
121,867 $
103,141 $
1,005
67
104,213 $
91,341
970
(206)
92,105
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
A reconciliation of reportable segments’ operating gain to income before income tax expense included in our consolidated statements of income for the
years ended December 31, 2020, 2019 and 2018 is as follows:
Reportable segments operating gain
Net investment income
Net realized gains (losses) on financial instruments
Interest expense
Amortization of other intangible assets
Loss on extinguishment of debt
Income before income tax expense
21. Related Party Transactions
2020
2019
2018
$
$
6,360 $
877
182
(784)
(361)
(36)
6,238 $
5,999 $
1,005
67
(746)
(338)
(2)
5,985 $
5,426
970
(206)
(753)
(358)
(11)
5,068
We have a 19.50% equity investment in National Accounts Service Company, LLC (“NASCO”) which processes National Accounts claims and
provides other administrative services for us and certain other BCBS plans. Administrative expenses incurred related to NASCO services totaled $58, $78
and $79, for the years ended December 31, 2020, 2019 and 2018, respectively. Amounts due to NASCO were $5 and $4 at December 31, 2020 and 2019,
respectively.
We have an equity investment in APC Passe, LLC, which offers Medicaid products in Arkansas. During the years ended December 31, 2020 and 2019,
in the normal course of business, we assumed premiums of $446 and $408, respectively, from APC Passe, LLC, which is included in our total assumed
premiums (see Note 17, “Reinsurance”). Amounts due to APC Passe, LLC were $115 and $162 at December 31, 2020 and 2019, respectively.
22. Statutory Information
The majority of our insurance and HMO subsidiaries report their accounts in conformity with accounting practices prescribed or permitted by state
insurance regulatory authorities, commonly referred to as statutory accounting, which vary in certain respects from GAAP. However, certain of our
insurance and HMO subsidiaries, including BCC, Blue Cross of California Partnership Plan, Inc., Golden West Health Plan, Inc., Beacon Health Options of
California, Inc. and CareMore Health Plan are regulated by the California Department of Managed Health Care (“DMHC”) and report their accounts in
conformity with GAAP (these entities are collectively referred to as the “DMHC regulated entities”). Typical differences of GAAP reporting as compared
to statutory reporting are the recognition of all assets including those that are non-admitted for statutory purposes and recognition of all deferred tax assets
without regard to statutory limits. The National Association of Insurance Commissioners (“NAIC”) developed a codified version of the statutory
accounting principles, designed to foster more consistency among the states for accounting guidelines and reporting. Prescribed statutory accounting
practices are set forth in a variety of publications of the NAIC as well as state laws, regulations and general administrative rules.
Our ability to pay dividends and credit obligations is significantly dependent on receipt of dividends from our subsidiaries. The payment of dividends
to us by our insurance and HMO subsidiaries without prior approval of the insurance departments of each subsidiary’s domiciliary jurisdiction is limited by
formula. Dividends in excess of these amounts are subject to prior approval by the respective state insurance departments or the DMHC.
Our statutory basis insurance and HMO subsidiaries are subject to risk-based capital (“RBC”) requirements. RBC is a method developed by the NAIC
to determine the minimum amount of statutory capital appropriate for an insurance company or HMO to support its overall business operations in
consideration of its size and risk profile. The formula for determining the amount of RBC specifies various factors, weighted based on the perceived degree
of risk, which are applied to certain financial balances and financial activity. Below minimum RBC requirements are classified within certain levels, each
of which requires specified corrective action. Additionally, the DMHC regulated entities are subject to capital and solvency requirements as prescribed by
the DMHC. As of December 31, 2020 and 2019, all of our regulated subsidiaries exceeded the minimum applicable mandatory RBC requirements and/or
capital and solvency requirements of their applicable governmental regulator. The statutory RBC necessary to satisfy regulatory requirements of our
statutory basis insurance and HMO subsidiaries was approximately $5,800 and $5,500 as of December 31, 2020 and 2019, respectively. The tangible net
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Anthem, Inc.
Notes to Consolidated Financial Statements (continued)
equity required for the DMHC regulated entities was approximately $600 and $610 as of December 31, 2020 and 2019, respectively.
Statutory-basis capital and surplus of our insurance and HMO subsidiaries and capital and surplus of our other regulated subsidiaries, excluding the
DMHC regulated entities, was $13,717 and $13,044 at December 31, 2020 and 2019, respectively. Statutory-basis net income of our insurance and HMO
subsidiaries and net income of our other regulated subsidiaries, excluding the DMHC regulated entities, was $3,170, $3,840 and $3,412 for 2020, 2019 and
2018, respectively. GAAP equity of the DMHC regulated entities was $3,851 and $3,359 at December 31, 2020 and 2019, respectively. GAAP net income
of the DMHC regulated entities was $753, $878 and $789 for the years ended December 31, 2020, 2019 and 2018, respectively.
23. Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data is as follows:
2020
Total revenues
Income before income tax expense
Net income
Basic net income per share
Diluted net income per share
2019
Total revenues
Income before income tax expense
Net income
Basic net income per share
Diluted net income per share
March 31
June 30
September 30
December 31
For the Quarter Ended
$
$
$
$
29,621 $
2,089
1,523
29,264 $
3,149
2,276
31,158 $
389
222
6.03 $
5.94
9.02 $
8.91
0.88 $
0.87
24,666 $
1,945
1,551
25,466 $
1,453
1,139
26,674 $
1,489
1,183
6.03 $
5.91
4.44 $
4.36
4.64 $
4.55
31,824
611
551
2.23
2.19
27,407
1,098
934
3.69
3.62
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with our independent registered public accounting firm on accounting or financial disclosures.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation as of December 31, 2020, under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule
13a-15(e) of the Exchange Act. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls
and procedures are effective in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be disclosed
in our reports under the Exchange Act. In addition, based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosures.
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Management’s Report on Internal Control over Financial Reporting
Management, under the supervision and with the participation of the principal executive officer and principal financial officer, of Anthem, Inc. (the
“Company”) is responsible for establishing and maintaining effective internal control over financial reporting (“Internal Control”), as such term is defined
in the Exchange Act. The Company’s Internal Control is designed to provide reasonable assurance regarding the reliability of the Company’s financial
reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles
(“GAAP”). The Company’s Internal Control includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of inherent limitations in any Internal Control, no matter how well designed, misstatements due to error or fraud may occur and not be
detected. Accordingly, even effective Internal Control can provide only reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with GAAP.
Management, under the supervision and with the participation of the principal executive officer and principal financial officer, assessed the
effectiveness of the Company’s Internal Control as of December 31, 2020. Management’s assessment was based on criteria established in Internal Control
—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company completed its acquisition of Beacon Health Options, Inc. on February 28, 2020. As permitted by the U.S. Securities and Exchange
Commission, management's assessment as of December 31, 2020 did not include the Internal Control of Beacon Health Options, Inc., which is included in
the Company's consolidated financial statements as of December 31, 2020. Such operations of Beacon Health Options, Inc. constituted 3% and 6% of the
Company's total assets and net assets, respectively, as of December 31, 2020, and 2% and 0% of the Company's total revenues and net income for the year
then ended.
Based on management’s assessment, which excluded an assessment of Internal Control of Beacon Health Options, Inc., management has concluded
that the Company’s Internal Control was effective as of December 31, 2020 to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external reporting purposes in accordance with GAAP.
Ernst & Young LLP, the Company’s independent registered public accounting firm, has audited the consolidated financial statements of the Company
for the year ended December 31, 2020, and has also issued an audit report dated February 18, 2021, on the effectiveness of the Company’s Internal Control
as of December 31, 2020, which is included in this Annual Report on Form 10-K.
/S/ GAIL K. BOUDREAUX
President and Chief Executive Officer
/S/ JOHN E. GALLINA
Executive Vice President and Chief Financial Officer
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2020 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Anthem, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Anthem, Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control–
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our
opinion, Anthem, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based
on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the internal controls of Beacon Health Options, Inc., which is included in the 2020
consolidated financial statements of the Company and constituted 3% and 6% of total and net assets, respectively, as of December 31, 2020 and 2% and 0%
of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include
an evaluation of the internal control over financial reporting of Beacon Health Options, Inc.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of Anthem, Inc. as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders’
equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule listed in the
Index at Item 15(c) and our report dated February 18, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
February 18, 2021
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ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this Item concerning our Executive Officers, Directors and nominees for Director, Audit Committee members and
financial expert(s) and concerning disclosure of any delinquent filers under Section 16(a) of the Exchange Act and our Code of Conduct is incorporated
herein by reference from our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders, which will be filed with the SEC pursuant to
Regulation 14A within 120 days after the end of our last fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item concerning remuneration of our Executive Officers and Directors, material transactions involving such
Executive Officers and Directors and Compensation Committee interlocks, as well as the Compensation and Talent Committee Report and CEO Pay Ratio
disclosure are incorporated herein by reference from our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders, which will be filed with
the SEC pursuant to Regulation 14A within 120 days after the end of our last fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
Securities Authorized for Issuance under Equity Compensation Plans
Securities authorized for issuance under our equity compensation plans as of December 31, 2020 are as follows:
Equity compensation plans approved by shareholders as of
December 31, 2020
Plan
1
Category
Number of securities to be
issued upon exercise of
outstanding options, warrants and
2
rights
(a)
Weighted-average
exercise price of
outstanding options, warrants and
3
rights
(b)
Number of securities
remaining available for
future issuance under equity
compensation plans (excluding
4
securities reflected in column (a))
(c)
5,367,044
$230.00
24,139,655
1 We have no equity compensation plans pursuant to which awards may be granted in the future that have not been approved by shareholders.
2
Includes shares that may be issued under the Anthem Incentive Compensation Plan and the Anthem 2017 Incentive Compensation Plan pursuant to the following
outstanding awards: 3,071,776 stock options, 625,254 unvested restricted stock units, and 1,670,014 performance stock units (assuming that the outstanding
performance stock units are earned at the maximum award level).
Represents the weighted average exercise price of outstanding stock options. Does not take into consideration outstanding restricted stock units or performance stock
units, which, once vested, may be converted into shares of our common stock on a one-for-one basis upon distribution at no additional cost.
Excludes securities reflected in the first column, “Number of securities to be issued upon exercise of outstanding options, warrants and rights”. Includes 19,498,782
shares of common stock available for issuance as stock options, restricted stock awards, performance stock awards, performance awards and stock appreciation rights
under the Anthem 2017 Incentive Compensation Plan at December 31, 2020. Includes 4,640,873 shares of common stock available for issuance under the Stock
Purchase Plan at December 31, 2020.
3
4
The information required by this Item concerning the stock ownership of management and five percent beneficial owners is incorporated herein by
reference from our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders, which will be filed with the SEC pursuant to Regulation 14A
within 120 days after the end of our last fiscal year.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this Item concerning certain relationships and related person transactions and director independence is incorporated herein
by reference from our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders, which will be filed with the SEC pursuant to Regulation
14A within 120 days after the end of our last fiscal year.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this Item concerning principal accountant fees and services is incorporated herein by reference from our definitive Proxy
Statement for our 2021 Annual Meeting of Shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days after the end of our
last fiscal year.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) 1. Financial Statements:
PART IV
The following consolidated financial statements of the Company are set forth in Part II, Item 8:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Income for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
The following financial statement schedule of the Company is included in Item 15(c):
Schedule II—Condensed Financial Information of Registrant (Parent Company Only).
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related
instructions, are inapplicable, or the required information is included in the consolidated financial statements, and therefore, have been omitted.
3. Exhibits required to be filed as part of this report:
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
Exhibit
Amended and Restated Articles of Incorporation of the Company, as amended and restated effective May 15, 2019, incorporated by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 15, 2019.
Bylaws of the Company, as amended effective September 30, 2020, incorporated by reference to Exhibit 3.1 to the Company’s Current
Report on Form 8-K filed on October 6, 2020
Form of Specimen Certificate of the Company’s common stock, $0.01 par value per share, incorporated by reference to Exhibit 4.3 to the
Company’s Post-Effective Amendment No.1 to Form S-8 Registration Statement filed on May 23, 2017.
Indenture, dated as of December 9, 2004, between the Company and The Bank of New York Trust Company, N.A., as trustee, including the
Form of the Company’s 5.950% Notes due 2034, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K
filed on December 15, 2004.
Indenture, dated as of January 10, 2006, between the Company and The Bank of New York Mellon Trust Company, N.A. (formerly known
as The Bank of New York Trust Company, N.A.), as trustee, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on
Form 8-K filed on January 11, 2006.
(a)
(b)
(c)
(d)
Form of 5.85% Notes due 2036, incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on
January 11, 2006.
Form of 6.375% Notes due 2037, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on
June 8, 2007.
Form of 5.800% Notes due 2040, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on
August 12, 2010.
Form of 3.700% Notes due 2021, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on
August 15, 2011.
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Exhibit
Number
Exhibit
4.4
4.5
4.6
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
Form of 3.125% Notes due 2022, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on
May 7, 2012.
Form of 4.625% Notes due 2042, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on
May 7, 2012.
Form of 3.300% Notes due 2023, incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on
September 10, 2012.
Form of 4.650% Notes due 2043, incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed on
September 10, 2012.
Form of 5.100% Notes due 2044, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on
July 31, 2013.
Form of 3.500% Notes due 2024, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on
August 12, 2014.
Form of 4.650% Notes due 2044, incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on
August 12, 2014.
Form of 4.850% Notes due 2054, incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed on
August 12, 2014.
Indenture dated as of October 9, 2012 between the Company and The Bank of New York Mellon Trust Company, N.A. as trustee, including
the Form of the 2.750% Senior Convertible Debentures due 2042, incorporated by reference to Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed on October 9, 2012.
Subordinated Indenture, dated as of May 12, 2015, between the Company and The Bank of New York Mellon Trust Company, N.A., as
trustee, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 12, 2015.
Indenture dated as of November 21, 2017 between the Company and The Bank of New York Mellon Trust Company, N.A. as trustee,
incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on November 21, 2017.
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
Form of 2.950% Notes due 2022, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on
November 21, 2017.
Form of 3.350% Notes due 2024, incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on
November 21, 2017.
Form of 3.650% Notes due 2027, incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed on
November 21, 2017.
Form of 4.375% Notes due 2047, incorporated by reference to Exhibit 4.6 to the Company’s Current Report on Form 8-K filed on
November 21, 2017.
Form of 4.101% Notes due 2028, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on
March 2, 2018.
Form of 4.550% Notes due 2048, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on
March 2, 2018.
Form of 2.375% Notes due 2025, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on
September 9, 2019.
Form of 2.875% Notes due 2029, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on
September 9, 2019.
Form of 3.700% Notes due 2049, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on
September 9, 2019.
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Exhibit
Number
(j)
(k)
Form of the 2.250% Notes due 2030, incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed
on May 5, 2020.
Form of the 3.125% Notes due 2050, incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed
on May 5, 2020.
Exhibit
4.7 Upon the request of the Securities and Exchange Commission, the Company will furnish copies of any other instruments defining the rights
of holders of long-term debt of the Company or its subsidiaries.
4.8
Description of the Company’s Securities Registered Pursuant to Section 12 of the Exchange Act.
10.1 * Anthem Incentive Compensation Plan, as amended and restated effective December 2, 2014, incorporated by reference to Exhibit 10.2 to
the Company’s Current Report on Form 8-K filed on December 2, 2014.
(a)
(b)
(c)
(d)
(e)
(f)
Form of Incentive Compensation Plan Nonqualified Stock Option Award Agreement for 2014, incorporated by reference to Exhibit
10.2(p) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.
Form of Incentive Compensation Plan Nonqualified Stock Option Award Agreement for 2015, incorporated by reference to Exhibit
10.2(n) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015.
Form of Amendment, dated March 9, 2016, to Incentive Compensation Plan Nonqualified Stock Option Award Agreement for 2014,
incorporated by reference to Exhibit 10.2(m) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2016.
Form of Amendment, dated March 9, 2016, to Incentive Compensation Plan Nonqualified Stock Option Award Agreement for 2015,
incorporated by reference to Exhibit 10.2(p) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,
2016.
Form of Incentive Compensation Plan Nonqualified Stock Option Award Agreement for 2016 and 2017, incorporated by reference to
Exhibit 10.2(s) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016.
Form of Incentive Compensation Plan Restricted Stock Unit Award Agreement for 2017, incorporated by reference to Exhibit 10.2(t)
to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016.
10.2
* 2017 Anthem Incentive Compensation Plan, as amended and restated effective October 1, 2019, incorporated by reference to Exhibit 10.2
to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.
(a)
(b)
(c)
(d)
(e)
Form of Incentive Compensation Plan Nonqualified Stock Option Award Agreement for 2018, incorporated by reference to Exhibit
10.2(d) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.
Form of Incentive Compensation Plan Restricted Stock Unit Award Agreement for 2018, incorporated by reference to Exhibit
10.2(e) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.
Form of Incentive Compensation Plan Performance Stock Unit Award Agreement for 2018, incorporated by reference to Exhibit
10.2(f) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.
Form of Incentive Compensation Plan Nonqualified Stock Option Award Agreement commencing July 2018, incorporated by
reference to Exhibit 10.2(h) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.
Form of Incentive Compensation Plan Restricted Stock Unit Award Agreement commencing July 2018, incorporated by reference to
Exhibit 10.2(i) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.
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Exhibit
Number
Exhibit
(f)
(g)
(h)
(i)
(j)
(k)
(l)
Form of Incentive Compensation Plan Performance Stock Unit Award Agreement commencing July 2018, incorporated by reference
to Exhibit 10.2(j) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.
Form of Incentive Compensation Plan Nonqualified Stock Option Award Agreement for 2019, incorporated by reference to Exhibit
10.2(l) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.
Form of Incentive Compensation Plan Restricted Stock Unit Award Agreement for 2019, incorporated by reference to Exhibit
10.2(m) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.
Form of Incentive Compensation Plan Performance Stock Unit Award Agreement for 2019, incorporated by reference to Exhibit
10.2(n) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.
Form of Incentive Compensation Plan Nonqualified Stock Option Award Agreement for 2020, incorporated by reference to Exhibit
10.2(l) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
Form of Incentive Compensation Plan Restricted Stock Unit Award Agreement for 2020, incorporated by reference to Exhibit
10.2(m) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
Form of Incentive Compensation Plan Performance Stock Unit Award Agreement for 2020, incorporated by reference to Exhibit
10.2(n) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
10.3
10.4
* Anthem, Inc. Comprehensive Nonqualified Deferred Compensation Plan, as amended and restated effective October 1, 2019, incorporated
by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.
* Anthem, Inc. Executive Agreement Plan, as amended and restated effective December 2, 2014, incorporated by reference to Exhibit 10.4 to
the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
(a)
(b)
(c)
First Amendment, dated March 9, 2016, to Executive Agreement Plan, incorporated by reference to Exhibit 10.4(a) to the
Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016.
Second Amendment, dated January 6, 2017, to Executive Agreement Plan, incorporated by reference to Exhibit 10.3(b) to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Third Amendment, dated August 27, 2018, to Executive Agreement Plan, incorporated by reference to Exhibit 10.4(c) to the
Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018.
10.5
* Anthem, Inc. Executive Salary Continuation Plan, as amended and restated effective December 2, 2014, incorporated by reference to
Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
10.6
* Anthem, Inc. Directed Executive Compensation Plan amended effective January 1, 2020.
10.7
10.8
* Anthem, Inc. Board of Directors Compensation Program, as amended effective May 15, 2019, incorporated by reference to Exhibit 10.7 to
the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019.
* Anthem Board of Directors’ Deferred Compensation Plan, as amended and restated effective December 2, 2014, incorporated by reference
to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
10.9 *
(a)
Form of Employment Agreement between the Company and each of the following: John E. Gallina, Peter D. Haytaian, and Gloria
McCarthy, incorporated by reference to Exhibit A to Exhibit 10.41 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2007.
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Exhibit
Number
(b)
(c)
Form of Employment Agreement between the Company and Gail Boudreaux, incorporated by reference to Exhibit A to Exhibit 10.1
to the Company’s Current Report on Form 8-K filed on November 6, 2017.
Form of Employment Agreement between the Company and each of the following: Felicia F. Norwood, Prakash Patel, Leah Stark,
Jeffrey D. Alter, and Blair W. Todt incorporated by reference to Exhibit 10.9(d) to the Company’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2018.
Exhibit
10.10
10.11
10.12
21
23
31.1
31.2
32.1
32.2
101
* Offer Letter, by and between the Company and Gail Boudreaux, dated as of November 5, 2017, incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed on November 6, 2017.
Blue Cross License Agreement by and between Blue Cross Blue Shield Association and the Company, including revisions, if any, adopted
by the Member Plans through September 17, 2020.
Blue Shield License Agreement by and between Blue Cross Blue Shield Association and the Company, including revisions, if any, adopted
by the Member Plans through September 17, 2020.
Subsidiaries of the Company.
Consent of Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act Rules, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act Rules, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
The following materials from Anthem, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020, formatted in Inline
XBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Income;
(iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; (v) the Consolidated
Statements of Shareholders’ Equity; (vi) the Notes to Consolidated Financial Statements and (vii) Financial Statement Schedule II. The
instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
104
Cover Page Interactive Data File formatted in Inline XBRL and contained in Exhibit 101.
*
Indicates management contracts or compensatory plans or arrangements.
(b) Exhibits
The response to this portion of Item 15 is set forth in paragraph (a) 3 above.
(c) Financial Statement Schedule
Schedule II—Condensed Financial Information of Registrant (Parent Company Only).
ITEM 16. FORM 10-K SUMMARY.
None.
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Schedule II—Condensed Financial Information of Registrant
Anthem, Inc. (Parent Company Only)
Balance Sheets
(In millions, except share data)
Assets
Current assets:
Cash and cash equivalents
Fixed maturity securities, current (amortized cost of $594 and $592;
allowance for credit losses of $0 and $0)
Equity securities
Other receivables
Net due from subsidiaries
Other current assets
Total current assets
Other invested assets
Property and equipment, net
Deferred tax assets, net
Investments in subsidiaries
Other noncurrent assets
Total assets
Liabilities and shareholders’ equity
Liabilities
Current liabilities:
Accounts payable and accrued expenses
Net due to subsidiaries
Current portion of long-term debt
Other current liabilities
Total current liabilities
Long-term debt, less current portion
Other noncurrent liabilities
Total liabilities
Commitments and contingencies—Note 5
Shareholders’ equity
Preferred stock, without par value, shares authorized - 100,000,000; shares issued and outstanding - none
Common stock, par value $0.01, shares authorized - 900,000,000; shares issued and outstanding - 245,401,430 and
252,922,161
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2020
December 31,
2019
$
700 $
608
439
41
—
800
2,588
664
209
391
51,739
211
55,802 $
429 $
1,239
700
494
2,862
19,310
431
22,603
—
3
9,244
23,802
150
33,199
55,802 $
$
$
$
1,818
602
253
92
602
653
4,020
657
170
216
47,423
263
52,749
887
—
1,598
263
2,748
17,762
511
21,021
—
3
9,448
22,573
(296)
31,728
52,749
See accompanying notes.
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Anthem, Inc. (Parent Company Only)
Statements of Income
(In millions)
Revenues
Net investment income
Net realized gains (losses) on financial instruments
Administrative fees and other revenue
Total revenues (losses)
Expenses
General and administrative expense
Interest expense
Loss on extinguishment of debt
Total expenses
Loss before income tax credits and equity in net income of subsidiaries
Income tax credits
Equity in net income of subsidiaries
Net income
2020
Years ended December 31
2019
2018
65 $
28
22
115
169
779
36
984
(869)
(386)
5,055
4,572 $
81 $
(85)
22
18
88
723
2
813
(795)
(251)
5,351
4,807 $
39
(61)
2
(20)
86
723
11
820
(840)
(238)
4,352
3,750
$
$
See accompanying notes.
-156-
Anthem, Inc. (Parent Company Only)
Statements of Comprehensive Income
(in millions)
Net income
Other comprehensive income, net of tax:
Change in net unrealized gains/losses on investments
Change in non-credit component of impairment losses on investments
Change in net unrealized gains/losses on cash flow hedges
Change in net periodic pension and postretirement costs
Foreign currency translation adjustments
Other comprehensive income (loss)
Total comprehensive income
Years ended December 31
2020
2019
2018
$
4,572 $
4,807 $
428
—
12
(1)
7
446
5,018 $
680
—
(16)
26
—
690
5,497 $
$
3,750
(418)
(2)
37
(90)
(1)
(474)
3,276
See accompanying notes.
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Anthem, Inc. (Parent Company Only)
Statements of Cash Flows
(In millions)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
2020
Years ended December 31
2019
2018
$
4,572 $
4,807 $
3,750
Undistributed earnings of subsidiaries
Net realized (gains) losses on financial instruments
Deferred income taxes
Impairment of property and equipment
Depreciation and amortization
Share-based compensation
Changes in operating assets and liabilities:
Receivables, net
Other invested assets
Other assets
Amounts due to/(from) subsidiaries
Accounts payable and other liabilities
Income taxes
Other, net
Net cash provided by operating activities
Investing activities
Purchases of investments
Proceeds from sales, maturities, calls and redemptions of investments
Capitalization of subsidiaries
Changes in securities lending collateral
Purchases of property and equipment, net of sales
Other, net
Net cash used in investing activities
Financing activities
Net repayments of commercial paper borrowings
Proceeds from long-term borrowings
Repayments of long-term borrowings
Changes in securities lending payable
Proceeds from issuance of common stock under Equity Units stock purchase contracts
Repurchase and retirement of common stock
Cash dividends
Proceeds from issuance of common stock under employee stock plans
Taxes paid through withholding of common stock under employee stock plans
Other, net
Net cash used in financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of year
(1,418)
(28)
(178)
10
96
283
53
(27)
33
1,841
(554)
87
40
4,810
(2,729)
2,593
(2,460)
(234)
(107)
11
(2,926)
(150)
2,484
(1,932)
234
—
(2,700)
(1,000)
176
(128)
14
(3,002)
(1,118)
1,818
Cash and cash equivalents at end of year
$
700 $
(1,561)
85
2
—
106
294
41
6
(235)
(432)
(422)
(282)
2
2,411
(9,682)
9,457
(232)
18
(54)
—
(493)
(297)
2,473
(1,123)
(18)
—
(1,701)
(856)
187
(84)
29
(1,390)
528
1,290
1,818 $
(744)
61
(43)
—
113
226
(73)
(5)
(225)
2,259
457
187
12
5,975
(800)
1,865
(4,379)
(21)
(137)
4
(3,468)
(107)
835
(1,684)
21
1,250
(1,685)
(812)
173
(81)
(83)
(2,173)
334
956
1,290
See accompanying notes.
-158-
Anthem, Inc.
(Parent Company Only)
Notes to Condensed Financial Statements
December 31, 2020
(In Millions, Except Per Share Data)
1. Basis of Presentation and Significant Accounting Policies
In the parent company only financial statements of Anthem, Inc. (“Anthem”) Anthem’s investment in subsidiaries is stated at cost plus equity in
undistributed earnings of the subsidiaries. Anthem’s share of net income of its unconsolidated subsidiaries is included in income using the equity method of
accounting.
Certain amounts presented in the parent company only financial statements are eliminated in the consolidated financial statements of Anthem.
Anthem’s parent company only financial statements should be read in conjunction with Anthem’s audited consolidated financial statements and the
accompanying notes included in Part II, Item 8 of this Annual Report on Form 10-K.
2. Subsidiary Transactions
Dividends from Subsidiaries
Anthem received cash dividends from subsidiaries of $3,618, $3,790 and $3,606 during 2020, 2019 and 2018, respectively.
Dividends to Subsidiaries
Certain subsidiaries of Anthem own shares of Anthem common stock. Anthem paid cash dividends to subsidiaries related to these shares of common
stock in the amount of $46, $38 and $36 during 2020, 2019 and 2018, respectively.
Investments in Subsidiaries
Capital contributions to subsidiaries were $2,460, $232 and $4,379 during 2020, 2019 and 2018, respectively.
Amounts Due to and From Subsidiaries
At December 31, 2020 and 2019, Anthem reported amounts due to and from subsidiaries of $1,239 and $602, respectively. The amounts due from
subsidiaries primarily include amounts for allocated administrative expenses or daily cash management activities. These items are routinely settled, and as
such, are classified as current assets or liabilities.
Guarantees on Behalf of Subsidiaries
Anthem guarantees contractual or financial obligations or solvency requirements for certain of its subsidiaries. These guarantees approximated $538 at
December 31, 2020. There were no payments made on these guarantees in 2020.
3. Derivative Financial Instruments
The information regarding derivative financial instruments contained in Note 6, “Derivative Financial Instruments,” of the Notes to Consolidated
Financial Statements of Anthem and its subsidiaries, included in Part II, Item 8 of this Annual Report on Form 10-K, is incorporated herein by reference.
4. Long-Term Debt
The information regarding long-term debt contained in Note 13, “Debt,” of the Notes to Consolidated Financial Statements of Anthem and its
subsidiaries, included in Part II, Item 8 of this Annual Report on Form 10-K, is incorporated herein by reference.
-159-
5. Commitments and Contingencies
The information regarding commitments and contingencies contained in Note 14, “Commitments and Contingencies,” of the Notes to Consolidated
Financial Statements of Anthem and its subsidiaries, included in Part II, Item 8 of this Annual Report on Form 10-K, is incorporated herein by reference.
6. Capital Stock
The information regarding capital stock contained in Note 15, “Capital Stock,” of the Notes to Consolidated Financial Statements of Anthem and its
subsidiaries, included in Part II, Item 8 of this Annual Report on Form 10-K, is incorporated herein by reference.
7. Leases
Beginning in 2019, certain of our leases, including the lease for our principal executive offices located at 220 Virginia Avenue, Indianapolis, Indiana,
are obligations of Anthem, Inc. (Parent Company). At December 31, 2020, these leases had an aggregate right-of-use asset of $95, a lease liability balance
of $98, operating lease expense of $15 and future lease payments as follows: 2021, $21; 2022, $19; 2023, $16; 2024, $13; 2025, $11; and thereafter $59. At
December 31, 2019, the aggregate right-of-use asset balance was $39, the lease liability balance was $40, and the operating lease expense recognized in
2019 was $7. All other information regarding leases is contained in Note 18, “Leases,” of the Notes to Consolidated Financial Statements of Anthem and
its subsidiaries, included in Part II, Item 8 of this Annual Report on Form 10-K. Our activities as disclosed in Note 4, “Business Optimization Initiatives” of
the Notes to Consolidated Financial Statements of Anthem and its subsidiaries, included in Part II, Item 8 of this Annual Report on Form 10-K, include
reducing our office space footprint. As a result, we performed an interim impairment test and recorded an impairment charge of $1 for affected right-of-use
assets in 2020 which is included in the operating lease expense shown above.
8. Property and Equipment
The information regarding property and equipment contained in Note 9, “Property and Equipment,” of the Notes to Consolidated Financial Statements
of Anthem and its subsidiaries, included in Part II, Item 8 of this Annual Report on Form 10-K, is incorporated herein by reference. Our activities as
disclosed in Note 4, “Business Optimization Initiatives” of the Notes to Consolidated Financial Statements of Anthem and its subsidiaries, included in Part
II, Item 8 of this Annual Report on Form 10-K, include impairment and abandonment of property and equipment. We recorded an impairment charge of
$10 for property and equipment which is included in general and administrative expenses.
-160-
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
ANTHEM, INC.
By:
/s/ GAIL K. BOUDREAUX
Gail K. Boudreaux
President and Chief Executive Officer
Dated: February 18, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ GAIL K. BOUDREAUX
Gail K. Boudreaux
/s/ JOHN E. GALLINA
John E. Gallina
/s/ RONALD W. PENCZEK
Ronald W. Penczek
/s/ ELIZABETH E. TALLETT
Elizabeth E. Tallett
/s/ R. KERRY CLARK
R. Kerry Clark
/s/ ROBERT L. DIXON, JR.
Robert L. Dixon, Jr.
/s/ LEWIS HAY III
Lewis Hay III
/s/ JULIE A. HILL
Julie A. Hill
/s/ BAHIJA JALLAL
Bahija Jallal
/s/ ANTONIO F. NERI
Antonio F. Neri
/s/ RAMIRO G. PERU
Ramiro G. Peru
/s/ RYAN M. SCHNEIDER
Ryan M. Schneider
President and Chief Executive Officer, Director
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
Senior Vice President and Chief Accounting Officer (Principal
Accounting Officer)
Chair of the Board
Director
Director
Director
Director
Director
Director
Director
Director
-161-
Date
February 18, 2021
February 18, 2021
February 18, 2021
February 18, 2021
February 18, 2021
February 18, 2021
February 18, 2021
February 18, 2021
February 18, 2021
February 18, 2021
February 18, 2021
February 18, 2021
EXHIBIT 4.8
DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE
ACT OF 1934
The common stock of Anthem, Inc. (“Anthem,” “we,” “our,” or “us”) is the only class of securities registered under Section 12 of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”).
The following is a summary of the general terms and provisions of our common stock. This summary does not purport to be complete and is subject
to and qualified by reference to our amended and restated articles of incorporation, as amended (our “articles of incorporation”) and our bylaws, as
amended (our “bylaws”), both of which are filed as exhibits to our most recent Annual Report on Form 10-K filed with the Securities and Exchange
Commission (the “SEC”). For additional information, please read our articles of incorporation, our bylaws and the applicable provisions of the Indiana
Business Corporation Law, as amended (the “IBCL”).
General
We are authorized to issue up to 900,000,000 shares of common stock, par value $0.01 per share, as well as up to 100,000,000 shares of preferred
stock, without par value. We have no shares of preferred stock issued or outstanding.
Each holder of our common stock is entitled to one vote per share of record on all matters to be voted upon by the shareholders. Holders do not have
cumulative voting rights in the election of directors or any other matter. Subject to the preferential rights of the holders of any preferred stock that may at
the time be outstanding, each share of common stock will entitle the holder of that share to an equal and ratable right to receive dividends or other
distributions (other than purchases, redemptions or other acquisitions of shares by us) if declared from time to time by our board of directors and if there
are sufficient funds to legally pay a dividend.
In the event of our liquidation, dissolution or winding up, whether voluntary or involuntary, the holders of common stock will be entitled to share
ratably in all assets remaining after payments to creditors and after satisfaction of the liquidation preference, if any, of the holders of any preferred stock
that may at the time be outstanding. Holders of common stock have no preemptive or redemption rights and will not be subject to further calls or
assessments by us.
Our common stock trades on the New York Stock Exchange under the symbol “ANTM.” Computershare Trust Company, N.A. is the registrar,
transfer agent, conversion agent and dividend disbursing agent for the common stock.
Authorized But Unissued Shares
Indiana law does not require shareholder approval for any issuance of authorized shares. Authorized but unissued shares may be used for a variety of
corporate purposes, including future public or private offerings to raise additional capital or to facilitate corporate acquisitions. One of the effects of the
existence of authorized but unissued shares may be to enable our board of directors to issue shares to persons friendly to current management, which
issuance could render more difficult or discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of current management and possibly deprive the shareholders of opportunities to sell their shares of common stock at prices
higher than prevailing market prices. In addition, depending on the rights prescribed for any series of preferred stock that may be issued, the issuance of
preferred stock could have an adverse effect on the voting power of the holders of common stock or could impose restrictions upon the payment of
dividends and other distributions to the holders of common stock.
Limitations on Ownership of Our Common Stock in Articles of Incorporation
As required under our licenses with the Blue Cross and Blue Shield Association (“BCBSA”), our articles of incorporation contain certain limitations
on the ownership of our common stock. Our articles of incorporation provide that no person may beneficially own shares of voting capital stock in excess
of specified ownership limits,
US.131016551.01
1
EXHIBIT 4.8
except with the prior approval of a majority of the “continuing directors.” The ownership limits, which may not be exceeded without the prior approval of
the BCBSA, are the following:
• for any institutional investor (as defined in our articles of incorporation), one share less than 10% of our outstanding voting securities;
• for any non-institutional investor (as defined in our articles of incorporation), one share less than 5% of our outstanding voting securities; and
• for any person, one share less than the number of shares of our common stock or other equity securities (or a combination thereof) representing a
20% ownership interest in us.
Any transfer of stock that would result in any person beneficially owning shares of capital stock in excess of any ownership limit will result in the
intended transferee acquiring no rights in the shares exceeding such ownership limit (with certain exceptions) and the person’s excess shares will be
deemed transferred to an escrow agent to be held until the shares are transferred to a person whose ownership of the shares will not violate the ownership
limit.
Certain Other Provisions of Our Articles of Incorporation and Bylaws
Certain other provisions of our articles of incorporation and bylaws may delay or make more difficult unsolicited acquisitions or changes of control
of us. These provisions could have the effect of discouraging third parties from making proposals involving an unsolicited acquisition or change in control
of us, although these proposals, if made, might be considered desirable by a majority of our shareholders. These provisions may also have the effect of
making it more difficult for third parties to cause the replacement of the current management without the concurrence of the board of directors. These
provisions include:
• the division of the board of directors into three classes serving staggered terms of office of three years;
• provisions limiting the maximum number of directors to 19 and requiring that any increase in the number of directors then in effect must be
approved by a majority of continuing directors;
• provisions requiring that, except in certain limited circumstances, the filling of any vacancy on the board of directors must be approved by a
majority of continuing directors;
•
•
permitting a special meeting of shareholders to be called only by the board of directors, the Chair of the Board, the Lead Director, the Chief
Executive Officer, the President, or upon the written demand of any one or more shareholders owning at least 20% of our outstanding common
stock; and
requirements for advance notice for raising business or making nominations at shareholders’ meetings.
Our bylaws provide that if the requirement for a classified board structure set forth in our licenses with the BCBSA is eliminated or otherwise no
longer applicable to the Company, the board of directors will take all necessary actions to implement the elimination of the classified board structure and
the annual election of all directors, which shall be phased in over a three-year period commencing with the first annual meeting of shareholders occurring at
least 90 days after the board of directors determines that such requirement is eliminated or is otherwise no longer applicable to the Company.
Our bylaws establish an advance notice procedure with regard to business to be brought before an annual or special meeting of shareholders and
advance notice and proxy access procedures with regard to the nomination of candidates for election as directors, other than by or at the direction of the
board of directors. Although our bylaws do not give the board of directors any power to approve or disapprove shareholder nominations for the election of
directors or proposals for action, they may have the effect of precluding a contest for the election of directors or the consideration of shareholder proposals
if the established procedures are not followed, and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate
of directors or to approve its proposal without regard to whether consideration of those nominees or proposals might be harmful or beneficial to us and our
shareholders.
US.131016551.01
2
EXHIBIT 4.8
In addition, our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (a) any
derivative action or proceeding brought on our behalf, (b) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers,
employees or agents to us or certain specified constituents of ours, (c) any action asserting a claim arising pursuant to any provision of the IBCL or our
articles of incorporation or bylaws, or (d) any action asserting a claim governed by the internal affairs doctrine, will be, to the fullest extent permitted by
law, the Marion Superior Court in Marion County, Indiana or, if the Marion Superior Court lacks jurisdiction, the United States District Court for the
Southern District of Indiana.
Amendment and Repeal of Bylaws
Our articles of incorporation and bylaws provide that the bylaws may be altered, amended or repealed by either (1) the affirmative vote of a majority
of the entire number of directors, or (2) except for certain provisions of the bylaws, the affirmative vote, at a shareholder meeting, of at least a majority of
the votes entitled to be cast by the holders of the outstanding shares of all classes of our stock entitled to vote generally in the election of directors,
considered for this purpose as a single voting group.
Certain Provisions of the Indiana Business Corporation Law
As an Indiana corporation, we are governed by the IBCL. The following are some of the more significant provisions of the IBCL that may delay,
prevent or make more difficult certain unsolicited acquisitions or changes of control of us. These provisions also may have the effect of preventing changes
in our management. It is possible that these provisions could make it more difficult to accomplish transactions which shareholders may otherwise deem to
be in their best interest.
Control Share Acquisitions. Under Chapter 42 of the IBCL, an acquiring person or group who acquires, directly or indirectly, ownership of, or the
power to direct the exercise of voting power with respect to, issued and outstanding “control shares” in an “issuing public corporation” may not exercise
voting rights on any control shares unless these voting rights are conferred by a majority vote of the disinterested shareholders of the issuing public
corporation at a special meeting of those shareholders held upon the request and at the expense of the acquiring person. If the acquiring person has acquired
control shares with a majority or more of the voting power, and the control shares are accorded full voting rights by the disinterested shareholders, all
shareholders of the issuing public corporation have dissenters’ rights to receive the fair value of their shares pursuant to Chapter 44 of the IBCL. We are an
“issuing public corporation” as defined under Chapter 42.
Under Chapter 42, “control shares” means shares acquired by a person that, when added to all other shares of the issuing public corporation owned
by that person or in respect to which that person may exercise or direct the exercise of voting power, would otherwise entitle that person to exercise voting
power of the issuing public corporation in the election of directors within any of the following ranges: (i) one-fifth or more but less than one-third; (ii) one-
third or more but less than a majority; or (iii) a majority or more.
Chapter 42 does not apply if, before a control share acquisition is made, the corporation’s articles of incorporation or bylaws, including a bylaw
adopted by the corporation’s board of directors, provide that they do not apply. Our bylaws provide that we are not subject to Chapter 42; however, our
board of directors could amend our bylaws to rescind our election to opt out of Chapter 42.
Certain Business Combinations. Chapter 43 of the IBCL restricts the ability of an Indiana corporation that has 100 or more shareholders to engage in
any business combinations with an “interested shareholder” for five years after the date the shareholder became an “interested shareholder” (such date, the
“share acquisition date”), unless the business combination or the purchase of shares by the interested shareholder on the interested shareholder’s share
acquisition date is approved by the board of directors of the corporation before the share acquisition date. If such prior approval is not obtained, the
interested shareholder may effect a business combination after the five-year period only if that shareholder receives approval from a majority of the
disinterested shareholders or the offer meets specified fair price criteria.
US.131016551.01
3
EXHIBIT 4.8
For purposes of Chapter 43, “interested shareholder” means any person, other than the corporation or its subsidiaries, who is (1) the beneficial owner,
directly or indirectly, of 10% or more of the voting power of the outstanding voting shares of the corporation or (2) an affiliate or associate of the
corporation, which at any time within the five-year period immediately before the date in question, was the beneficial owner, directly or indirectly, of 10%
or more of the voting power of the then outstanding shares of the corporation.
Chapter 43 does not apply to corporations that elect not to be subject to Chapter 43 in an amendment to their articles of incorporation approved by a
majority of the disinterested shareholders. That amendment, however, cannot become effective until 18 months after its passage and would apply only to
share acquisitions occurring after its effective date. Our articles of incorporation do not exclude us from Chapter 43.
Mandatory Classified Board of Directors. Under Chapter 33 of the IBCL, a corporation with a class of voting shares registered with the SEC under
Section 12 of the Exchange Act must have a classified board of directors unless the corporation adopts a bylaw expressly electing not to be governed by
this provision. Although our articles of incorporation and bylaws provide for a classified board of directors so long as we are required to do so under our
licenses with the BCBSA, we adopted an amendment to our bylaws electing not to be subject to this mandatory requirement effective July 29, 2009.
Unanimous Written Consent of Shareholders. Under Chapter 29 of the IBCL, as well as our articles of incorporation and our bylaws, any action
required or permitted to be taken by the holders of common stock may be effected only at an annual meeting or special meeting of such holders, and
shareholders may act in lieu of such meetings only by unanimous written consent.
US.131016551.01
4
Summary of the Anthem, Inc. Directed Executive Compensation (DEC) Program (effective January 1, 2020)
Directed Executive Compensation (DEC) is an executive perquisite plan that provides officers of Anthem, Inc. (the “Company”) with
flexibility to tailor certain benefits to meet their needs with a combination of cash (Cash Credits) and reimbursement of allowable expenses
(Core Credits).
Cash Credits are paid directly to the executive and may be used to pay for a variety of expenses that may be incurred in his or her role with
the Company. Core Credits are available as a reimbursement for allowable expenses related to the executive's financial health. The amount of
Cash Credits and Core Credits the executive receives is based upon their position. The CEO receives Core Credits of $27,000 and Cash
Credits of $27,000. Other Named Executive officers receive Core Credits of $15,000 and Cash Credits of $15,000.
Executives newly hired or promoted into an executive position will participate in the program at the beginning of the month following the
date of hire or promotion. New participants receive a prorated portion of both the Cash and Core Credits based on full calendar months of
service in the position.
Cash Credits
Cash Credits are paid to the executive monthly on the first paycheck of the month and may be used for his or her choice of benefits. The
executive does not need to document how these credits are utilized.
Core Credits
Core Credits are available to reimburse executives for costs associated with allowable expenses related to their financial health. An executive
can use his or her Core Credits to be reimbursed for:
Investment Advisor Fees
•
Investment Management Fees
•
•
Financial Counseling Fees
• Retirement Planning and Advice
Tax Preparation and Advice Fees
•
Estate Planning Fees
•
Legal Fees or legal software associated with:
•
◦ Anthem compensation and/or benefits program review
◦ Tax Preparation issues
◦ Estate Planning issues
◦ Financial Counseling issues
•
•
Tax and Investment Software
Tax, Investment and Financial Subscriptions
BLUE CROSS LICENSE AGREEMENT
(Includes revisions, if any, adopted by Member Plans through their September 17, 2020 meeting)
This agreement by and between Blue Cross and Blue Shield Association ("BCBSA") and
The Blue Cross Plan, known as (the "Plan").
Preamble
WHEREAS, the Plan and/or its predecessor(s) in interest (collectively the "Plan") had
the right to use the BLUE CROSS and BLUE CROSS Design service marks (collectively the
"Licensed Marks") for health care plans in its service area, which was essentially local in
nature;
WHEREAS, the Plan was desirous of assuring nationwide protection of the Licensed Marks,
maintaining uniform quality controls among Plans, facilitating the provision of cost effective health
care services to the public and otherwise benefiting the public;
WHEREAS, to better attain such ends, the Plan and the predecessor of BCBSA in 1972
simultaneously executed the BCA License Agreement (s) and the Ownership Agreement; and
WHEREAS, BCBSA and the Plan desire to supercede said Agreement(s) and to revise
certain provisions of the Ownership Agreement to reflect their current practices and to assure the
continued integrity of the Licensed Marks and of the BLUE CROSS system;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
Agreement
1. BCBSA hereby grants to the Plan, upon the terms and conditions of this License
Agreement (“Agreement” or “Primary License Agreement”), the right to use BLUE CROSS in its
trade and/or corporate name (the "Licensed Name"), and the right to use the Licensed Marks, in
the sale, marketing and administration of health care plans and related services in the Service
Area set forth and defined in paragraph 5 below. As used herein, health care plans and related
services shall include acting as a nonprofit health care plan, a for-profit health care plan, or mutual
health insurer operating on a not-for-profit or for-profit basis, under state law; financing access to
health care services; when working with a bank that holds the relevant license to use the Licensed
Name and Marks, offering: (i) tax- favored savings accounts for medical expenses and means for
accessing such accounts, such as debit cards or checks, that are provided solely to support
access to such tax- favored savings accounts, all pursuant to such license, or (ii) prepaid rewards
cards that are provided for completion of a wellness program, all pursuant to such license;
providing health care management and administration; administering, but not underwriting, non-
health portions of Workers’ Compensation Insurance; delivering health care services, except
hospital services (as defined in the Guidelines to Membership Standards Applicable to Regular
Members); and performing the Eligibility and Enrollment functions of HR administration for all
benefit plans offered by a group account to its members, including benefit plans not provided by
the Plan, provided that the Plan has contracted to provide Health Coverage under the Licensed
Marks to the account (as the terms “Health Coverage,” “Eligibility” and “Enrollment” are defined in
Exhibit 4, Paragraph 2.t.).
2. The Plan may use the Licensed Marks and Name in connection with the offering of: i)
health care plans and related services in the Service Area through Controlled Affiliates, provided
that each such Controlled Affiliate is separately licensed to use the Licensed Marks and Name
under the terms and conditions contained in the Agreement attached as Exhibit 1 hereto (the
"Controlled Affiliate License Agreement"); and ii) insurance coverages offered by life insurers
under the applicable law in the Service Area, other than those which the Plan may offer in its own
name, provided through Controlled Affiliates, provided that each such Controlled Affiliate is
separately licensed to use the Licensed Marks and Name under the terms and conditions
contained in the Agreement attached as Exhibit 1A hereto (the "Controlled Affiliate License
Agreement Applicable to Life Insurance Companies") or the Agreement attached as Exhibit 1A1
hereto (the “Controlled Affiliate Trademark License Agreement for Life and Disability Insurance
Products”) and further provided that the offering of such services does not and will not dilute or
tarnish the unique value of the Licensed Marks and Name; and iii) administration and underwriting
of Workers’ Compensation Insurance Controlled Affiliates, provided that each such Controlled
Affiliate is separately licensed to use the Licensed Marks and Name under the terms and
conditions contained in the Agreement attached as Exhibit 1 hereto (the “Controlled Affiliate
License”); and iv) regional Medicare Advantage PPO products in cooperation with one or more
other Plans through jointly-held Controlled Affiliates, provided that each such Controlled Affiliate is
separately licensed to use the Licensed Marks and Name under the terms and conditions
contained in the Agreement attached as Exhibit 1B hereto (the “Controlled Affiliate License
Agreement Applicable to Regional Medicare Advantage PPO Products”); and v) regional Medicare
Part D Prescription Drug Plan products in cooperation with one or more other Plans through jointly-
held Controlled Affiliates, provided that each such Controlled Affiliate is separately licensed to use
the Licensed Marks and Name under the terms and conditions contained in the Agreement
attached as Exhibit 1C hereto (the “Controlled Affiliate License Agreement Applicable to Regional
Medicare Part D Prescription Drug Plan Products”). As used herein, a Controlled Affiliate is defined
as an entity organized and operated in such a manner that it is subject to the bona fide control of a
Plan or Plans and, if the entity meets the standards of Paragraph 2a.B but not Paragraph2a.A, the
entity, its owners, and persons
Amended as of September 19, 2014
with authority to select or appoint members or board members, other than a Plan or Plans, have
received written approval of BCBSA. Absent written approval by BCBSA of an alternative method
of control, bona fide control shall have the meaning set forth in Paragraphs 2a. and 2b.
2a. With respect to the Controlled Affiliate Licenses authorized in clauses i) through
iii) of Paragraph 2, bona fide control shall mean that a Plan (the “Sponsoring Plan”)
authorized to use the Licensed Marks in the Service Area of the Controlled Affiliate
pursuant to this Primary License Agreement with BCBSA must have:
A.
B.
to select members of the Controlled Affiliate's governing body having
The legal authority, directly or indirectly through wholly-owned subsidiaries:
(a)
more than 50% voting control thereof; (b) to exercise control over the policy and
operations of the Controlled Affiliate; (c) to prevent any change in the articles of
incorporation, bylaws or other establishing or governing documents of the
Controlled Affiliate with which the Sponsoring Plan does not concur. In addition, the
Sponsoring Plan directly or indirectly through wholly-owned subsidiaries shall own
more than 50% of any for-profit Controlled Affiliate, provided that in instances
where the Sponsoring Plan formed a publicly traded Controlled Affiliate Licensee
and such publicly traded Controlled Affiliate Licensee owns and controls other
Controlled Affiliate Licensees, the Sponsoring Plan directly or indirectly shall own
and control more than 50% of any Controlled Affiliate that is indirectly owned and
controlled by the publicly traded Controlled Affiliate Licensee; or
The legal authority directly or indirectly through wholly-owned subsidiaries
(b) to select members of the Controlled Affiliate's governing body having not less
than 50% voting control thereof; (b) to prevent any change in the articles of
incorporation, bylaws or other establishing or governing documents of the Controlled
Affiliate with which the Sponsoring Plan does not concur; (c) to exercise control over
the policy and operations of the Controlled Affiliate at least equal to that exercised by
persons or entities (jointly or individually) other than the Sponsoring Plan.
Notwithstanding anything to the contrary in
(a) through (c) hereof, the Controlled Affiliate’s establishing or governing documents
must also require written approval by the Sponsoring Plan before the Controlled
Affiliate can:
1. Change its legal and/or trade name;
2. Change the geographic area in which it operates;
3. Change any of the types of businesses in which it engages;
4. Create, or become liable for by way of guarantee, any indebtedness,
other than indebtedness arising in the ordinary course of business;
5. Sell any assets, except for sales in the ordinary course of business or
sales of equipment no longer useful or being replaced;
6. Make any loans or advances except in the ordinary course of
business;
Amended as of March 26, 2015
-2-
7. Enter into any arrangement or agreement with any party directly or
indirectly affiliated with any of the owners of the Controlled Affiliate or
persons or entities with the authority to select or appoint members or
board members of the Controlled
Affiliate, other than the Sponsoring Plan or other Plans (excluding owners
of stock holdings of under 5% in a publicly traded Controlled Affiliate);
8. Conduct any business other than under the Licensed Marks and Name;
9. Take any action that the Sponsoring Plan or BCBSA reasonably
believes will adversely affect the Licensed Marks or Names.
In addition, the Sponsoring Plan directly or indirectly through wholly owned subsidiaries
shall own at least 50% of any for-profit Controlled Affiliate, provided that in instances where
the Sponsoring Plan formed a publicly traded Controlled Affiliate Licensee and such publicly
traded Controlled Affiliate Licensee owns and controls other Controlled Affiliate Licensees,
the Sponsoring Plan directly or indirectly shall own and control at least 50% of any
Controlled Affiliate that is indirectly owned and controlled by the publicly traded Controlled
Affiliate Licensee; or
C.
With respect to a Controlled Affiliate that is 100% controlled by Plans including the
Sponsoring Plan and which offers solely Medicaid, Medicare Advantage PPO,
Medicare Advantage HMO and/or Special Need Plans products and services, the
legal authority by the Sponsoring Plan together with such other Plans (a) to select all
members of the Controlled Affiliate’s governing body; (b) to prevent any change in the
articles of incorporation, bylaws or other establishing or governing documents of the
Controlled Affiliate; (c) to exercise control over the policy and operations of the
Controlled Affiliate. In addition, the Sponsoring Plan and such other Plans shall own
100% of any for-profit Controlled Affiliate, with the Sponsoring Plan and such other
Plans each having an ownership interest. Such 100% control and ownership by Plans
shall be direct or, if indirect, solely through affiliates that are licensed to use marks
owned by BCBSA. Further, the Sponsoring Plan and such other Plans shall execute
the “Addendum to Controlled Affiliate License” attached as Exhibit B-1 to Exhibit 1
attached hereto; or
Amended as of June 20, 2019
D.
E.
With respect to a Controlled Affiliate that is 100% controlled by a Sponsoring Plan
which on a Blue-branded basis offers solely a Basic Medicare Part D Prescription
Drug product, the legal authority by the Sponsoring Plan: (a) to select all members of
the Controlled Affiliate’s governing body; (b) to prevent any change in the articles of
incorporation, bylaws or other establishing or governing documents of the Controlled
Affiliate; (c) to exercise control over the policy and operations of the Controlled
Affiliate. In addition, the Sponsoring Plan shall own 100% of any for-profit Controlled
Affiliate. Such 100% control and ownership by the Plan shall be direct or, if indirect,
solely through affiliates that are licensed to use marks owned by BCBSA. Further, the
Sponsoring Plan and Participating Plan as defined on the Controlled Affiliate License
Agreement shall execute the “Addendum to Controlled Affiliate License” attached as
Exhibit B-2 to Exhibit 1 attached hereto.
With respect to a Controlled Affiliate that operates as a clinic, the legal authority by
the Sponsoring Plan to exercise control over the policy and operations of the
Controlled Affiliate as defined in Exhibit 1, Standard 1(E) and the Guidelines to
Administer Standard 1(E). In addition, if the clinic is for- profit, the Sponsoring Plan
shall own at least 50% of the Controlled Affiliate and prevent any change in the
articles of incorporation, bylaws or other establishing documents of the Controlled
Affiliate with which the Sponsoring Plan does not concur.
2b. With respect to the Controlled Affiliate License Agreements authorized in clauses iv)
and v) of Paragraph 2, bona fide control shall mean that the Controlled Affiliate is organized and
operated in such a manner that it meets the following requirements:
A. The Controlled Affiliate is owned or controlled by two or more Plans authorized to use
the Licensed Marks pursuant to this License Agreement with BCBSA (for purposes of this
subparagraph A. through subparagraph C., the “Controlling Plans”); and
Amended as of June 20, 2019
-2a-
B.
C.
Each Controlling Plan is authorized pursuant to this Agreement to use the Licensed
Marks in a geographic area in the Region (as that term is defined in such Controlled
Affiliate License Agreements) and every geographic area in the Region is so licensed
to at least one of the Controlling Plans; and
The Controlling Plans must have the legal authority directly or indirectly through
wholly-owned subsidiaries (a) to select members of the Controlled Affiliate’s governing
body having not less than 100% voting control thereof; (b) to prevent any change in
the articles of incorporation, bylaws or other establishing or governing documents of
the Controlled Affiliate with which the Controlling Plans do not concur; and (c) to
exercise control over the policy and operations of the Controlled Affiliate.
Notwithstanding anything to the contrary in (a) through (c) of this subparagraph E., the
Controlled Affiliate’s establishing or governing documents must also require written
approval by each of the Controlling Plans before the Controlled Affiliate can:
1.
2.
3.
Change its legal and/or trade names;
Change the geographic area in which it operates (except such
approval shall not be required with respect to business of the
Controlled Affiliate conducted under the Licensed Marks within the
Service Area of one of the Controlling Plans pursuant to a separate
controlled affiliate license agreement with BCBSA sponsored by such
Controlling Plan);
Change any of the type(s) of businesses in which it engages (except
such approval shall not be required with respect to business of the
Controlled Affiliate conducted under the Licensed Marks within the
Service Area of one of the Controlling Plans pursuant to a separate
controlled affiliate license agreement with BCBSA sponsored by such
Controlling Plan);
4.
Take any action that any Controlling Plan or BCBSA reasonably
believes will adversely affect the Licensed Marks and Name.
In addition, the Controlling Plans directly or indirectly through wholly-owned
subsidiaries shall own 100% of any for-profit Controlled Affiliate.
Amended as of June 19, 2014
-2b-
(The next page is page 3)
3. With respect to a Controlled Affiliate that is not licensed to use the Licensed Marks and
Name, the Plan may, in communications that contain the Licensed Marks or Name, indicate its
corporate relationship to the Affiliate and permit such Affiliate to indicate its corporate relationship
to the Plan, solely in the circumstances, style and manner specified by BCBSA from time-to-time
in regulations of general application consistent with the avoidance of confusion or mistake or the
dilution or tarnishment of the Licensed Marks and Name. No rights are hereby created in any
Controlled Affiliate to use the Licensed Marks or Name in its own name or otherwise.
4. The Plan recognizes the importance of a comprehensive national network of
independent BCBSA licensees which are committed to strengthening the Licensed Marks and
Name. The Plan further recognizes that its actions within its Service Area may affect the value of
the Licensed Marks and Name nationwide. The Plan agrees (a) to maintain in good standing its
membership in BCBSA; (b) promptly to pay its dues to BCBSA, said dues to represent the royalties
for this License Agreement; (c) materially to comply with all applicable laws; (d) to comply with the
Membership Standards Applicable to Regular Members of BCBSA, a current copy of which is
attached as Exhibit 2 hereto; and (e) reasonably to permit BCBSA, upon a written, good faith
request and during reasonable business hours, to inspect the Plan's books and records necessary
to ascertain compliance herewith. As to other Plans and third parties, BCBSA shall maintain the
confidentiality of all documents and information furnished by the Plan pursuant hereto, or pursuant
to the Membership Standards, and clearly designated by the Plan as containing proprietary
information of the Plan.
5. The rights hereby granted are exclusive to the Plan within the geographical area(s)
served by the Plan on June 30, 1972, and/or as to which the Plan has been granted a subsequent
license, which is hereby defined as the "Service Area," except that BCBSA reserves the right to
use the Licensed Marks in said Service Area, and except to the extent that said Service Area may
overlap areas served by one or more other licensed Blue Cross Plans as of said date or
subsequent license, as to which overlapping areas the rights hereby granted are nonexclusive as
to such other Plan or Plans only.
Amended as of June 19, 2014
-3-
6. Except as expressly provided by BCBSA with respect to National Accounts,
Government Programs and certain other necessary and collateral uses, the current rules and
regulations governing which are attached as Exhibit 3 and Exhibit 4 hereto, and are contained in
other documents referenced herein, or as expressly provided herein, the Plan may not use the
Licensed Marks and Name outside the Service Area or in connection with other goods and
services, nor may the Plan use the Licensed Marks or Name in a manner which is intended to
transfer in the Service Area the goodwill associated therewith to another mark or name. Nothing
herein shall be construed to prevent the Plan from engaging in lawful activity anywhere under other
marks and names not confusingly similar to the Licensed Marks and Name, provided that engaging
in such activity does and will not dilute or tarnish the unique value of the Licensed Marks and
Name. In addition to any and all remedies available hereunder, BCBSA may impose monetary
fines on the Plan for the Plan’s use of the Licensed Marks and Names outside the Service Area,
and provided that the procedure used in imposing a fine is consistent with procedures specifically
prescribed by BCBSA from time to time in regulations of general application. In the case of regional
Medicare Advantage PPO and regional Medicare Part D Prescription Drug Plan products offered
by consenting and participating Plans in a region that includes the Service Areas, or portions
thereof, of more than one Plan, such fine may be imposed jointly on the consenting and
participating Plans for use of the Licensed Marks and Name in any geographic area of the region in
which a Plan having exclusive rights to the Licensed Marks and Name does not consent to and
participate in such offering, provided that the basis for imposition of such fine is consistent with
rules specifically prescribed by BCBSA from time to time in regulations of general application.
7. The Plan agrees that it will display the Licensed Marks and Name only in such form,
style and manner as shall be specifically prescribed by BCBSA from
time-to-time in regulations of general application in order to prevent impairment of the
distinctiveness of the Licensed Marks and Name and the goodwill pertaining thereto. The Plan shall
cause to appear on all materials on or in connection with which the Licensed Marks or Name are
used such legends, markings and notices as BCBSA may reasonably request in order to give
appropriate notice of service mark or other proprietary rights therein or pertaining thereto.
8. BCBSA agrees that: (a) it will not grant any other license effective during the term of this
License Agreement for the use of the Licensed Marks or Name which is inconsistent with the rights
granted to the Plan hereunder; and (b) it will not itself use the Licensed Marks in derogation of the
rights of the Plan or in a manner to deprive the Plan of the full benefits of this License Agreement,
provided that BCBSA shall have the right to use the Licensed Marks in conjunction with any
national offering under the Federal Employees Health Benefits Program in the manner set forth in
Exhibit 4, Paragraph 4 (including subparagraphs) to this License Agreement. The Plan agrees that
it will not attack the title of BCBSA in and to the Licensed Marks or Name or attack the validity of
the Licensed Marks or of this License Agreement. The Plan further agrees that all use by it of the
Licensed Marks and Name or any similar mark or name shall inure to the benefit of BCBSA, and
the Plan shall cooperate with BCBSA in effectuating the assignment to BCBSA of any service
mark or trademark registrations of the Licensed Marks or any similar mark or name held by the
Plan or a Controlled Affiliate of the Plan, all or any portion of which registration consists of the
Licensed Marks.
Amended as of November 16, 2006
-3a-
9.
(a). Should the Plan fail to comply with the provisions of paragraphs 2-4, 6, 7 and/or 12,
and not cure such failure within thirty (30) days of receiving written notice thereof (or commence
curing such failure within such thirty day period and continue diligent efforts to complete the curing
of such failure if such curing cannot reasonably be completed within such thirty day period),
BCBSA shall have the right to issue a notice that the Plan is in a state of noncompliance. Except
as to the termination of a Plan's License Agreement or the merger of two or more Plans, disputes
as to noncompliance, and all other disputes between or among BCBSA, the Plan, other Plans
and/or Controlled Affiliates, shall be submitted promptly to mediation and mandatory dispute
resolution pursuant to the rules and regulations of BCBSA, a current copy of which is attached as
Exhibit 5 hereto, and shall be timely presented and resolved. The mandatory dispute resolution
panel shall have authority to issue orders for specific performance and assess monetary penalties.
If a state of noncompliance as aforesaid is undisputed by the Plan or is found to exist by a
mandatory dispute resolution panel and is uncured as provided above, BCBSA shall have the right
to seek judicial enforcement of the License Agreement. Except, however, as provided in
paragraphs 9(d)(iii), 15(a)(i)-(viii), and 15(a)(x) below, no Plan's license to use the Licensed Marks
and Name may be finally terminated for any reason without the affirmative vote of three-fourths of
the Plans and three-fourths of the total then current weighted vote of all the Plans.
(b).
Notwithstanding any other provision of this License Agreement, a Plan's
license to use the Licensed Marks and Name may be forthwith terminated by the affirmative vote
of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the
Plans at a special meeting expressly called by BCBSA for the purpose on ten (10) days written
notice to the Plan advising of the specific matters at issue and granting the Plan an opportunity to
be heard and to present its response to Member Plans for: (i) failure to comply with any minimum
capital or liquidity requirement under the Membership Standard on Financial Responsibility; or (ii)
impending financial insolvency; or
(iii) the pendency of any action instituted against the Plan seeking its dissolution or liquidation or
its assets or seeking appointment of a trustee, interim trustee, receiver or other custodian for any
of its property or business or seeking the declaration or establishment of a trust for any of its
property of business, unless this License Agreement has been earlier terminated under
paragraph 15(a); or (iv) such other reason as is determined in good faith immediately and
irreparably to threaten the integrity and reputation of BCBSA, the Plans and/or the Licensed
Marks.
Amended as of March 16, 2006
-4-
(c).
To the extent not otherwise provided therein, neither: (i) the Membership
Standards Applicable to Regular Members of BCBSA; nor (ii) the rules and regulations governing
Government Programs and certain other uses; nor (iii) the rules and regulations governing
mediation and mandatory dispute resolution, may be amended unless and until each such
amendment is first adopted by the affirmative vote of three-fourths of the Plans and of three-fourths
of the total then current weighted vote of all the Plans. The rules and regulations governing
National Accounts and other national programs required by the Membership Standards Applicable
to Regular Members of BCBSA (Exhibit 2) are contained, in addition to those set forth in Exhibit 3,
in the following documents, as amended from time to time: (1) the Inter-Plan Programs Policies
and Provisions; (2) Inter- Plan Medicare Advantage Program Policies and Provisions. The voting
requirements specified in rules and regulations governing such national programs may not be
amended unless and until each such amendment is first adopted by the affirmative vote of three-
fourths of the Plans and of three-fourths of the total then current weighted vote of all the Plans.
Amended as of November 21, 2014
-4a-
(d). The Plan may operate as a for-profit company on the following conditions:
(i) The Plan shall discharge all responsibilities which it has to the Association and
to other Plans by virtue of this Agreement and the Plan's membership in BCBSA.
(ii) The Plan shall not use the licensed Marks and Name, or any derivative thereof,
as part of its legal name or any symbol used to identify the Plan in any securities market. The
Plan shall use the licensed Marks and Name as part of its trade name within its service area for
the sale, marketing and administration of health care and related services in the service area.
(iii) Plan's license to use the Licensed Marks and Name shall automatically terminate
effective: (a) thirty days after the Plan knows, or there is an SEC filing indicating that, any
Institutional Investor, has become the Beneficial Owner of securities representing 10% or more of
the voting power of the Plan (“Excess Institutional Voter”), unless such Excess Institutional Voter
shall cease to be an Excess Institutional Voter prior to such automatic termination becoming
effective; (b) thirty days after the Plan knows, or there is an SEC filing indicating that, any
Noninstitutional Investor has become the Beneficial Owner of securities representing 5% or more
of the voting power of the Plan (“Excess Noninstitutional Voter”) unless such Excess
Noninstitutional Voter shall cease to be an Excess Noninstitutional Voter prior to such automatic
termination becoming effective; (c) thirty days after the Plan knows, or there is an SEC filing
indicating that, any Person has become the Beneficial Owner of 20% or more of the Plan’s then
outstanding common stock or other equity securities which (either by themselves or in
combination) represent an ownership interest of 20% or more pursuant to determinations made
under paragraph 9(d)(iv) below (“Excess Owner”), unless such Excess Owner shall cease to be an
Excess Owner prior to such automatic termination becoming effective; (d) ten business days after
individuals who at the time the Plan went public constituted the Board of Directors of the Plan
(together with any new directors whose election to the Board was approved by a vote of 2/3 of the
directors then still in office who were directors at the time the Plan went public or whose election or
nomination was previously so approved) (the "Continuing Directors") cease for any reason to
constitute a majority of the Board of Directors; or (e) ten business days after the Plan consolidates
with or merges with or into any person or conveys, assigns, transfers or sells all or substantially all
of its assets to any person other than a merger in which the Plan is the surviving entity and
immediately after which merger, no person is an Excess Institutional Voter, an Excess
Noninstitutional Voter or an Excess Owner: provided that, if requested by the affected Plan in a
writing received by BCBSA prior to such automatic termination becoming effective, the provisions
of this paragraph 9(d)(iii) may be waived, in whole or in part,
Amended as of September 17, 1997
-5-
upon the affirmative vote of a majority of the disinterested Plans and a majority of the total then
current weighted vote of the disinterested Plans. Any waiver so granted may be conditioned upon
such additional requirements (including but not limited to imposing new and independent grounds
for termination of this License) as shall be approved by the affirmative vote of a majority of the
disinterested Plans and a majority of the total then current weighted vote of the disinterested
Plans. If a timely waiver request is received, no automatic termination shall become effective until
the later of: (1) the conclusion of the applicable time period specified in paragraphs 9(d)(iii)(a)-(d)
above, or (2) the conclusion of the first Member Plan meeting after receipt of such a waiver
request.
In the event that the Plan's license to use the Licensed Marks and Name is terminated pursuant to
this Paragraph 9(d)(iii), the license may be reinstated in BCBSA’s sole discretion if, within 30 days
of the date of such termination, the Plan demonstrates that the Person referred to in clause (a),
(b) or (c) of the preceding paragraph is no longer an Excess Institutional Voter, an Excess
Noninstitutional Voter or an Excess Owner.
(iv) The Plan shall not issue any class or series of security other than (i) shares of
common stock having identical terms or options or derivatives of such common stock, (ii) non-
voting, non-convertible debt securities or (iii) such other securities as the Plan may approve,
provided that BCBSA receives notice at least thirty days prior to the issuance of such securities,
including a description of the terms for such securities, and BCBSA shall have the authority to
determine how such other securities will be counted in determining whether any Person is an
Excess Institutional Voter, Excess Noninstitutional Voter or an Excess Owner.
(v)
For purposes of paragraph 9(d)(iii), the following definitions shall apply:
(a)
"Affiliate" and "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended and in effect on November 17, 1993 (the "Exchange
Act").
(b)
A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
Amended as of September 17, 1997
-5a-
(ii) which such Person or any of such Person's Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding, or upon the
exercise of conversion rights, exchange rights, warrants or options, or otherwise; or (B) the
right to vote pursuant to any agreement, arrangement or understanding; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own,
any security if the agreement, arrangement or understanding to vote such security (1)
arises solely from a revocable proxy or consent given to such Person in response to a
public proxy or consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by any other Person (or
any Affiliate or Associate thereof) with which such Person (or any of such Person's Affiliates
or Associates) has any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with respect to a
bona fide public offering of securities) relating to the acquisition, holding, voting (except to
the extent contemplated by the proviso to (b)(ii)(B) above) or disposing of any securities of
the Plan.
Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the
phrase "then outstanding," when used with reference to a Person's Beneficial Ownership of
securities of the Plan, shall mean the number of such securities then issued and
outstanding together with the number of such securities not then actually issued and
outstanding which such Person would be deemed to own beneficially hereunder.
(c)
A Person shall be deemed an “Institutional Investor” if (but only if) such Person
(i) is an entity or group identified in the SEC’s Rule 13d-1(b)(1)(ii) as constituted on June 1,
1997, and (ii) every filing made by such Person with the SEC under Regulation 13D-G (or
any successor Regulation) with respect to such Person’s Beneficial Ownership of Plan
securities shall have contained a certification identical to the one required by item 10 of
SEC Schedule 13G as constituted on June 1, 1997.
(d)
Investor.
“Noninstitutional Investor” means any Person who is not an Institutional
(e)
"Person" shall mean any individual, firm, partnership, corporation, trust,
association, joint venture or other entity, and shall include any successor (by merger or
otherwise) of such entity.
Amended as of September 17, 1997
-5b- (The next page is page 6)
10.
This License Agreement shall remain in effect: (a) until terminated as provided herein;
or (b) until this and all such other License Agreements are terminated by the affirmative vote of
three-fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans;
or (c) until termination of aforesaid Ownership Agreement; or
(d)
shorter notice period approved by BCBSA in writing at its sole discretion.
until terminated by the Plan upon eighteen (18) months written notice to BCBSA or upon a
11.
Except as otherwise provided in paragraph 15 below or by the affirmative vote of three-
fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans, or
unless this and all such other License Agreements are simultaneously terminated by force of law,
the termination of this License Agreement for any reason whatsoever shall cause the reversion to
BCBSA of all rights in and to the Licensed Marks and Name, and the Plan agrees that it will
promptly discontinue all use of the Licensed Marks and Name, will not use them thereafter, and will
promptly, upon written notice from BCBSA, change its corporate name so as to eliminate the
Licensed Name therefrom.
12.
The license hereby granted to Plan to use the Licensed Marks and Name is and shall
be personal to the Plan so licensed and shall not be assignable by any act of the Plan, directly or
indirectly, without the written consent of BCBSA. Said license shall not be assignable by operation
of law, nor shall Plan mortgage or part with possession or control of this license or any right
hereunder, and the Plan shall have no right to grant any sublicense to use the Licensed Marks and
Name.
13.
BCBSA shall maintain appropriate service mark registrations of the Licensed Marks
and BCBSA shall take such lawful steps and proceedings as may be necessary or proper to
prevent use of the Licensed Marks by any person who is not authorized to use the same. Any
actions or proceedings undertaken by BCBSA under the provisions of this paragraph shall be at
BCBSA's sole cost and expense. BCBSA shall have the sole right to determine whether or not any
legal action shall be taken on account of unauthorized use of the Licensed Marks, such right not to
be unreasonably exercised. The Plan shall report any unlawful usage of the Licensed Marks to
BCBSA in writing and agrees, free of charge, to cooperate fully with BCBSA's program of enforcing
and protecting the service mark rights, trade name rights and other rights in the Licensed Marks.
14.
The Plan hereby agrees to save, defend, indemnify and hold BCBSA and any other
Plan(s) harmless from and against all claims, damages, liabilities and costs of every kind, nature
and description which may arise as a result of the activities of the Plan or of any hospital, medical
group, clinic or other provider of health services that is owned or controlled directly or indirectly by
Plan. BCBSA hereby agrees to save, defend, indemnify and hold the Plan and any other Plan(s)
harmless from and against all claims, damages, liabilities And costs of every kind, nature and
description which may arise exclusively and directly as a result of the activities of BCBSA.
Amended as of June 21, 2012
-6-
15.
(a). This Agreement shall automatically terminate upon the occurrence of any of the
following events: (i) a voluntary petition shall be filed by the Plan or by BCBSA seeking bankruptcy,
reorganization, arrangement with creditors or other relief under the bankruptcy laws of the United
States or any other law governing insolvency or debtor relief, or (ii) an involuntary petition or
proceeding shall be filed against the Plan or BCBSA seeking bankruptcy, reorganization,
arrangement with creditors or other relief under the bankruptcy laws of the United States or any
other law governing insolvency or debtor relief and such petition or proceeding is consented to or
acquiesced in by the Plan or BCBSA or is not dismissed within sixty (60) days of the date upon
which the petition or other document commencing the proceeding is served upon the Plan or
BCBSA respectively, or (iii) an order for relief is entered against the Plan or BCBSA in any case
under the bankruptcy laws of the United States, or the Plan or BCBSA is adjudged bankrupt or
insolvent (as that term is defined in the Uniform Commercial Code as enacted in the state of Illinois)
by any court of competent jurisdiction, or (iv) the Plan or BCBSA makes a general assignment of its
assets for the benefit of creditors, or (v) any government or any government official, office, agency,
branch, or unit assumes control of the Plan or delinquency proceedings (voluntary or involuntary)
are instituted, or (vi) an action is brought by the Plan or BCBSA seeking its dissolution or liquidation
of its assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for
any of its property or business, or (vii) an action is instituted by any governmental entity or officer
against the Plan or BCBSA seeking its dissolution or liquidation of its assets or seeking appointment
of a trustee, interim trustee, receiver or other custodian for any of its property or business and such
action is consented to or acquiesced in by the Plan or BCBSA or is not dismissed within one
hundred thirty (130) days of the date upon which the pleading or other document commencing the
action is served upon the Plan or BCBSA respectively, provided that if the action is stayed or its
prosecution is enjoined, the one hundred thirty (130) day period is tolled for the duration of the stay
or injunction, and provided further, that the Association’s Board of Directors may toll or extend the
130 day period at any time prior to its expiration, or (viii) a trustee, interim trustee, receiver or other
custodian for any of the Plan's or BCBSA's property or business is appointed, or the Plan or BCBSA
is ordered dissolved or liquidated, or (ix) the Plan shall fail to pay its dues and shall not cure such
failure within thirty (30) days of receiving written notice thereof, or (x) if, due to regulatory action, the
Plan together with any applicable Controlled Affiliate becomes unable to do business using the
Names and Marks in any State or portion thereof included in its Service Area, provided that: (i)
automatic termination shall not occur prior to the exhaustion by any such Plan of its rights to appeal
or challenge such regulatory action; and (ii) in the event the Plan is licensed to do business using
the Names and Marks in multiple States or portions of States, the termination of its License
Agreement shall be solely limited to the State(s) or portions thereof in which the regulatory action
applies. By not appealing or challenging such regulatory action within the time prescribed by law or
regulation, and in any event no later than 120 days after such action is taken, a Plan shall be
deemed to have exhausted its rights to appeal or challenge, and automatic termination shall
proceed.
-7-
Notwithstanding any other provision of this Agreement, a declaration or a request for declaration of
the existence of a trust over any of the Plan’s or BCBSA’s property or business shall not in itself be
deemed to constitute or seek appointment of a trustee, interim trustee, receiver or other custodian
for purposes of subparagraphs 15(a)(vii) and (viii) of this Agreement.
Amended as of March 26, 2015
-7a-
(b).
BCBSA, or the Plans (as provided and in addition to the rights conferred in
Paragraph 10(b) above), may terminate this Agreement immediately upon written notice
upon the occurrence of either of the following events: (a) the Plan or BCBSA becomes
insolvent (as that term is defined in the Uniform Commercial Code enacted in the state of
Illinois), or (b) any final judgment against the Plan or BCBSA remains unsatisfied or
unbonded of record for a period of sixty (60) days or longer.
(c).
If this License Agreement is terminated as to BCBSA for any reason stated in
subparagraphs 15(a) and (b) above, the ownership of the Licensed Marks shall revert to
each of the Plans as provided in the Ownership Agreement.
(d).
Upon termination of this License Agreement or any Controlled Affiliate
License Agreement of a Larger Controlled Affiliate, as defined in Exhibit 1 to this License
Agreement, the following conditions shall apply, except that, in the event of a partial
termination of this Agreement pursuant to Paragraph 15 (a)(x)(ii) of this Agreement, the
notices, national account listing, payment and audit right listed below shall be applicable
solely with respect to the geographic area for which the Plan’s license to use the Licensed
Names and Marks is terminated:
(i)
(ii)
The terminated entity shall send a notice through the U.S. mails,
with first class postage affixed, to all individual and group
customers, providers, brokers and agents of products or services
sold, marketed, underwritten or administered by the terminated
entity or its Controlled Affiliates under the Licensed Marks and
Name. The form and content of the notice shall be specified by
BCBSA and shall, at a minimum, notify the recipient of the
termination of the license, the consequences thereof, and
instructions for obtaining alternate products or services licensed by
BCBSA, subject to any conflicting state law and state regulatory
requirements. This notice shall be mailed within 15 days after
termination or, if termination is pursuant to paragraph 10(d) of this
Agreement, within 15 days after the written notice to BCBSA
described in paragraph 10(d).
The terminated entity shall deliver to BCBSA within five days of a
request by BCBSA a listing of national accounts in which the
terminated entity is involved (in a Control, Participating or Servicing
capacity), identifying the national account and the terminated
entity's role therein. For those accounts where the terminated entity
is the Control Plan, the Plan must also indicate the Participating and
Servicing Plans in the national account syndicate.
Amended as of June 16, 2005
-8-
(iii)
Unless the cause of termination is an event stated in paragraph
15(a) or (b) above respecting BCBSA, the Plan and its Licensed
Controlled Affiliates shall be jointly liable for payment to BCBSA of
an amount equal to the Re-Establishment Fee (described below)
multiplied by the number of Licensed Enrollees of the terminated
entity and its Licensed Controlled Affiliates; provided that if any
other Plan is permitted by BCBSA to use marks or names licensed
by BCBSA in the Service Area established by this Agreement, the
Re-Establishment Fee shall be multiplied by a fraction, the
numerator of which is the number of Licensed Enrollees of the
terminated entity and its Licensed Controlled Affiliates and the
denominator of which is the total number of Licensed Enrollees in
the Service Area. The Re-Establishment Fee shall be indexed to a
base fee of $80. The Re-Establishment Fee through December 31,
2005 shall be $80. The Re-Establishment Fee for calendar years
after December 31, 2005 shall be adjusted on January 1 of each
calendar year up to and including January 1, 2010 and shall be the
base fee multiplied by 100% plus the cumulative percentage
increase or decrease in the Plans’ gross administrative expense
(standard BCBSA definition) per Licensed Enrollee since December
31, 2004. The adjustment shall end on January 1, 2011, at which
time the Re-Establishment Fee shall be fixed at the then-current
amount and no longer automatically adjusted. For example, if the
Plans’ gross administrative expense per Licensed Enrollee was
$278.60, $285.00 and $290.00 for calendar year end 2004, 2005
and 2006, respectively, the January 1, 2007 Re-Establishment Fee
would be $83.27 (100% of the base fee plus $1.84 for calendar year
2005 and $1.43 for calendar year 2006). Licensed Enrollee means
each and every person and covered dependent who is enrolled as
an individual or member of a group receiving products or services
sold, marketed or administered under marks or names licensed by
BCBSA as determined at the earlier of (a) the end of the last fiscal
year of the terminated entity which ended prior to termination or (b)
the fiscal year which ended before any transactions causing the
termination began. Notwithstanding the foregoing, the amount
payable pursuant to this subparagraph (d)(iii) shall be due only to
the extent that, in BCBSA's opinion, it does not cause the net worth
of the Plan to fall below 100% of the Health Risk-Based Capital
formula or its equivalent under any successor formula, as set forth
in the applicable financial responsibility standards established by
BCBSA (provided such equivalent is approved for purposes of this
sub paragraph by the affirmative vote of three-fourths of the Plans
and
Amended as of June 16, 2005
-8a-
three-fourths of the total then current weighted vote of all the Plans),
measured as of the date of termination and adjusted for the value of
any transactions not made in the ordinary course of business. This
payment shall not be due in connection with transactions
exclusively by or among Plan or their affiliates, including
reorganizations, combinations or mergers, where the BCBSA Board
of Directors determines that the license termination does not result
in a material diminution in the number of Licensed Enrollees or the
extent of their coverage. At least 50% of the Re Establishment Fee
shall be awarded to the Plan (or Plans) that receive the new
license(s) for the service area(s) at issue; provided, however, that
such award shall not become due or payable until all disputes, if
any, regarding the amount of and BCBSA’s right to such Re-
Establishment Fee have been finally resolved; and provided further
that the award shall be based on the final amount actually received
by BCBSA. The Board of Directors shall adopt a resolution which it
may amend from time to time that shall govern BCBSA’s use of its
portion of the award. In the event that the terminated entity’s license
is reinstated by BCBSA or is deemed to have remained in effect
without interruption by a court of competent jurisdiction, BCBSA
shall reimburse the Plan (and/or its Licensed Controlled Affiliates,
as the case may be) for payments made under this subparagraph
only to the extent that such payments exceed the amounts due to
BCBSA pursuant to subparagraph 15(d)(vi) and any costs
associated with reestablishing the Service Area, including any
payments made by BCBSA to a Plan or Plans (or their Licensed
Controlled Affiliates) for purposes of replacing the terminated entity.
(iv).
The terminated entity shall comply with all financial settlement
procedures set forth in BCBSA’s License Termination Contingency Plan,
as amended from time to time and shall work diligently and in good faith
with BCBSA, any Alternative Control Licensee or Replacement Licensee
and any existing or potential
Amended as of June 16, 2005
-8b-
new account for Blue-branded products and services to minimize the
disruption of termination, and honor, to the fullest extent possible, the
desire of accounts to continue to receive or obtain Blue-branded products
and services through a new Licensee (“Transition”). Such diligence and
good faith on the part of the terminated entity shall include, but not be
limited to: (a) working cooperatively with BCBSA to protect the Names
and Marks from potential harm; (b) cooperating with BCBSA’s use of the
Names and Marks in the terminated entity’s former service area during
the termination and Transition; (c) transmitting, upon the request of an
existing Blue account or of BCBSA with consent and on behalf of an
existing Blue account, all member and account-data relating to the
Federal Employee Program to BCBSA, and all member and account data
relating to other programs to an Alternative Control Licensee or
Replacement Licensee; (d) working with BCBSA and the Alternative
Control or Replacement Licensee with respect to potential new Blue
accounts headquartered in the terminated entity’s former service area; (e)
continuing to service Blue accounts during the Transition; (f) continuing to
comply with National Programs, Federal Employee Program and NASCO
policies and procedures and all voluntary BCBSA programs, policies and
performance standards, such as Away From Home Care, including being
responsible for payment of all penalties for non-compliance duly levied in
conformity with the License Agreements, Membership Standards, or the
Federal Employee Program agreements, that may arise during the
Transition; (g) maintaining and providing access to its provider networks,
as defined by Federal Employee Program agreements and National
Account Program Policies and Provisions, and Inter-Plan Programs
Policies and Provisions, and making those networks and discounts
available to members and providers who participate in National Programs
and the Federal Employee Program during the Transition; (h) maintaining
its technical connections and processing capabilities during the
Transition; and (i) working diligently to conclude all financial settlements
and account reconciliations as negotiated in the termination transition
agreement.
Amended as of November 16, 2006
-8c-
(v)
(vi)
(vii)
Notwithstanding any other provision in this Agreement, BCBSA
shall have the right, with the approval of its Board of Directors, to
assess additional fines against the terminated entity during the
Transition in the event it fails to maintain and provide access to
provider networks as defined by Federal Employee Program
agreements, National Account Program Policies and Provisions,
and Inter-Plan Programs Policies and Provisions, and/or pass on
applicable discounts. Such fines shall be in addition to any other
assessments, fees or liquidated damages payable herein, or under
existing policies and programs and shall be imposed to make whole
BCBSA and/or the Plans. Terminated entity shall pay any such
fines to BCBSA no later than 30 days after they are approved by
the Board of Directors.
BCBSA shall have the right to examine and audit and/or hire at
terminated entity’s expense a third-party auditor to examine and
audit the books and records of the terminated entity and its
Licensed Controlled Affiliates to verify compliance with the terms
and requirements this paragraph 15(d).
Subsequent to termination of this Agreement, the terminated entity
and its affiliates, agents, and employees shall have an ongoing and
continuing obligation to protect all BCBSA and Blue Licensee data
that was acquired or accessed during the period this Agreement
was in force, including but not limited to all confidential processes,
pricing, provider, discount and other strategic and competitively
sensitive information (“Blue Information”) from disclosure, and shall
not, either alone or with another entity, disclose such Blue
Information or use it in any manner to compete without the express
written permission of BCBSA.
(viii) As to a breach of 15 (d) (i), (ii), (iii), (iv), (vi), or (vii) the parties
agree that the obligations are immediately enforceable in a court of
competent jurisdiction. As to a breach of 15 (d) (i), (ii), (iv), (vi), or
(vii) by the Plan, the parties agree there is no adequate remedy at
law and BCBSA is entitled to obtain specific performance.
Amended as of November 16, 2006
-8d-
(ix)
In the event that the terminated entity’s license is reinstated by
BCBSA or is deemed to have remained in effect without
interruption by a court of competent jurisdiction, the Plan and its
Licensed Controlled Affiliates shall be jointly liable for reimbursing
BCBSA the reasonable costs incurred by BCBSA in connection
with the termination and the reinstatement or court action, and any
associated legal proceedings, including but not limited to: outside
legal fees, consulting fees, public relations fees, advertising costs,
and costs incurred to develop, lease or establish an interim
provider network. Any amount due to BCBSA under this
subparagraph may be waived in whole or in part by the BCBSA
Board of Directors in its sole discretion.
(e).BCBSA shall be entitled to enjoin the Plan or any related party in a court of
competent jurisdiction from entry into any transaction which would result in a termination of
this License Agreement unless the License Agreement has been terminated pursuant to
paragraph 10 (d) of this Agreement upon the required six (6) month written notice.
(f). BCBSA acknowledges that it is not the owner of assets of the Plan.
Amended as of June 16, 2006
-8e-
16.
This Agreement supersedes any and all other agreements between the parties with
respect to the subject matter herein, and contains all of the covenants and agreements of the
parties as to the licensing of the Licensed Marks and Name. This Agreement may be amended
only by the affirmative vote of three-fourths of the Plans and three-fourths of the total then current
weighted vote of all the Plans as officially recorded by the BCBSA Corporate Secretary.
17.
If any provision or any part of any provision of this Agreement is judicially declared
unlawful, each and every other provision, or any part of any provision, shall continue in full force
and effect notwithstanding such judicial declaration.
18.
No waiver by BCBSA or the Plan of any breach or default in performance on the part
of BCBSA or the Plan or any other licensee of any of the terms, covenants or conditions of this
Agreement shall constitute a waiver of any subsequent breach or default in performance of said
terms, covenants or conditions.
19a. All notices provided for hereunder shall be in writing and shall be sent in duplicate by
regular mail to BCBSA or the Plan at the address currently published for each by BCBSA and shall
be marked respectively to the attention of the President and, if any, the General Counsel, of
BCBSA or the Plan.
19b. Except as provided in paragraphs 9(b), 9(d)(iii), 15(a), and 15(b) above, this
Agreement may be terminated for a breach only upon at least 30 days’ written notice to the Plan
advising of the specific matters at issue and granting the Plan an opportunity to be heard and to
present its response to the Member Plans.
19c. For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean all
entities licensed under the Blue Cross License Agreement and/or the Blue Shield License
Agreement, and in all votes of the Plans under this Agreement the Plans shall vote together. For
weighted votes of the Plans, the Plan shall have a number of votes equal to the number of weighted
votes (if any) that it holds as a Blue Cross Plan plus the number of weighted votes (if any) that it
holds as a Blue Shield Plan. For all other votes of the Plans, the Plan shall have one vote. For all
questions requiring an affirmative three-fourths weighted vote of the Plans, the requirement shall be
deemed satisfied with a lesser weighted vote unless the greater of: (i) 6/52 or more of the Plans
(rounded to the nearest whole number, with 0.5 or multiples thereof being rounded to the next higher
whole number) fail to cast weighted votes in favor of the question; or (ii) three (3) of the Plans fail to
cast weighted votes in favor of the question. Notwithstanding the foregoing provision, if there are
thirty- six (36) Plans, the requirement of an affirmative three-fourths weighted vote shall be deemed
satisfied with a lesser weighted vote unless four (4) or more Plans fail to cast weighted votes in favor
of the question.
-8f-
Amended as of June 16, 2006
(The next page is page 9)
20.
Nothing herein contained shall be construed to constitute the parties hereto as
partners or joint venturers, or either as the agent of the other, and Plan shall have no right to bind or
obligate BCBSA in any way, nor shall it represent that it has any right to do so. BCBSA shall have no
liability to third parties with respect to any aspect of the business, activities, operations, products, or
services of the Plan.
21.
This Agreement shall be governed, construed and interpreted in accordance with the
laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have caused this License Agreement to be executed,
effective as of the date of last signature written below.
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By
Title
Date
PLAN:
By
Title
Date
-9-
EXHIBIT 1
CONTROLLED AFFILIATE LICENSE AGREEMENT
(Includes revisions adopted by Member Plans through their September 17, 2020 meeting)
BLUE CROSS
This Agreement by and among Blue Cross and Blue Shield Association ("BCBSA") and
(“Controlled Affiliate"), a Controlled Affiliate of the Blue Cross Plan, known as
("Plan" or “Sponsoring Plan”), which is also a Party signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE CROSS and BLUE CROSS Design service
marks;
WHEREAS, Plan and Controlled Affiliate desire that the latter be entitled to use the BLUE
CROSS and BLUE CROSS Design service marks (collectively the "Licensed Marks") as service
marks and be entitled to use the term BLUE CROSS in a trade name ("Licensed Name");
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1.
GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA hereby grants to Controlled
Affiliate the right to use the Licensed Marks and Name in connection with, and only in connection
with: (i) health care plans and related services, as defined in BCBSA's License Agreement with Plan,
and administering the non-health portion of workers’ compensation insurance, and (ii) underwriting
the indemnity portion of workers’ compensation insurance, provided that Controlled Affiliate’s total
premium revenue comprises less than 15 percent of the Sponsoring Plan’s net subscription revenue.
This grant of rights is non-exclusive and is limited to the Service Area served by the Plan Subject to
paragraph 3A(3) of this Agreement, Controlled Affiliate may use the Licensed Marks and Name in its
legal name on the following conditions: (i) the legal name must be approved in advance, in writing, by
BCBSA; (ii) Controlled Affiliate shall not do business outside the Service Area under any name or
mark; and (iii) Controlled Affiliate shall not use the Licensed Marks and Name, or any derivative
thereof, as part of any name or symbol used to identify itself in any securities market, unless such
Controlled Affiliate is a not-for-profit company which may use the Licensed Marks and Name, or an
approved derivative therefor, to identify itself in debt securities markets. Controlled Affiliate may use
the Licensed Marks and Name in its Trade Name only with the prior, written, consent of BCBSA.
Amended as of March 26, 2015
1
2.
QUALITY CONTROL
A.
Controlled Affiliate agrees to use the Licensed Marks and Name only in connection
with the licensed services and further agrees to be bound by the conditions regarding quality
control shown in attached Exhibit A as they may be amended by BCBSA from time-to-time.
laws.
B.
C.
Controlled Affiliate agrees to comply with all applicable federal, state and local
Controlled Affiliate agrees that it will provide on an annual basis (or more often
if reasonably required by Plan or by BCBSA) a report or reports to Plan and BCBSA
demonstrating Controlled Affiliate's compliance with the requirements of this Agreement including
but not limited to the quality control provisions of this paragraph and the attached Exhibit A.
D.
Controlled Affiliate agrees that Plan and/or BCBSA may, from time-to-time, upon
reasonable notice, review and inspect the manner and method of Controlled Affiliate's rendering of
service and use of the Licensed Marks and Name.
E.
As used herein, a Controlled Affiliate is defined as an entity organized and
operated in such a manner, that the Sponsoring Plan has:
(1)
(a)
The legal authority directly or indirectly through wholly-owned subsidiaries:
to select members of the Controlled Affiliate’s governing body having not less than
50% voting control thereof; and
(b)
to prevent any change in the articles of incorporation, bylaws or other establishing
or governing documents of the Controlled Affiliate with which the Sponsoring Plan does not
concur; and
(c)
to exercise control over the policy and operations of the Controlled Affiliate at least
equal to that exercised by persons or entities (jointly or individually) other than the Sponsoring
Plan; and
Notwithstanding anything to the contrary in (a) through (c) hereof, the Controlled Affiliate’s
establishing or governing documents must also require written approval by the Sponsoring Plan
before the Controlled Affiliate can:
(i)
(ii)
(iii)
change its legal and/or trade names;
change the geographic area in which it operates;
change any of the type(s) of businesses in which it engages;
Amended as of September 19, 2014
2
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
create, or become liable for by way of guarantee, any indebtedness,
other than indebtedness arising in the ordinary course of business;
sell any assets, except for sales in the ordinary
course of business or sales of equipment no longer useful or being
replaced;
make any loans or advances except in the ordinary course of
business;
enter into any arrangement or agreement with any
party directly or indirectly affiliated with any of the owners or persons or
entities with the authority to select or appoint members or board members
of the Controlled Affiliate, other than the Sponsoring Plan or other Plans
(excluding owners of stock holdings of under 5% in a publicly traded
Controlled Affiliate);
conduct any business other than under the Licensed Marks and Name;
take any action that the Sponsoring Plan or BCBSA reasonably
believes will adversely affect the Licensed Marks and Name.
In addition, the Sponsoring Plan directly or indirectly through wholly owned subsidiaries shall own at
least 50% of any for-profit Controlled Affiliate, provided that in instances where the Sponsoring Plan
formed a publicly traded Controlled Affiliate Licensee and such publicly traded Controlled Affiliate
Licensee owns and controls other Controlled Affiliate Licensees, the Sponsoring Plan directly or
indirectly shall own and control at least 50% of any Controlled Affiliate that is indirectly owned and
controlled by the publicly traded Controlled Affiliate Licensee.
Or
(2)
the legal authority directly or indirectly through wholly-owned subsidiaries:
to select members of the Controlled Affiliate’s governing body having more than 50% voting
(a)
control thereof and;
(b)
to prevent any change in the articles of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with which the Sponsoring Plan does not concur;
and
(c)
to exercise control over the policy and operations of the Controlled Affiliate.
Amended as of March 26, 2015
3
In addition, the Sponsoring Plan directly or indirectly through wholly-owned subsidiaries shall own
more than 50% of any for-profit Controlled Affiliate, provided that in instances where the Sponsoring
Plan formed a publicly traded Controlled Affiliate Licensee and such publicly traded Controlled
Affiliate Licensee owns and controls other Controlled Affiliate Licensees, the Sponsoring Plan
directly or indirectly shall own and control more than 50% of any Controlled Affiliate that is indirectly
owned and controlled by the publicly traded Controlled Affiliate Licensee.
Or
(3) With respect to a Controlled Affiliate that is 100% controlled by Plans including the
Sponsoring Plan and which offers solely Medicaid, Medicare Advantage PPO, Medicare Advantage
HMO and/or Special Need Plans products and services, the Sponsoring Plan has the legal authority
together with such other Plans:
(a)
(b)
to select all members of the Controlled Affiliate’s governing body; and
to prevent any change in the articles of incorporation, bylaws or other
establishing or governing documents of the Controlled Affiliate; and
(c)
to exercise control over the policy and operations of the Controlled Affiliate. In
addition, the Sponsoring Plan and such other Plans shall own 100% of any for-profit
Controlled Affiliate with the Sponsoring Plan and such other Plans each having an ownership
interest. Such control and ownership by Plans must be direct or, if indirect, solely through affiliates
that are licensed to use marks owned by BCBSA. Further, the Sponsoring Plan and such other Plans
shall execute a separate Addendum to Controlled Affiliate License Agreement attached hereto as
Exhibit B-1 for each product noted in Paragraph 2E(3) that is licensed to use the Marks.
Or
(4) With respect to a Controlled Affiliate that is 100% controlled by a Sponsoring Plan which on
a Blue-branded basis, only offers a Basic Medicare Part D Prescription Drug Plan product, the
Sponsoring Plan has the legal authority:
(a)
(b)
to select all members of the Controlled Affiliate’s governing body; and
to prevent any change in the articles of incorporation, bylaws or other
establishing or governing documents of the Controlled Affiliate; and
(c)
to exercise control over the policy and operations of the Controlled Affiliate.
4
Amended June 20, 2019
In addition, the Sponsoring Plan shall own 100% of any for-profit Controlled Affiliate. Such 100%
control and ownership by Sponsoring Plan must be direct or, if indirect, solely through affiliates that
are licensed to use marks owned by BCBSA. Further, the Participating Plan as defined in Exhibit B-2
and the Sponsoring Plan shall execute the Addendum to Controlled Affiliate License Agreement
attached hereto as Exhibit B-2.
Or
(5) With respect to a Controlled Affiliate that operates as a clinic, absent an alternative method of
control approved in writing by BCBSA, the Sponsoring Plan shall have bona fide operational control
over the Controlled Affiliate as specified in Exhibit A, Standard 1(E) and the Guidelines to Administer
Standard 1(E). In addition, if the clinic is for-profit, the Sponsoring Plan shall own at least 50% of the
Controlled Affiliate and prevent any change in the articles of incorporation, bylaws or other
establishing documents of the Controlled Affiliate with which the Sponsoring Plan does not concur.
3.
A.
FOR-PROFIT, PUBLICLY TRADED LICENSEES
The Controlled Affiliate may operate as a for-profit publicly traded company on the following
conditions:
The Controlled Affiliate shall discharge all responsibilities which it has to the
(1)
Association and to other Plans by virtue of this Agreement.
The Controlled Affiliate shall provide 90 days advance written notice to BCBSA prior to
(2)
the initial filing with the SEC.
(3)
The Controlled Affiliate shall not use the Licensed Marks and Name, or any derivative
thereof, as part of its legal name or any symbol used to identify the Controlled Affiliate in any
securities market. The Controlled Affiliate shall use the Licensed Marks and Name as part of
its trade name within its service area for the sale, marketing and administration of health care
and related services in the service area.
The Controlled Affiliate’s license to use the Licensed Marks and Name shall
(4)
automatically terminate effective: (a) thirty days after the Controlled Affiliate knows, or there is
an SEC filing indicating that, any Institutional Investor, has become the Beneficial Owner of
securities representing 10% or more of the voting power of the Controlled Affiliate (“Excess
Institutional Voter”), unless such Excess Institutional Voter shall cease to be an Excess
Institutional Voter prior to such automatic termination becoming effective; (b) thirty days after
the Controlled Affiliate knows, or there is an SEC filing indicating that, any Noninstitutional
Investor, other than a Plan or Plans or Controlled Affiliate Licensee or Licensees has become
the Beneficial Owner of securities representing 5% or more of the voting power of the
Controlled Affiliate (“Excess Noninstitutional Voter”) unless such Excess Noninstitutional Voter
shall cease to be an Excess Noninstitutional Voter prior to such automatic termination
becoming effective; (c) thirty days after the Controlled Affiliate knows, or there is an SEC filing
indicating that, any Person has become the Beneficial Owner, other than a
5
Amended as of June 20, 2019
Plan or Plans or Controlled Affiliate Licensee or Licensees, of 20% or more of the Controlled
Affiliate’s then outstanding common stock or other equity securities which (either by
themselves or in combination) represent an ownership interest of 20% or more pursuant to
determinations made under paragraph 3A(4) below (“Excess Owner”), unless such Excess
Owner shall cease to be an Excess Owner prior to such automatic termination becoming
effective; (d) ten business days after individuals who at the time the Controlled Affiliate went
public constituted the Board of Directors of the Controlled Affiliate (together with any new
directors whose election to the Board was approved by a vote of 2/3 of the directors then still
in office who were directors at the time the Controlled Affiliate went public or whose election or
nomination was previously so approved) (the “Continuing Directors”) cease for any reason to
constitute a majority of the Board of Directors; or (e) ten business days after the Controlled
Affiliate consolidates with or merges with or into any person or conveys, assigns, transfers or
sells all or substantially all of its assets to any person other than a merger
in which the Sponsoring Plan is the surviving entity and immediately after which merger, no
person is an Excess Institutional Voter, an Excess Noninstitutional Voter or an Excess Owner:
provided that, if requested by the affected Controlled Affiliate in a writing received by BCBSA
prior to such automatic termination becoming effective, the provisions of this paragraph 3A(4)
may be waived, in whole or in part, upon the affirmative vote of a majority of the disinterested
Plans and majority of the total then current weighted vote of the disinterested Plans. Any
waiver so granted may be conditioned upon such additional requirements (including but not
limited to imposing new and independent grounds for termination of this License) as shall be
approved by the affirmative vote of a majority of the disinterested Plans and a majority of the
total then current weighted vote of the disinterested Plans. If a timely waiver request is
received, no automatic termination shall become effective until the later of: (1) the conclusion
of the applicable time period specified in paragraphs 3A(4) (a)-(d) above, or (2) the conclusion
of the first Member Plan meeting after receipt of such a waiver request.
In the event that the Controlled Affiliate’s license, or any other license, to use the Licensed
Marks and Name is terminated pursuant to Paragraph 3A(4), the license may be reinstated in
BCBSA’s sole discretion if, within 30 days of the date of such termination, the Controlled
Affiliate demonstrates that the Person referred to in clause (a), (b), or (c) of the preceding
paragraph is no longer an Excess Institutional Voter, an Excess Noninstitutional Voter or an
Excess Owner.
The Controlled Affiliate shall not issue any class or series of security other than
(5)
(i) shares of common stock having identical terms or options or derivatives of such
common stock, (ii) non-voting, non-convertible debt securities or (iii) such other securities
as the Controlled Affiliate may approve, provided that BCBSA receives notice at least thirty
days prior to the issuance of such securities, including a description of the terms for such
securities, and BCBSA shall have the authority to determine how such other securities will
be counted in determining whether any Person is an Excess Institutional Voter, Excess
Noninstitutional Voter or an Excess Owner.
Amended as of March 26, 2015
6
(6)
For purposes of paragraph 3A(4) above, the following definitions shall apply:
“Affiliate” and “Associate” shall have the respective meanings ascribed to such terms
(i)
in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended and in effect on November 17, 1993 (the “Exchange Act”).
A Person shall be deemed the “Beneficial Owner” of and shall be deemed to
(ii)
“beneficially own” any securities:
(1)
which such Person or any of such Person’s Affiliates or Associates
beneficially owns, directly or indirectly;
which such Person or any of such Person’s Affiliates or Associates has
(2)
(A)
the right to acquire (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding, or upon the
exercise of conversion rights, exchange rights, warrants or options, or otherwise; or (B) the
right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the
agreement, arrangement or understanding to vote such security (1) arises solely from a revocable
proxy or consent given to such Person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and regulations promulgated under the
Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
3.
which are beneficially owned, directly or indirectly, by any other Person (or any
Affiliate or Associate thereof) with which such Person (or any of such Person’s Affiliates or
Associates) has any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with respect to a bona
fide public offering of securities) relating to the acquisition, holding, voting (except to the extent
contemplated by the proviso to (ii)2(B) above) or disposing of any securities of the Controlled
Affiliate.
Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase
“then outstanding,” when used with reference to a Person’s Beneficial Ownership of securities
of the Controlled Affiliate, shall mean the number of such securities then issued and
outstanding together with the number of such securities not then actually issued and
outstanding which such Person would be deemed to own beneficially hereunder.
Amended as of March 26, 2015
7
(iii) A Person shall be deemed an “Institutional Investor” if (but only if) such Person
(i) is an entity or group identified in the SEC’s Rule 13d-1(b)(1)(ii) as constituted on June 1,
1997, and (ii) every filing made by such Person with the SEC under Regulation 13D-G (or
any successor Regulation) with respect to such Person’s Beneficial Ownership of Plan
securities shall have contained a certification identical to the one required by item 10 of SEC
Schedule 13G as constituted on June 1, 1997.
(iv)
“Noninstitutional Investor” means any Person who is not an Institutional
Investor.
(v)
“Person” shall mean any individual, firm, partnership, corporation, trust,
association, joint venture or other entity, and shall include any successor (by merger or
otherwise) of such entity.
4.
SERVICE MARK USE
A.
Controlled Affiliate recognizes the importance of a comprehensive national network of
independent BCBSA licensees which are committed to strengthening the Licensed
Marks and Name. The Controlled Affiliate further recognizes that its actions within its Service Area
may affect the value of the Licensed Marks and Name nationwide.
B.
Controlled Affiliate shall at all times make proper service mark use of the Licensed
Marks and Name, including but not limited to use of such symbols or words as BCBSA shall
specify to protect the Licensed Marks and Name and shall comply with such rules (generally
applicable to Controlled Affiliates licensed to use the Licensed Marks and Name) relative to
service mark use, as are issued from time-to-time by BCBSA. Controlled Affiliate recognizes and
agrees that all use of the Licensed Marks and Name by Controlled Affiliate shall inure to the
benefit of BCBSA.
C.
Controlled Affiliate may not directly or indirectly use the Licensed Marks and Name in a
manner that transfers or is intended to transfer in the Service Area the goodwill associated therewith
to another mark or name, nor may Controlled Affiliate engage in activity that may dilute or tarnish
the unique value of the Licensed Marks and Name.
D.
If Controlled Affiliate meets the standards of 2E(1) but not 2E(2) above and any of
Controlled Affiliate's advertising or promotional material is reasonably determined by BCBSA and/or
the Plan to be in contravention of rules and regulations governing the use of the Licensed Marks and
Name, Controlled Affiliate shall for ninety (90) days thereafter obtain prior approval from BCBSA of
advertising and promotional efforts using the Licensed Marks and Name, approval or disapproval
thereof to be forthcoming within five (5) business days of receipt of same by BCBSA or its designee.
In all advertising and promotional efforts, Controlled Affiliate shall observe the Service Area
limitations applicable to Plan.
Amended as of March 26, 2015
8
E.
Notwithstanding any other provision in the Plan’s License Agreement with BCBSA
or in this Agreement, Controlled Affiliate shall use its best efforts to promote and build the value
of the Licensed Marks and Name.
5.
SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not, directly or indirectly, sublicense, transfer, hypothecate, sell,
encumber or mortgage, by operation of law or otherwise, the rights granted hereunder and any such
act shall be voidable at the sole option of Plan or BCBSA. This Agreement and all rights and duties
hereunder are personal to Controlled Affiliate.
6.
INFRINGEMENT
Controlled Affiliate shall promptly notify Plan and Plan shall promptly notify BCBSA of any
suspected acts of infringement, unfair competition or passing off that may occur in relation to the
Licensed Marks and Name. Controlled Affiliate shall not be
entitled to require Plan or BCBSA to take any actions or institute any proceedings to prevent
infringement, unfair competition or passing off by third parties. Controlled Affiliate agrees to render
to Plan and BCBSA, without charge, all reasonable assistance in connection with any matter
pertaining to the protection of the Licensed Marks and Name by BCBSA.
7.
LIABILITY INDEMNIFICATION
Controlled Affiliate and Plan hereby agree to save, defend, indemnify and hold BCBSA
harmless from and against all claims, damages, liabilities and costs of every kind, nature and
description (except those arising solely as a result of BCBSA's negligence) that may arise as a result
of or related to: (i) Controlled Affiliate's rendering of services under the Licensed Marks and Name; or
(ii) the activities of any hospital, medical group, clinic or other provider of health services that is
owned or controlled directly or indirectly by Plan or Controlled Affiliate.
8.
LICENSE TERM
A.
Except as otherwise provided herein, the license granted by this Agreement shall
remain in effect for a period of one (1) year and shall be automatically extended for additional
one (1) year periods unless terminated pursuant to the provisions herein.
B.
This Agreement and all of Controlled Affiliate's rights hereunder shall immediately
terminate without any further action by any party or entity in the event that: (i) the Plan ceases to be
authorized to use the Licensed Marks and Name; or (ii) pursuant to Paragraph 15(a)(x) of the Blue
Cross License Agreement the Plan ceases to be authorized to use the Licensed Names and Marks
in the geographic area served by the Controlled Affiliate provided, however, that if the Controlled
Affiliate is serving more than one State or portions thereof, the termination of this Agreement shall be
limited to the State(s) or portions thereof in
Amended as of March 26, 2015
9
which the Plan’s license to use the Licensed Marks and Names is terminated. By not appealing or
challenging such regulatory action within the time prescribed by law or regulation, and in any event
no later than 120 days after such action is taken, a Plan shall be deemed to have exhausted its rights
to appeal or challenge, and automatic termination shall proceed.
C.
Notwithstanding any other provision of this Agreement, this license to use the Licensed
Marks and Name may be forthwith terminated by the Plan or the affirmative vote of the majority of
the Board of Directors of BCBSA present and voting at a special meeting expressly called by
BCBSA for the purpose on ten (10) days written notice to the Plan advising of the specific matters at
issue and granting the Plan an opportunity to be heard and to present its response to the Board for:
(1) failure to comply with any applicable minimum capital or liquidity requirement under the quality
control standards of this Agreement; or (2) failure to comply with the "Organization and Governance"
quality control standard of thisAgreement; or (3) impending financial insolvency; or (4) for a Smaller
Controlled Affiliate (as defined in Exhibit A), failure to comply with any of the applicable requirements of
Standards 2, 3, 4, 5 or 7 of attached Exhibit A; or (5) the pendency of any action instituted against the
Controlled Affiliate seeking its dissolution or liquidation of its assets or seeking appointment of a trustee,
interim trustee, receiver or other custodian for any of its property or business or seeking the declaration or
establishment of a trust for any of its property or business, unless this Controlled Affiliate License Agreement
has been earlier terminated under paragraph 8(E); or (6) failure by a Controlled Affiliate that meets the
standards of 2E(1) but not 2E(2) above to obtain BCBSA's written consent to a change in the identity of any
owner, in the extent of ownership, or in the identity of any person or entity with the authority to select or
appoint members or board members, provided that as to publicly traded Controlled Affiliates this provision
shall apply only if the change affects a person or entity that owns at least 5% of the Controlled Affiliate's stock
before or after the change; or (7) such other reason as is determined in good faith immediately and irreparably
to threaten the integrity and reputation of BCBSA, the Plans, any other licensee including Controlled Affiliate
and/or the Licensed Marks and Name.
D.
Except as otherwise provided in Paragraphs 8(B), 8(C) or 8(E) herein, should
Controlled Affiliate fail to comply with the provisions of this Agreement and not cure such failure
within thirty (30) days of receiving written notice thereof (or commence a cure within such thirty day
period and continue diligent efforts to complete the cure if such curing cannot reasonably be
completed within such thirty day period) BCBSA or the Plan shall have the right to issue a notice that
the Controlled Affiliate is in a state of noncompliance. If a state of noncompliance as aforesaid is
undisputed by the Controlled Affiliate or is found to exist by a mandatory dispute resolution panel and
is uncured as provided above, BCBSA shall have the right to seek judicial enforcement of the
Agreement or to issue a notice of termination thereof. Notwithstanding any other provisions of this
Agreement, any disputes as to the termination of this License pursuant to Paragraphs 8(B), 8(C) or
8(E) of this Agreement shall not be subject to mediation and mandatory dispute resolution. All other
disputes between BCBSA, the Plan and/or Controlled Affiliate shall be submitted promptly to
mediation and mandatory dispute resolution. The mandatory dispute resolution panel shall have
authority to issue orders for
Amended as of March 26, 2015
10
specific performance and assess monetary penalties. Except, however, as provided in Paragraphs
8(B) and 8(E) of this Agreement, this license to use the Licensed
Marks and Name may not be finally terminated for any reason without the affirmative vote of a
majority of the present and voting members of the Board of Directors of BCBSA.
E.
This Agreement and all of Controlled Affiliate’s rights hereunder shall
immediately terminate without any further action by any party or entity in the event that:
(1)
(2)
Controlled Affiliate shall no longer comply with item 2(E) above;
Appropriate dues, royalties and other payments for Controlled
Affiliate pursuant to paragraph 10 hereof, which are the royalties for this License Agreement, are
more than sixty (60) days in arrears to BCBSA; or
(3) Any of the following events occur: (i) a voluntary petition shall be filed by Controlled
Affiliate seeking bankruptcy, reorganization, arrangement with creditors or other relief under the
bankruptcy laws of the United States or any other law governing insolvency or debtor relief, or (ii) an
involuntary petition or proceeding shall be filed against Controlled Affiliate seeking bankruptcy,
reorganization, arrangement with creditors or other relief under the bankruptcy laws of the United
States or any other law governing insolvency or debtor relief and such petition or proceeding is
consented to or acquiesced in by Controlled Affiliate or is not dismissed within sixty (60) days of the
date upon which the petition or other document commencing the proceeding is served upon the
Controlled Affiliate, or (iii) an order for relief is entered against Controlled Affiliate in any case under
the bankruptcy laws of the United States, or Controlled Affiliate is adjudged bankrupt or insolvent as
those terms are defined in the Uniform Commercial Code as enacted in the State of Illinois by any
court of competent jurisdiction, or (iv) Controlled Affiliate makes a general assignment of its assets
for the benefit of creditors, or (v) any government or any government official, office, agency, branch,
or unit assumes control of Controlled Affiliate or delinquency proceedings (voluntary or involuntary)
are instituted, or (vi) an action is brought by Controlled Affiliate seeking its dissolution or liquidation
of its assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for
any of its property or business, or (vii) an action is instituted by any governmental entity or officer
against Controlled Affiliate seeking its dissolution or liquidation of its assets or seeking the
appointment of a trustee, interim trustee, receiver or other custodian for any of its property or
business and such action is consented to or acquiesced in by Controlled Affiliate or is not dismissed
within one hundred thirty (130) days of the date upon which the pleading or other document
commencing the action is served upon the Controlled Affiliate, provided that if the action is stayed or
its prosecution is enjoined, the one hundred thirty (130) day period is tolled for the duration of the
stay or injunction, and provided further, that the Association’s Board of Directors may toll or extend
the 130 day period at any time prior to its expiration, or (viii) a trustee, interim trustee, receiver or
other custodian for any of Controlled Affiliate's property or business is appointed or the Controlled
Affiliate is ordered dissolved or liquidated. Notwithstanding any other provision of this Agreement, a
declaration or a request for declaration of the existence of a trust over any of the Controlled
Affiliate’s property or business shall not in itself be
Amended as of March 26, 2015
11
deemed to constitute or seek appointment of a trustee, interim trustee, receiver or other custodian
for purposes of subparagraphs 8(E)(3)(vii) and (viii) of this Agreement.
(4) The for-profit, publicly traded Controlled Affiliate is terminated pursuant to Paragraph
3A(4) of this Agreement. In which case, the licenses of any Controlled Affiliates directly or
indirectly owned by the terminated for-profit, publicly traded Controlled Affiliate also shall
immediately terminate as provided for in paragraph 3A(4) of this Agreement.
F.
Upon termination of this Agreement for cause or otherwise, Controlled Affiliate agrees
that it shall immediately discontinue all use of the Licensed Marks and Name, including any use in
its trade name.
G.
Upon termination of this Agreement, Controlled Affiliate shall immediately notify all of
its customers that it is no longer a licensee of BCBSA and, if directed by the Association’s Board of
Directors, shall provide instruction on how the customer can contact BCBSA or a designated
licensee to obtain further information on securing coverage. The notification required by this
paragraph shall be in writing and in a form approved by BCBSA. The BCBSA shall have the right to
audit the terminated entity's books and records to verify compliance with this paragraph.
H.
In the event this Agreement terminates pursuant to 8(B) hereof, or in the event the
Controlled Affiliate is a Larger Controlled Affiliate (as defined in Exhibit A), upon termination of this
Agreement, the provisions of Paragraph 8.G. shall not apply and the following provisions shall
apply, except that, in the event of a partial termination of this Agreement pursuant to Paragraph
8(B)(ii) of this Agreement, the notices, national account listing, payment, and audit right listed below
shall be applicable solely with respect to the geographic area for which the Plan’s license to use the
Licensed Names and Marks is terminated.
(1)
The Controlled Affiliate shall send a notice through the U.S. mails, with first class
postage affixed, to all individual and group customers, providers, brokers and agents of products or
services sold, marketed, underwritten or administered by the Controlled Affiliate under the Licensed
Marks and Name. The form and content of the notice shall be specified by BCBSA and shall, at a
minimum, notify the recipient of the termination of the license, the consequences thereof, and
instructions for obtaining alternate products or services licensed by BCBSA, subject to any conflicting
state law and state regulatory requirements. This notice shall be mailed within 15 days after
termination.
(2)
The Controlled Affiliate shall deliver to BCBSA within five days of a request by BCBSA
a listing of national accounts in which the Controlled Affiliate is involved (in a control, participating or
servicing capacity), identifying the national account and the Controlled Affiliate’s role therein.
Amended as of March 26, 2015
12
(3)
Unless the cause of termination is an event respecting BCBSA stated in paragraph
15(a) or (b) of the Plan’s license agreement with BCBSA to use the Licensed Marks and Name, the
Controlled Affiliate, the Plan, and any other Licensed Controlled Affiliates of the Plan shall be jointly
liable for payment to BCBSA of an amount equal to the Re-Establishment Fee (described below)
multiplied by the number of Licensed Enrollees of the Controlled Affiliate; provided that if any other
Plan is permitted by BCBSA to use marks or names licensed by BCBSA in the Service Area
established by this Agreement, the Re- Establishment Fee shall be multiplied by a fraction, the
numerator of which is the number of Licensed Enrollees of the Controlled Affiliate, the Plan, and any
other Licensed Controlled Affiliates and the denominator of which is the total number of Licensed
Enrollees in the Service Area.
The Re-Establishment Fee shall be indexed to a base fee of $80. The Re-Establishment Fee through
December 31, 2005 shall be $80. The Re-establishment Fee for calendar years after December 31,
2005 shall be adjusted on January 1 of each calendar year up to and including January 1, 2010 and
shall be the base fee multiplied by 100% plus the cumulative percentage increase or decrease in the
Plans’ gross administrative expense (standard BCBSA definition) per Licensed Enrollee since
December 31, 2004. The adjustment shall end on January 1, 2011, at which time the Re-
Establishment Fee shall be fixed at the then- current amount and no longer automatically adjusted.
For example, if the Plans’ gross administrative expense per Licensed Enrollee was $278.60, $285.00
and $290.00 for calendar year end 2004, 2005 and 2006, respectively, the January 1, 2007 Re-
Establishment Fee would be $83.27 (100% of base fee plus $1.84 for calendar year 2005 and $1.43
for calendar year 2006). Licensed Enrollee means each and every person and covered dependent
who is enrolled as an individual or member of a group receiving products or services sold, marketed
or administered under marks or names licensed by BCBSA as determined at the earlier of (i) the end
of the last fiscal year of the terminated entity which ended prior to termination or (ii) the fiscal year
which ended before any transactions causing the termination began. Notwithstanding the foregoing,
the amount payable pursuant to this subparagraph H. (3) shall be due only to the extent that, in
BCBSA’s opinion, it does not cause the net worth of the Controlled Affiliate, the Plan or any other
Licensed Controlled Affiliates of the Plan to fall below 100% of the Health Risk-Based Capital
formula, or its equivalent under any successor formula, as set forth in the applicable financial
responsibility standards established by BCBSA (provided such equivalent is approved for purposes
of this sub paragraph by the affirmative vote of three-fourths of the Plans and three-fourths of the
total then current weighted vote of all the Plans); measured as of the date of termination, and
adjusted for the value of any transactions not made in the ordinary course of business. This payment
shall not be due in connection with transactions exclusively by or among Plans or their affiliates,
including reorganizations, combinations or mergers, where the BCBSA Board of Directors
determines that the license termination does not result in a material diminution in the number of
Licensed Enrollees or the extent of their coverage. At least 50% of the Re- Establishment Fee shall
be awarded to the Plan (or Plans) that receive the new license(s) for the service area(s) at issue;
provided, however, that such award shall not become due or payable until all disputes, if any,
regarding the amount of and BCBSA’s right to such Re- Establishment Fee have been finally
resolved; and provided further that the award shall be
Amended as of March 26, 2015
13
based on the final amount actually received by BCBSA. The Board of Directors shall adopt a
resolution which it may amend from time to time that shall govern BCBSA’s use of its portion of the
award. In the event that the Controlled Affiliate’s license is reinstated by BCBSA or is deemed to
have remained in effect without interruption by a court of competent jurisdiction, BCBSA shall
reimburse the Controlled Affiliate (and/or the Plan or its other Licensed Controlled Affiliates, as the
case may be) for payments made under this subparagraph 8.H.(3) only to the extent that such
payments exceed the amounts due to BCBSA pursuant to paragraph 8.M. and any costs associated
with reestablishing the Service Area, including payments made by BCBSA to a Plan or Plans (or their
Licensed Controlled Affiliates) for purposes of replacing the Controlled Affiliate.
(4)
BCBSA shall have the right to examine and audit and/or hire at
terminated entity’s expense a third party auditor to examine and audit the books and records of the
Controlled Affiliate, the Plan, and any other Licensed Controlled Affiliates of the Plan to verify
compliance with this paragraph 8.H.
(5)
Subsequent to termination of this Agreement, the terminated entity
and its affiliates, agents, and employees shall have an ongoing and continuing obligation to protect
all BCBSA and Blue Licensee data that was acquired or accessed during the period this Agreement
was in force, including but not limited to all confidential processes, pricing, provider, discount and
other strategic and competitively sensitive information (“Blue Information”) from disclosure, and shall
not, either alone or with another entity, disclose such Blue Information or use it in any manner to
compete without the express written permission of BCBSA.
(6)
As to a breach of 8.H.(1), (2), (3), (4) or (5) the parties agree that
the obligations are immediately enforceable in a court of competent jurisdiction. As to a breach of
8.H.(1), (2) or (4) by the Controlled Affiliate, the parties agree there is no adequate remedy at law
and BCBSA is entitled to obtain specific performance.
I.
This Agreement shall remain in effect until terminated by the Controlled Affiliate or the
Plan upon not less than eighteen (18) months written notice to the Association or upon a shorter
notice period approved by BCBSA in writing at its sole discretion, or until terminated as otherwise
provided herein. The Plan’s right to terminate without cause upon such notice is unfettered and may
be exercised in the Plan’s sole discretion.
J.
In the event the Controlled Affiliate is a Smaller Controlled Affiliate (as defined in
Exhibit A), the Controlled Affiliate agrees to be jointly liable for the amount described in
H.3. and M. hereof upon termination of the BCBSA license agreement of any Larger
Controlled Affiliate of the Plan.
K.
BCBSA shall be entitled to enjoin the Controlled Affiliate or any related party in a court
of competent jurisdiction from entry into any transaction which would result in a termination of this
Agreement unless the Plan’s license from BCBSA to use the Licensed Marks and Names has been
terminated pursuant to 10(d) of the Plan’s license agreement upon the required 18 months written
notice.
Amended as of March 26, 2015
14
L.
Affiliate.
BCBSA acknowledges that it is not the owner of assets of the Controlled
M.
In the event that the Plan has more than 50 percent voting control of the Controlled
Affiliate under Paragraph 2(E)(2) above and is a Larger Controlled Affiliate (as defined in Exhibit A),
then the vote called for in Paragraphs 8(C) and 8(D) above shall require the affirmative vote of three-
fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans.
N.
In the event this Agreement terminates and is subsequently reinstated by BCBSA or is
deemed to have remained in effect without interruption by a court of competent jurisdiction, the
Controlled Affiliate, the Plan, and any other Licensed Controlled Affiliates of the Plan shall be jointly
liable for reimbursing BCBSA the reasonable costs incurred by BCBSA in connection with the
termination and the reinstatement or court action, and any associated legal proceedings, including
but not limited to: outside legal fees, consulting fees, public relations fees, advertising costs, and
costs incurred to develop, lease or establish an interim provider network. Any amount due to
BCBSA under this subparagraph may be waived in whole or in part by the BCBSA Board of
Directors in its sole discretion.
9.
DISPUTE RESOLUTION
The parties agree that any disputes between them or between or among either of them and
one or more Plans or Controlled Affiliates of Plans that use in any manner the Blue Cross and Blue
Cross Marks and Name are subject to the Mediation and Mandatory Dispute Resolution process
attached to and made a part of Plan's License from BCBSA to use the Licensed Marks and Name as
Exhibit 5 as amended from time-to-time, which documents are incorporated herein by reference as
though fully set forth herein.
10.
LICENSE FEE
Controlled Affiliate will pay to BCBSA a fee for this License determined pursuant to the
formula(s) set forth in Exhibit C.
11.
JOINT VENTURE
Nothing contained in the Agreement shall be construed as creating a joint venture,
partnership, agency or employment relationship between Plan and Controlled Affiliate or
between either and BCBSA.
12.
NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or breach or termination thereof shall
be in writing and shall be addressed in duplicate to the last known address of each other party,
marked respectively to the attention of its President and, if any, its General Counsel.
Amended as of March 26, 2015
15
13.
COMPLETE AGREEMENT
This Agreement contains the complete understandings of the parties in relation to the
subject matter hereof. This Agreement may only be amended by the affirmative vote of three-
fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans as
officially recorded by the BCBSA Corporate Secretary.
14.
SEVERABILITY
If any term of this Agreement is held to be unlawful by a court of competent jurisdiction, such
findings shall in no way affect the remaining obligations of the parties hereunder and the court may
substitute a lawful term or condition for any unlawful term or condition so long as the effect of such
substitution is to provide the parties with the benefits of this Agreement.
15.
NONWAIVER
No waiver by BCBSA of any breach or default in performance on the part of Controlled
Affiliate or any other licensee of any of the terms, covenants or conditions of
this Agreement shall constitute a waiver of any subsequent breach or default in performance of said
terms, covenants or conditions.
15A. VOTING
For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean all entities
licensed under the Blue Cross License Agreement and/or the Blue Shield License Agreement, and
in all votes of the Plans under this Agreement the Plans shall vote together. For weighted votes of
the Plans, the Plan shall have a number of votes equal to the number of weighted votes (if any) that
it holds as a Blue Cross Plan plus the number of weighted votes (if any) that it holds as a Blue
Shield Plan. For all other votes of the Plans, the Plan shall have one vote. For all questions requiring
an affirmative three-fourths weighted vote of the Plans, the requirement shall be deemed satisfied
with a lesser weighted vote unless the greater of: (i) 6/52 or more of the Plans (rounded to the
nearest whole number, with 0.5 or multiples thereof being rounded to the next higher whole number)
fail to cast weighted votes in favor of the question; or (ii) three (3) of the Plans fail to cast weighted
votes in favor of the question.
Notwithstanding the foregoing provision, if there are thirty-six (36) Plans, the requirement of an
affirmative three-fourths weighted vote shall be deemed satisfied with a lesser weighted vote unless
four (4) or more Plans fail to cast weighted votes in favor of the question.
Amended as of March 26, 2015
16
THIS PAGE IS INTENTIONALLY BLANK.
16.
GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in accordance with,
the laws of the State of Illinois.
17.
HEADINGS
The headings inserted in this agreement are for convenience only and shall have no
bearing on the interpretation hereof.
IN WITNESS WHEREOF, the parties have caused this License Agreement to be
executed and effective as of the date of last signature written below.
Controlled Affiliate:
By:
Date:
Plan:
By:
Date:
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By:
Date:
Amended as of March 26, 2015
17
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
September 2020
PREAMBLE
For purposes of definition:
• A "smaller Controlled Affiliate:" (1) comprises less than fifteen percent (15%) of Sponsoring
Plan's and its licensed Controlled Affiliates' total member enrollment (as reported on the
BCBSA Quarterly Enrollment Report, excluding rider and freestanding coverage, and treating
an entity seeking licensure as licensed);* or (2) underwrites the indemnity portion of workers’
compensation insurance and has total premium revenue less than 15 percent of the
Sponsoring Plan’s net subscription revenue.
• A "larger Controlled Affiliate" comprises fifteen percent (15%) or more of Sponsoring Plan's and
its licensed Controlled Affiliates' total member enrollment (as reported on the BCBSA Quarterly
Enrollment Report, excluding rider and freestanding coverage, and treating an entity seeking
licensure as licensed.)*
Changes in Controlled Affiliate status:
If any Controlled Affiliate's status changes regarding: its Plan ownership level, its risk
acceptance or direct delivery of medical care, the Controlled Affiliate shall notify BCBSA within
thirty (30) days of such occurrence in writing and come into compliance with the applicable
standards within six (6) months.
If a smaller Controlled Affiliate’s health and workers’ compensation administration business reaches
or surpasses fifteen percent (15%) of the total member enrollment of the Sponsoring Plan and
licensed Controlled Affiliates, the Controlled Affiliate shall:
Amended as of September 19, 2014
18
EXHIBIT A (continued)
1. Within thirty (30) days, notify BCBSA of this fact in writing, including evidence that the
Controlled Affiliate meets the minimum liquidity and capital (BCBSA “Health Risk-Based Capital
(HRBC)” as defined by the NAIC and state-established minimum reserve) requirements of the
larger Controlled Affiliate Financial Responsibility standard; and
2. Within six (6) months after reaching or surpassing the fifteen percent (15%) threshold,
demonstrate compliance with all license requirements for a larger Controlled Affiliate.
If a Controlled Affiliate that underwrites the indemnity portion of workers’ compensation insurance
receives a change in rating or proposed change in rating, the Controlled Affiliate shall notify
BCBSA within 30 days of notification by the external rating agency.
*For purposes of this calculation, The
numerator equals:
Applicant Controlled Affiliate's member enrollment, as defined in BCBSA's Quarterly
Enrollment Report (excluding rider and freestanding coverage).
The denominator equals:
Numerator PLUS Sponsoring Plan and all other licensed Controlled Affiliates' member
enrollment, as reported in BCBSA's Quarterly Enrollment Report (excluding rider and
freestanding coverage).
Amended as of September 19, 2014
19
EXHIBIT A (continued)
Each licensed controlled affiliate shall be subject to certain standards as determined below:
STANDARDS FOR LICENSED CONTROLLED AFFILIATES
1. What percent of the licensed controlled affiliate is controlled by the Sponsoring Plan and other Plans?
More than 50%
by Sponsoring
Plan
50% by
Sponsoring Plan
ò
ò
Standard 1B, 4
Standard 1A, 4
100% Plan control
but less than 50%
Sponsoring Plan
Control and it offers
solely Medicaid,
Medicare Advantage
PPO, Medicare
Advantage HMO
and/or Special Need
Plans products and
services
ò
100% Sponsoring
Plan control and on a
Blue- branded basis,
it only offers a Basic
Medicare Part D
Prescription Drug
Plan product
ò
Standard 1D, 4
At least 50% by
Sponsoring Plan or
operational Control
by Sponsoring Plan
and it solely operates
as a Clinic as defined
in Standard 1E.
ò
Standard 1E, 4
2.
Is risk being assumed?
IN ADDITION,
Controlled
Affiliate
underwrites any
indemnity
portion of
workers’
compensation
insurance
ò
Standards 7A-7E,
11
Yes
ò
Controlled
Affiliate
comprises < 15%
of total member
enrollment of
Sponsoring Plan
and its licensed
affiliates, and
does not
underwrite the
indemnity portion
of workers’
compensation
insurance
ò
Standard 2
(Guidelines
1.1,1.2)
and Standard 11
ø
÷
Controlled Affiliate
comprises < 15% of
total member
enrollment of
Sponsoring Plan
and its licensed
affiliates
Controlled Affiliate
comprises > 15%
of total member
enrollment of
Sponsoring Plan
and its licensed
affiliates, and
does not
underwrite the
indemnity portion
of workers’
compensation
insurance
No
ò
Controlled
Affiliate
comprises >
15% of total
member
enrollment
of
Sponsoring
Plan and its
licensed
affiliates
ò
ò
ò
Standard 2
(Guidelines 1.1,1.3)
and Standard 11
Standard 6H
Standard 6H
IN ADDITION,
3. Is medical care being directly provided as a staff model HMO?
ò
Yes
Standard
3A
No
ò
Standard
3B
20
Amended June 20, 2019
EXHIBIT A (continued)
Each licensed controlled affiliate shall be subject to certain standards as determined below:
STANDARDS FOR LICENSED CONTROLLED AFFILIATES
4. Is the licensed controlled affiliate operating as a Clinic as defined in Standard 1(E
IN ADDITION,
Yes
ò
Standard 3C and Standard 2, 1.4 (if organized as a health plan that also operates as a Clinic)
5. If the controlled affiliate has health or workers’ compensation administration business, does such business comprise 15% or
more of the total member enrollment of Plan and its licensed Controlled Affiliates?
Yes
ò
Standards
6A-6J
÷
Controlled Affiliate
is not a former
primary licensee and is
not subject to Standard
1(C)
Controlled Affiliate is a
former primary licensee
ò
Standards 5,8,9B,10,11
Standards 5,8,9A,10,11
No
÷
ø
Controlled
Affiliate is not
a former
primary
licensee and
is subject to
Standard 1(C)
ò
Standards
5,8,9B,11
Amended June 20, 2019
21
EXHIBIT A (continued)
Standard 1 - Organization and Governance
1A.) The Standard for more than 50% Plan control is:
A Controlled Affiliate shall be organized and operated in such a manner that a Plan
authorized to use the Licensed Marks in the Service Area of the Controlled Affiliate pursuant
to the separate Primary License Agreement with BCBSA , has the legal authority, directly or
indirectly through wholly-owned subsidiaries: 1) to select members of the Controlled Affiliate’s
governing body having more than 50% voting control thereof; and 2) to prevent any change in
the articles of incorporation, bylaws or other establishing or governing documents of the
Controlled Affiliate with which the Sponsoring Plan does not concur; and 3) to exercise control
over the policy and operations of the Controlled Affiliate. In addition, the Sponsoring Plan
directly or indirectly through wholly-owned subsidiaries shall own more than 50% of any for-
profit Controlled Affiliate.
1B.) The Standard for 50% Plan control is:
A Controlled Affiliate shall be organized and operated in such a manner that a Plan
authorized to use the Licensed Marks in the Service Area of the Controlled Affiliate
pursuant to the separate Primary License Agreement with BCBSA has the legal authority,
directly or indirectly through wholly-owned subsidiaries:
1)
2)
3)
to select members of the Controlled Affiliate’s governing body having not less than
50% voting control thereof; and
to prevent any change in the articles of incorporation, bylaws or other establishing or
governing documents of the Controlled Affiliate with which the Sponsoring Plan does
not concur; and
to exercise control over the policy and operations of the Controlled Affiliate at least
equal to that exercised by persons or entities (jointly or individually) other than the
Sponsoring Plan.
Amended as of September 19, 2014
22
EXHIBIT A (continued)
Notwithstanding anything to the contrary in 1) through 3) hereof, the Controlled Affiliate’s
establishing or governing documents must also require written approval by Sponsoring Plan
before the Controlled Affiliate can:
◦
◦
◦
◦
◦
◦
◦
◦
◦
change the geographic area in which it operates
change its legal and/or trade names
change any of the types of businesses in which it engages
create, or become liable for by way of guarantee, any indebtedness, other
than indebtedness arising in the ordinary course of business
sell any assets, except for sales in the ordinary course of business or sales
of equipment no longer useful or being replaced
make any loans or advances except in the ordinary course of business
enter into any arrangement or agreement with any party directly or indirectly
affiliated with any of the owners or persons or entities with the authority to
select or appoint members or board members of the Controlled Affiliate, other
than the Sponsoring Plan or other Plans (excluding owners of stock holdings of
under 5% in a publicly traded Controlled Affiliate)
conduct any business other than under the Licensed Marks and Name
take any action that the Sponsoring Plan or BCBSA reasonably believes will
adversely affect the Licensed Marks and Name.
In addition, the Sponsoring Plan directly or indirectly through wholly-owned
subsidiaries shall own at least 50% of any for-profit Controlled Affiliate.
Amended September 19, 2014
23
1C.) The Standard for a Controlled Affiliate that offers solely Medicaid, Medicare
Advantage PPO, Medicare Advantage HMO and/or Special Need Plans products and
service and has 100% Plan control but less than 50% Sponsoring Plan Control is:
A Controlled Affiliate shall be organized and operated in such a manner that (i) it offers solely
Medicaid, Medicare Advantage PPO, Medicare Advantage HMO and/or Special Need Plans
products and services; and (ii) a Plan authorized to use the Licensed Marks in the Service
Area of the Controlled Affiliate pursuant to the separate Primary License Agreement with
BCBSA has the legal authority together with Other Plans:
1)
2)
3)
to select all members of the Controlled Affiliate’s governing body; and
to prevent any change in the articles of incorporation, bylaws, or other
establishing or governing documents of the Controlled Affiliate; and
to exercise control over the policy and operations of the Controlled Affiliate. In
addition, the Sponsoring Plan and such other Plans shall own 100% of any for-
profit Controlled Affiliate, with the Sponsoring Plan and such other Plans each having
an ownership interest. Such 100% control and ownership by Plans shall be direct or, if
indirect, solely through affiliates that are licensed to use marks owned by BCBSA. Further,
the Sponsoring Plan and such other Plans shall execute the Addendum to Controlled
Affiliate License.
1D.) The Standard for a Controlled Affiliate that on a Blue-branded basis only offers a
Basic Medicare Part D Prescription Drug Plan product and has 100% Plan control is:
A Controlled Affiliate shall be organized and operated in such a manner that (i) on a Blue-
branded basis, it only offers a Basic Medicare Part D Prescription Drug Plan product; and
(ii) the Sponsoring Plan has the legal authority:
1)
2)
3)
to select all members of the Controlled Affiliate's governing body; and
to prevent any change in the articles of incorporation, bylaws or other
establishing or governing documents of the Controlled Affiliate; and
to exercise control over the policy and operations of the Controlled Affiliate.
In addition, the Sponsoring Plan shall own 100% of any for-profit Controlled Affiliate. Such
100% control and ownership by Sponsoring Plan must be direct or, if indirect, solely through
affiliates that are licensed to use marks owned by BCBSA.
Further, the Sponsoring Plan and Participating Plan shall execute the Addendum to
Controlled Affiliate License.
24
1E.) The Standard for a Controlled Affiliate that operates as a Clinic and the
Sponsoring Plan has control of the Clinic is:
A Controlled Affiliate shall be organized in such a manner that it operates as a Clinic and
the Sponsoring Plan exercises operation control over the Controlled Affiliate.
In addition, if the Clinic is for-profit, the Sponsoring Plan shall own at least 50% of the
Controlled Affiliate and prevent any change in the articles of incorporation, bylaws or other
establishing or governing documents of the Controlled Affiliate.
Amended June 20, 2019
25
EXHIBIT A (continued)
Standard 2 – Financial Responsibility
A Controlled Affiliate shall be operated in a manner that provides reasonable financial
assurance that it can fulfill all of its contractual obligations to its customers. If a risk-
assuming Controlled Affiliate ceases operations for any reason, Blue Cross and/or Blue
Cross Plan coverage will be offered to all Controlled Affiliate subscribers without exclusions,
limitations or conditions based on health status. If a nonrisk-assuming Controlled Affiliate
ceases operations for any reason, Sponsoring Plan will provide for services to its customers.
The requirements of the preceding two sentences shall apply to all lines of business unless a
line of business is specially exempted from the requirement(s) by the BCBSA Board of
Directors.
Standard 3 – State Licensure/Certification
3A.) The Standard for a Controlled Affiliate that employs, owns or contracts on a
substantially exclusive basis for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure or certification for its medical care
providers to operate under applicable state laws.
3B.) The Standard for a Controlled Affiliate that does not employ, own or contract on a
substantially exclusive basis for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure or certification to operate under
applicable state laws.
3C.) The Standard for a Controlled Affiliate that operates as a Clinic as defined in
Standard 1(E) is:
A Controlled Affiliate shall maintain appropriate and unimpaired licensure and
certifications.
Standard 4 – Certain Disclosures
A Controlled Affiliate shall make adequate disclosure in contracting with third parties and in
disseminating public statements of 1) the structure of the Blue Cross and Blue Shield System;
and 2) the independent nature of every licensee; and 3) the Controlled Affiliate's financial
condition.
Amended as of June 20, 2019
26
EXHIBIT A (continued)
Standard 5 – Reports and Records for Certain Smaller Controlled Affiliates
For a smaller Controlled Affiliate that does not underwrite the indemnity portion of
workers’ compensation insurance, the Standard is:
A Controlled Affiliate and/or its Sponsoring licensed Plan shall furnish, on a timely and
accurate basis, reports and records relating to these Standards and the License Agreements
between BCBSA and Controlled Affiliate.
Standard 6 – Other Standards for Larger Controlled Affiliates
Standards 6(A) – (I) that follow apply to larger Controlled Affiliates.
Standard 6(A): Board of Directors
A Controlled Affiliate Governing Board shall act in the interest of its Corporation in providing
cost-effective health care services to its customers. A Controlled Affiliate shall maintain a
governing Board, which shall control the Controlled Affiliate, composed of a majority of
persons other than providers of health care services, who shall be known as public members.
A public member shall not be an employee of or have a financial interest in a health care
provider, nor be a member of a profession which provides health care services.
Standard 6(B): Responsiveness to Customers
A Controlled Affiliate shall be operated in a manner responsive to customer needs and
requirements.
Standard 6(C): Participation in National Programs
A Controlled Affiliate shall effectively and efficiently participate in each national program as
from time to time may be adopted by the Member Plans for the purposes of providing
portability of membership between the licensees and ease of claims processing for
customers receiving benefits outside of the Controlled Affiliate's Service Area.
Amended as of September 19, 2014
27
EXHIBIT A (continued)
Standard 6(C): Participation in National Programs (continued)
Such programs are applicable to licensees, and include:
1. BlueCard Program;
2.
Inter-Plan Teleprocessing System (ITS);
3. National Account Programs
4. Business Associate Agreement for Blue Cross and Blue Shield Licensees,
effective April 14, 2003; and
5.
Inter-Plan Medicare Advantage Program.
Standard 6(D): Financial Performance Requirements
In addition to requirements under the national programs listed in
Standard 6C: Participation in National Programs, a Controlled Affiliate shall take such action
as required to ensure its financial performance in programs and contracts of an inter-licensee
nature or where BCBSA is a party.
Standard 6(E): Cooperation with Plan Performance Response Process
A Controlled Affiliate shall cooperate with BCBSA's Board of Directors and its Brand
Enhancement & Protection Committee in the administration of the Plan Performance
Response Process and in addressing Controlled Affiliate performance problems identified
thereunder.
Standard 6(F): Independent Financial Rating
A Controlled Affiliate shall obtain a rating of its financial strength from an independent rating
agency approved by BCBSA's Board of Directors for such purpose.
Standard 6(G): Local and National Best Efforts
Notwithstanding any other provision in the Plan’s License Agreement with BCBSA or in this
License Agreement, during each year, a Controlled Affiliate shall use its best efforts to
promote and build the value of the Blue Cross Mark.
Amended as of November 21, 2014
28
EXHIBIT A (continued)
Standard 6(H): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that provides reasonable financial
assurance that it can fulfill all of its contractual obligations to its customers.
Standard 6(I): Reports and Records
A Controlled Affiliate shall furnish to BCBSA on a timely and accurate basis reports and
records relating to compliance with these Standards and the License Agreements between
BCBSA and Controlled Affiliate. Such reports and records are the following:
A)
B)
C)
D)
BCBSA Controlled Affiliate Licensure Information Request; and
Triennial trade name and service mark usage material, including
disclosure material; and
Changes in the ownership and governance of the Controlled Affiliate, including
changes in its charter, articles of incorporation, or bylaws, changes in a
Controlled Affiliate's Board composition, or changes in the identity of the
Controlled Affiliate's Principal Officers, and changes in risk acceptance, contract
growth, or direct delivery of medical care; and
Semi-annual “Health Risk-Based Capital (HRBC) Report” as defined by the
NAIC, Annual Certified Audit Report, Insurance Department Examination
Report, Annual Statement filed with State Insurance Department (with all
attachments), and
Amended as of November 17, 2011
29
EXHIBIT A (continued)
Standard 6(J): Control by Unlicensed Entities Prohibited
No Controlled Affiliate shall cause or permit an entity other than a Plan or a Licensed
Controlled Affiliate thereof to obtain control of the Controlled Affiliate or to acquire a
substantial portion of its assets related to licensable services.
Standard 7 - Other Standards for Risk-Assuming Workers’ Compensation
Controlled Affiliates
Standards 7(A) - (E) that follow apply to Controlled Affiliates that underwrite the
indemnity portion of workers’ compensation insurance.
Standard 7 (A): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that provides reasonable financial
assurance that it can fulfill all of its contractual obligations to its customers.
Standard 7(B): Reports and Records
A Controlled Affiliate shall furnish, on a timely and accurate basis, reports and
records relating to compliance with these Standards and the License Agreements
between BCBSA and the Controlled Affiliate. Such reports and records are the
following:
A. BCBSA Controlled Affiliate Licensure Information Request; and
B. Triennial trade name and service mark usage materials, including disclosure
materials; and
C. Annual Certified Audit Report, Annual Statement as filed with the State Insurance
Department (with all attachments), Annual NAIC’s Risk-Based Capital Worksheets for
Property and Casualty Insurers; and
D. Quarterly Estimated Risk-Based Capital for Property and Casualty Insurers,
Insurance Department Examination Report; and
Amended as of November 17, 2011
30
EXHIBIT A (continued)
Standard 7(B): Reports and Records, continued
E. Notification of all changes and proposed changes to independent ratings within
30 days of receipt and submission of a copy of all rating reports; and
F. Changes in the ownership and governance of the Controlled Affiliate including
changes in its charter, articles of incorporation, or bylaws, changes in a Controlled
Affiliate’s Board composition, Plan control, state license status, operating area, the
Controlled Affiliate’s Principal Officers or direct delivery of medical care.
Standard 7(C): Loss Prevention
A Controlled Affiliate shall apply loss prevention protocol to both new and
existing business.
Standard 7(D): Claims Administration
A Controlled Affiliate shall maintain an effective claims administration process that
includes all the necessary functions to assure prompt and proper resolution of medical
and indemnity claims.
Standard 7(E): Disability and Provider Management
A Controlled Affiliate shall arrange for the provision of appropriate and necessary
medical and rehabilitative services to facilitate early intervention by medical
professionals and timely and appropriate return to work.
Amended as of November 16, 2000
31
EXHIBIT A (continued)
Standard 8 - Cooperation with Controlled Affiliate License Performance
Response Process Protocol
A Controlled Affiliate and its Sponsoring Plan shall cooperate with BCBSA’s Board of
Directors and its Brand Enhancement & Protection Committee in the administration of
the Controlled Affiliate License Performance Response Process Protocol (ALPRPP)
and in addressing Controlled Affiliate compliance problems identified thereunder.
Standard 9(A) - Participation in National Programs by Smaller Controlled
Affiliates that were former Primary Licensees
A smaller controlled affiliate that formerly was a Primary Licensee shall effectively and
efficiently participate in certain national programs from time to time as may be adopted by
Member Plans for the purposes of providing ease of claims processing for customers
receiving benefits outside of the Controlled Affiliate’s service area and be subject to certain
relevant financial and reporting requirements.
A.
National program requirements include:
•
•
•
BlueCard Program;
Inter-Plan Teleprocessing System (ITS);
National Account Programs.
B.
Financial Requirements include:
•
•
Standard 6(D): Financial Performance Requirements and Standard 6(H):
Financial Responsibility; or
A financial guarantee covering the Controlled Affiliate’s Inter-Plan
Programs obligations in a form, and from a guarantor, acceptable to
BCBSA.
Amended as of November 21, 2014
32
EXHIBIT A (continued)
Standard 9(A) - Participation in National Programs by Smaller Controlled
Affiliates that were former Primary Licensees
C.
Reporting requirements include:
•
The Semi-annual Health Risk-Based Capital (HRBC) Report.
Amended as of June 13, 2002
33
EXHIBIT A (continued)
Standard 9(B) - Participation in National Programs by Smaller Controlled
Affiliates
A smaller controlled affiliate shall participate in national programs in accordance with
BlueCard and other relevant Policies and Provisions shall effectively and efficiently
participate in national programs from time to time as may be adopted by Member Plans
for the purposes of providing ease of claims processing for customers receiving benefits
outside of the controlled affiliate’s service area and be subject to certain relevant
financial and reporting requirements.
A.
B.
National program requirements include:
• BlueCard Program;
•
• National Account Programs.
Inter-Plan Teleprocessing System (ITS);
Financial Requirements include:
• Standard 6(D): Financial Performance Requirements and Standard 6(H):
Financial Responsibility; or
• A financial guarantee covering the Controlled Affiliate’s Inter-Plan
Programs obligations in a form, and from a guarantor, acceptable to
BCBSA.
Amended as of June 20, 2013
34
EXHIBIT A (continued)
Standard 10 - Participation in Inter-Plan Medicare Advantage Program
A smaller controlled affiliate for which this standard applies pursuant to the Preamble section
of Exhibit A of the Controlled Affiliate License Agreement shall effectively and efficiently
participate in certain national programs from time to time as may be adopted by Member
Plans for the purposes of providing ease of claims processing for customers receiving
benefits outside of the controlled affiliate’s service area.
National program requirements include:
A.
Inter-Plan Medicare Advantage Program.
Standard 11: Participation in Master Business Associate Agreement by Smaller
Controlled Affiliate Licensees
Effective April 14, 2003, all smaller controlled affiliates shall comply with the terms of the
Business Associate Agreement for Blue Cross and Blue Shield Licensees to the extent they
perform the functions of a business associate or subcontractor to a business associate, as
defined by the Business Associate Agreement.
Amended as of September 19, 2014
35
EXHIBIT B-1
ADDENDUM TO CONTROLLED AFFILIATE LICENSE TO BE EXECUTED BY
CONTROLLED AFFILIATES LICENSED UNDER CONTROLLED AFFILIATE LICENSE
STANDARD 1C.
ADDENDUM TO CONTROLLED AFFILIATE LICENSE
This Addendum is made to that certain Blue Cross Controlled Affiliate License
Agreement executed by and among Blue Cross and Blue Shield Association (“Licensor”),
(“Controlled Affiliate Licensee”) and
(“Sponsoring Plan”) dated the
day of , (“Agreement”). The parties to this Addendum are Licensor, Controlled
Affiliate Licensee, Sponsoring Plan, and the undersigned other Plans (‘Other Plans”). This
Addendum is made and shall be deemed effective as of the date of the Agreement.
WHEREAS, the Sponsoring Plan asserts that it can serve the Medicaid, Medicare
Advantage PPO, Medicare Advantage HMO and/or Special Need Plans market in its
Service Area more efficiently and with less risk through an enterprise jointly owned and
controlled with other Plans than through a wholly owned and Controlled Affiliate Licensee.
WHEREAS, in such circumstance Controlled Affiliate License Standard 1C permits the
licensing of a Controlled Affiliate that is less than 50% owned and controlled by the
Sponsoring Plan but which is 100% owned and controlled by Plans including the
Sponsoring Plan, subject to certain conditions;
WHEREAS, one such condition is that the Sponsoring Plan and all such other owning and
controlling Plans enter into this Addendum;
NOW THEREFORE, for good and valuable consideration, including the promises and
covenants set forth herein, the parties agree as follows:
1. This Addendum is limited to [identify product name].
2. The Sponsoring Plan shall participate operationally in Controlled Affiliate’s business
that is conducted under the Licensed Marks. The parties understand that participation
may take many forms, one of which should be providing a network of providers in the
Service Area of the Controlled Affiliate for the Medicaid, Medicare Advantage PPO,
Medicare Advantage HMO and/or Special Need Plans services being offered under
the Agreement and being involved in network development and provider engagement
functions.
3. Each of the Other Plans agrees that (i) it will cooperate fully with the
Sponsoring Plan and BCBSA as needed to enable Sponsoring Plan and
36
Controlled Affiliate Licensee to meet their obligations to Licensor under the
Agreement and all associated rules and regulations of Licensor, including the Brand
Regulations, (ii) it will not take any action, either individually or jointly with any of the
Other Plans, that would cause Sponsoring Plan or Controlled Affiliate Licensee to
violate the Agreement, and (iii) it will not fail to take any action, either individually or
jointly with any of the Other Plans, where such failure would cause Sponsoring Plan
or Controlled Affiliate Licensee to violate the Agreement.
4. Each of the Other Plans acknowledges that it has reviewed the Agreement and
understands that Sponsoring Plan has the right to terminate the Agreement without
cause upon notice as provided in Paragraph 8 of the Agreement, and that such right is
unfettered and may be exercised by Sponsoring Plan in its sole discretion.
WHEREFORE, by signing below the parties agree to be bound to the terms stated herein.
BLUE CROSS BLUE SHIELD ASSOCIATION
By:
[Controlled Affiliate Licensee]
By:
[Sponsoring Plan]
By:
[Other Plan 1]
By:
[Other Plan 2]
By:
Amended September 27, 2018
37
EXHIBIT B-2
ADDENDUM TO CONTROLLED AFFILIATE LICENSE TO BE EXECUTED BY
CONTROLLED AFFILIATES LICENSED UNDER CONTROLLED AFFILIATE LICENSE
STANDARD 1D.
ADDENDUM TO CONTROLLED AFFILIATE LICENSE
This Addendum is made to that certain Blue Cross Controlled Affiliate License
Agreement executed by and among Blue Cross and Blue Shield Association
(“Licensor”), (“Controlled Affiliate Licensee”),
(“Sponsoring Plan”) and
(“Participating Plan”) dated the day of , (“Agreement”).
WHEREAS, the Participating Plan is defined as the Plan that holds the Primary
License with BCBSA to use the Service Marks in the Service Area where the
Controlled Affiliate will use the Service Marks;
WHEREAS, the Participating Plan asserts that it can offer a lower cost Basic Medicare
Part D Prescription Drug Plan product more efficiently in the Participating Plan’s Service
Area through the Controlled Affiliate Licensee;
WHEREAS, the Controlled Affiliate shall only use the Service Marks inside of the
Participating Plan(s) Service Area subject to each Participating Plan signing a separate
Addendum;
WHEREAS, in such circumstance Controlled Affiliate License Standard 1D permits the
licensing of a Controlled Affiliate that is 100% owned and controlled by a Sponsoring Plan,
subject to certain conditions;
WHEREAS, one such condition is that the Sponsoring Plan, Controlled Affiliate and the
Participating Plan enter into this Addendum;
NOW THEREFORE, for good and valuable consideration, including the promises and
covenants set forth herein, the parties agree as follows:
1. The Participating Plan shall participate in Controlled Affiliate’s business that is
conducted under the Licensed Marks. The parties understand that the Participating
Plan shall conduct sales support and marketing of the Controlled Affiliate’s Basic
Medicare Part D Prescription Drug Plan product offered in the Participating Plan’s
Service Area. Any other form of participation shall require BCBSA’s written approval.
2. Participating Plan agrees that (i) it will cooperate fully with the Sponsoring Plan and
BCBSA as needed to enable Sponsoring Plan and
38
Controlled Affiliate Licensee to meet their obligations to Licensor under the Agreement
and all associated rules and regulations of Licensor, including the Brand Regulations,
(ii) it will not take any action that would cause Sponsoring Plan or Controlled Affiliate
Licensee to violate the Agreement, and (iii) it will not fail to take any action, either
individually or jointly with the Sponsoring Plan or Controlled Affiliate Licensee, where
such failure would cause Sponsoring Plan or Controlled Affiliate Licensee to violate the
Agreement.
3. The Controlled Affiliate Licensee shall only use the Licensed Marks authorized by the
Participating Plan in connection with the Basic Medicare Part D Prescription Drug Plan
product offered in the Participating Plan’s Service Area.
4. The Sponsoring Plan and Controlled Affiliate acknowledge that it has reviewed the
Agreement and understands that Participating Plan has the right to terminate this
Agreement: (i) immediately upon the expiration or termination of the Plan Participation
Agreement by and between Participating Plan and Controlled Affiliate upon written
notice to the Sponsoring Plan, Controlled Affiliate Licensee and Licensor, or (ii)
without cause upon 18 months written notice to the Sponsoring Plan, Controlled
Affiliate Licensee and Licensor, and that such right is unfettered and may be
exercised by Participating Plan in its sole discretion. In the event that Participating
Plan and Controlled Affiliate fail to execute the Plan Participation Agreement by
(Date), Participating Plan may terminate this Agreement immediately upon notice to
Sponsoring Plan, Controlled Affiliate Licensee and Licensor.
5. This Agreement and all of Controlled Affiliate Licensee's rights hereunder shall
immediately terminate without any further action by any party or entity in the event that
the Sponsoring Plan or Participating Plan ceases to be authorized to use the Licensed
Marks and Name.
WHEREFORE, by signing below the parties agree to be bound to the terms stated herein.
BLUE CROSS BLUE SHIELD ASSOCIATION
By:
[Controlled Affiliate Licensee]
By:
[Sponsoring Plan]
By:
[Participating Plan]
By:
39
Amended September 27, 2018
EXHIBIT C
ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENT
Controlled Affiliate will pay BCBSA a fee for this license in accordance with the
following formula:
FOR RISK PRODUCTS:
For Controlled Affiliates not underwriting the indemnity portion of workers’ compensation
insurance:
An amount equal to its pro rata share of Sponsoring Plan's dues payable to BCBSA
computed with the addition of the Controlled Affiliate's members using the Marks on
health care plans and related services as reported on the Quarterly Enrollment Report
with BCBSA. The payment by Sponsoring Plan of its dues to BCBSA, including that
portion described in this paragraph, will satisfy the requirement of this paragraph, and no
separate payment will be necessary.
For Controlled Affiliates underwriting the indemnity portion of workers’
compensation insurance:
An amount equal to 0.35 percent of the gross revenue per annum of Controlled Affiliate
arising from products using the marks; plus, an annual fee of $5,000 per license for a
Controlled Affiliate subject to Standard 7.
Amended as of September 19, 2014
40
EXHIBIT C (continued)
FOR NONRISK PRODUCTS:
For third-party administrative business, an amount equal to its pro rata share of
Sponsoring Plan’s dues payable to BCBSA computed with the addition of the
Controlled Affiliate’s members using the Marks on health care plans and related
services as reported on the Quarterly Enrollment Report with BCBSA. The payment by
Sponsoring Plan of its dues to BCBSA, including that portion described in this
paragraph, will satisfy the requirement of this paragraph, and no separate payment will
be necessary.
For non-third party administrative business (e.g., case management, provider
networks, etc.), an amount equal to 0.24 percent of the gross revenue per annum of
Controlled Affiliate arising from products using the marks; plus:
1) An annual fee of $5,000 per license for a Controlled Affiliate subject to
Standard 6 D.
2) An annual fee of $2,000 per license for all other Controlled Affiliates.
The foregoing shall be reduced by one-half where both a BLUE CROSS® and BLUE
SHIELD® License are issued to the same Controlled Affiliate. In the event that any license
period is greater or less than one (1) year, any amounts due shall be prorated. Royalties
under this formula will be calculated, billed and paid in arrears.
Amended as of September 19, 2014
41
CONTROLLED AFFILIATE LICENSE AGREEMENT APPLICABLE TO
LIFE INSURANCE COMPANIES
(Includes revisions adopted by Member Plans through their September 17, 2020 meeting)
EXHIBIT 1A
This agreement by and among Blue Cross and Blue Shield Association ("BCBSA")
("Controlled Affiliate"), a Controlled Affiliate of the Blue Cross Plan(s), known as ("Plan").
WHEREAS, BCBSA is the owner of the BLUE CROSS and BLUE CROSS Design service marks;
WHEREAS, the Plan and the Controlled Affiliate desire that the latter be entitled to use the BLUE
CROSS and BLUE CROSS Design service marks (collectively the "Licensed Marks") as service
marks and be entitled to use the term BLUE CROSS in a trade name ("Licensed Name");
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
hereinafter set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA hereby grants to the
Controlled Affiliate the exclusive right to use the licensed Marks and Names in connection with and
only in connection with those life insurance and related services authorized by applicable state law,
other than health care plans and related services (as defined in the Plan's License Agreements with
BCBSA) which services are not separately licensed to Controlled Affiliate by BCBSA, in the Service
Area served by the Plan, except that BCBSA reserves the right to use the Licensed Marks and
Name in said Service Area, and except to the extent that said Service Area may overlap the area or
areas served by one or more other licensed Blue Cross Plans as of the date of this License as to
which overlapping areas the rights hereby granted are non-exclusive as to such other Plan or Plans
and their respective Licensed Controlled Affiliates only. Controlled Affiliate cannot use the Licensed
Marks or Name outside the Service Area or in its legal or trade name; provided, however, that if and
only for so long as Controlled Affiliate also holds a Blue Cross Controlled Affiliate License
Agreement applicable to health care plans and related services, Controlled Affiliate may use the
Licensed Marks and Name in its legal and trade name according to the terms of such license
agreement.
Amended as of June 12, 2003
-1-
2.
QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks and Name only in relation to the
sale, marketing and rendering of authorized products and further agrees to be bound by the
conditions regarding quality control shown in Exhibit A as it may be amended by BCBSA from time-
to-time.
B.
Controlled Affiliate agrees that Plan and/or BCBSA may, from time-to-time, upon
reasonable notice, review and inspect the manner and method of Controlled Affiliate's rendering of
service and use of the Licensed Marks and Name.
C.
Controlled Affiliate agrees that it will provide on an annual basis (or more often if
reasonably required by Plan or by BCBSA) a report to Plan and BCBSA demonstrating Controlled
Affiliate's compliance with the requirements of this Agreement including but not limited to the quality
control provisions of Exhibit A.
D.
As used herein, a Controlled Affiliate is defined as an entity organized and operated in
such a manner that it is subject to the bona fide control of a Plan or Plans. Absent written approval
by BCBSA of an alternative method of control, bona fide control shall mean the legal authority,
directly or indirectly through wholly-owned subsidiaries: (a) to select members of the Controlled
Affiliate's governing body having not less than 51% voting control thereof; (b) to exercise operational
control with respect to the governance thereof; and (c) to prevent any change in its articles of
incorporation, bylaws or other governing documents deemed inappropriate. In addition, a Plan or
Plans shall own at least 51% of any for-profit Controlled Affiliate. If the Controlled Affiliate is a
mutual company, the Plan or its designee(s) shall have and maintain, in lieu of the requirements of
items (a) and (c) above, proxies representing 51% of the votes at any meeting of the policyholders
and shall demonstrate that there is no reason to believe this such proxies shall be revoked by
sufficient policyholders to reduce such percentage below 51%.
3.
SERVICE MARK USE
Controlled Affiliate shall at all times make proper service mark use of the Licensed Marks,
including but not limited to use of such symbols or words as BCBSA shall specify to protect the
Licensed Marks, and shall comply with such rules (applicable to all Controlled Affiliates licensed to
use the Marks) relative to service mark use, as are issued from
time-to-time by BCBSA. If there is any public reference to the affiliation between the Plan and the
Controlled Affiliate, all of the Controlled Affiliate's licensed services in the Service Area of the Plan
shall be rendered under the Licensed Marks. Controlled Affiliate recognizes and agrees that all use
of the Licensed Marks by Controlled Affiliate shall inure to the benefit of BCBSA.
-2-
4.
SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not sublicense, transfer, hypothecate, sell, encumber or
mortgage, by operation of law or otherwise, the rights granted
hereunder and any such act shall be voidable at the option of Plan or BCBSA.
This Agreement and all rights and duties hereunder are personal to Controlled Affiliate.
5.
INFRINGEMENTS
Controlled Affiliate shall promptly notify Plan and BCBSA of any suspected acts of
infringement, unfair competition or passing off which may occur in relation to the Licensed Marks.
Controlled Affiliate shall not be entitled to require Plan or BCBSA to take any actions or institute any
proceedings to prevent infringement, unfair competition or passing off by third parties. Controlled
Affiliate agrees to render to Plan and BCBSA, free of charge, all reasonable assistance in
connection with any matter pertaining to the protection of the Licensed Marks by BCBSA.
6.
LIABILITY INDEMNIFICATION
Controlled Affiliate hereby agrees to save, defend, indemnify and hold Plan and
BCBSA harmless from and against all claims, damages, liabilities and costs of every kind, nature
and description which may arise as a result of Controlled Affiliate's rendering of health care
services under the Licensed Marks.
7.
LICENSE TERM
The license granted by this Agreement shall remain in effect for a period of one (1) year
and shall be automatically extended for additional one (1) year periods upon evidence satisfactory to
the Plan and BCBSA that Controlled Affiliate meets the then applicable quality control standards,
unless one of the parties hereto notifies the other party of the termination hereof at least sixty (60)
days prior to expiration of any license period.
This Agreement may be terminated by the Plan or by BCBSA for cause at any time
provided that Controlled Affiliate has been given a reasonable opportunity to cure and shall not
effect such a cure within thirty (30) days of receiving written notice of the intent to terminate (or
commence a cure within such thirty day period and continue diligent efforts to complete the cure if
such curing cannot reasonably be completed within such thirty day period). By way of example and
not for purposes of limitation, Controlled Affiliate's failure to abide by the quality control provisions
of Paragraph 2, above, shall be considered a proper ground for cancellation of this Agreement.
-3-
This Agreement and all of Controlled Affiliate's rights hereunder shall immediately
terminate without any further action by any party or entity in the event that:
A.
Controlled Affiliate shall no longer comply with Standard No. 1
(Organization and Governance) of Exhibit A or, following an opportunity to cure, with
the remaining quality control provisions of Exhibit A, as it may be amended from time-
to-time; or
B. Plan ceases to be authorized to use the Licensed Marks; or
C.
Appropriate dues for Controlled Affiliate pursuant to item 8 hereof, which
are the royalties for this License Agreement are more than sixty (60) days in arrears to
BCBSA.
Upon termination of this Agreement for cause or otherwise, Controlled
Affiliate agrees that it shall immediately discontinue all use of the Licensed Marks
including any use in its trade name.
In the event of any disagreement between Plan and BCBSA as to whether
grounds exist for termination or as to any other term or condition hereof, the decision
of BCBSA shall control, subject to provisions for mediation or mandatory dispute
resolution in effect between the parties.
Upon termination of this Agreement, Licensed Controlled Affiliate shall
immediately notify all of its customers that it is no longer a licensee of the Blue Cross
and Blue Shield Association and provide instruction on how the customer can contact
the Blue Cross and Blue Shield Association or a designated licensee to obtain further
information on securing coverage. The written notification required by this paragraph
shall be in writing and in a form approved by the Association. The Association shall
have the right to audit the terminated entity's books and records to verify compliance
with this paragraph.
8.
DUES
Controlled Affiliate will pay to BCBSA a fee for this license in accordance with
the following formula:
•
An annual fee of five thousand dollars ($5,000) per license, plus
•.05% of gross revenue per year from branded group products, plus
•.5% of gross revenue per year from branded individual products plus
.14% of gross revenue per year from branded individual annuity
•
products.
Amended as of November 20, 1997
-4-
The foregoing percentages shall be reduced by one-half where both a BLUE
CROSS® and BLUE SHIELD® license are issued to the same entity. In the event that
any License period is greater or less than one (1) year, any amounts due shall be
prorated. Royalties under this formula will be calculated, billed and paid in arrears.
Plan will promptly and timely transmit to BCBSA all dues owed by Controlled
Affiliate as determined by the above formula and if Plan shall fail to do so, Controlled
Affiliate shall pay such dues directly.
9. JOINT VENTURE
Nothing contained in this Agreement shall be construed as creating a joint
venture, partnership, agency or employment relationship between Plan and Controlled
Affiliate or between either and BCBSA.
9A. VOTING
For all provisions of this Agreement referring to voting, the term ‘Plans’ shall
mean all entities licensed under the Blue Cross License Agreement and/or the Blue
Shield License Agreement, and in all votes of the Plans under this Agreement the
Plans shall vote together. For weighted votes of the Plans, the Plan shall have a
number of votes equal to the number of weighted votes (if any) that it holds as a Blue
Cross Plan plus the number of weighted votes (if any) that it holds as a Blue Shield
Plan. For all other votes of the Plans, the Plan shall have one vote. For all questions
requiring an affirmative three-fourths weighted vote of the Plans, the requirement shall
be deemed satisfied with a lesser weighted vote unless the greater of: (i) 6/52 or more
of the Plans (rounded to the nearest whole number, with 0.5 or multiples thereof being
rounded to the next higher whole number) fail to cast weighted votes in favor of the
question; or (ii) three (3) of the Plans fail to cast weighted votes in favor of the question.
Notwithstanding the foregoing provision, if there are thirty-six
(36) Plans, the requirement of an affirmative three-fourths weighted vote shall be
deemed satisfied with a lesser weighted vote unless four (4) or more Plans fail to cast
weighted votes in favor of the question.
10. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or breach or termination
thereof shall be in writing and shall be addressed in duplicate to the last known
address of each other party, marked respectively to the attention of its President and, if
any, its General Counsel.
Amended as of November 20, 1997
-5-
11.
COMPLETE AGREEMENT
This Agreement contains the complete understandings of the parties in relation
to the subject matter hereof. This Agreement may only be amended by a writing
executed by all parties.
12.
SEVERABILITY
If any term of this Agreement is held to be unlawful by a court of competent
jurisdiction, such finding shall in no way effect the remaining obligations of the parties
hereunder and the court may substitute a lawful term or condition for any unlawful
term or condition so long as the effect of such substitution is to provide the parties
with the benefits of this Agreement.
13.
NONWAIVER
No waiver by BCBSA of any breach or default in performance on the part of the
Controlled Affiliate or any other licensee of any of the terms, covenants or conditions of
this Agreement shall constitute a waiver of any subsequent breach or default in
performance of said terms, covenants or conditions.
14.
GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Illinois.
Amended as of June 16, 2005
-6-
IN WITNESS WHEREOF, the parties have caused this License Agreement to be
executed, effective as of the date of last signature written below.
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By: _ Date: _
Controlled Affiliate:
By: _ Date: _
Plan:
By: _ Date: _
-7-
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS LIFE
INSURANCE COMPANIES
Page 1 of 2
PREAMBLE
The standards for licensing Life Insurance Companies (Life and Health Insurance
companies, as defined by state statute) are established by BCBSA and are subject to
change from time-to-time upon the affirmative vote of three- fourths (3/4) of the Plans
and three-fourths (3/4) of the total weighted vote of all Plans. Each Licensed Plan is
required to use a standard controlled affiliate license form provided by BCBSA and to
cooperate fully in assuring that the licensed Life Insurance Company maintains
compliance with the license standards.
An organization meeting the following standards shall be eligible for a license to use
the Licensed Marks within the service area of its sponsoring Licensed Plan to the
extent and the manner authorized under the Controlled Affiliate License applicable to
Life Insurance Companies and the principal license to the Plan.
Standard 1 - Organization and Governance
The LIC shall be organized and operated in such a manner that it is controlled by a
licensed Plan or Plans which have, directly or indirectly: 1) not less than 51% of the
voting control of the LIC; and 2) the legal ability to prevent any change in the articles of
incorporation, bylaws or other establishing or governing documents of the LIC with
which it does not concur; and 3) operational control of the LIC.
If the LIC is a mutual company, the Plan or its designee(s) shall have and maintain, in
lieu of the requirements of items 1 and 2 above, proxies representing at least 51% of
the votes at any policyholder meeting and shall demonstrate that there is no reason to
believe such proxies shall be revoked by sufficient policyholders to reduce such
percentage below 51%.
Standard 2 - State Licensure
The LIC must maintain unimpaired licensure or certificate of authority to operate under
applicable state laws as a life and health insurance company in each state in which the
LIC does business.
-1-
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS LIFE
INSURANCE COMPANIES
Page 2 of 2
Standard 3 - Records and Examination
The LIC and its sponsoring licensed Plan(s) shall maintain and furnish, on a timely
and accurate basis, such records and reports regarding the LIC as may be required in
order to establish compliance with the license agreement. The LIC and its sponsoring
licensed Plan(s) shall permit BCBSA to examine the affairs of the LIC and shall agree
that BCBSA's board may submit a written report to the chief executive officer(s) and
the board(s) of directors of the sponsoring Plan(s).
Standard 4 - Mediation
The LIC and its sponsoring Plan(s) shall agree to use the then-current BCBSA
mediation and mandatory dispute resolution processes, in lieu of a legal action
between or among another licensed controlled affiliate, a licensed Plan or BCBSA.
Standard 5 - Financial Responsibility
The LIC shall maintain adequate financial resources to protect its customers and meet
its business obligations.
Standard 6 - Cooperation with Affiliate License Performance Response
Process Protocol
The LIC and its Sponsoring Plan(s) shall cooperate with BCBSA’s Board of
Directors and its Brand Enhancement & Protection Committee in the
administration of the Affiliate License Performance Response Process Protocol
(ALPRPP) and in addressing LIC compliance problems identified thereunder.
-2-
CONTROLLED AFFILIATE TRADEMARK
LICENSE AGREEMENT
FOR LIFE AND DISABILTY INSURANCE PRODUCTS
Exhibit 1A1
This Agreement by and among Blue Cross and Blue Shield Association
("BCBSA") and , (“Life and Disability Controlled Affiliate”) which is a company
offering life and disability insurance products owned and controlled by , ,
( individually, “Sponsoring Plan” and when referred to collectively,
“Sponsoring Plans”).
Whereas, BCBSA is the owner of the BLUE CROSS and BLUE SHIELD word and
design service marks and any derivatives thereof (“Licensed Marks”);
Whereas, each Sponsoring Plan is licensed separately by BCBSA to use one or more
of the Licensed Marks in a particular Service Area;
Whereas, the Sponsoring Plans and the Life and Disability Controlled Affiliate desire
that the latter be entitled to use the appropriate Licensed Marks in connection with life
and disability insurance products in some or all of such Sponsoring Plans’ Service
Areas and in the Service Areas of other Regular Member Plans, as defined in the
BCBSA By-laws, (“Blue Plans”) consistent with the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
hereinafter set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1.
GRANT OF LICENSE
A. Subject to the terms and conditions of this Agreement, BCBSA hereby
grants to the Life and Disability Controlled Affiliate the limited right to use the Licensed
Marks in connection with and only in connection with the following life and disability
insurance products authorized by state law: (1) Group: Term Life, Long Term Disability,
Whole Life, Benefit Life, Universal Life; (2)
Individual: Term Life, Whole Life, Dependent Life, Spouse Life; (3)
Other: Disability Income, Short Term Disability, Long Term Disability, Income
Replacement; and (4) such other life and disability products approved by BCBSA in
writing (“Licensed Products”) in the Service Areas served by the Sponsoring Plans or in
the Service Area or Areas of one or more other licensed Blue Plans, provided that such
Blue Plans have consented to such use as authorized by this Agreement. Life and
Disability Controlled Affiliate may not use the Licensed Marks in its legal or trade name.
1
B. Notwithstanding that the license granted to Life and Disability Controlled
Affiliate is a license to use all of the Licensed Marks, Life and Disability Controlled
Affiliate may only use those of the Licensed Marks in the Service Area of a Sponsoring
Plan or other consenting Blue Plan as described below that such Plan is authorized to use as
a Blue Plan pursuant to its separate license agreements with BCBSA.
C. Life and Disability Controlled Affiliate may use the Licensed Marks in the
Service Areas of Sponsoring Plans or in the Service Area of a Blue Plan that is not a
signatory to this Agreement only after such Sponsoring Plan(s) or non-signatory Blue
Plan consents to such use by executing a written consent in substantially the same
form as the Consent Agreement attached as Exhibit B.
D. The following provisions apply with respect to Consent Agreements
once such agreements have been fully and properly executed:
(1)
All sales, marketing and advertising materials developed by and
proposed for use by Life and Disability Controlled Affiliate in the Service Area of
Sponsoring Plan or consenting Blue Plan (hereinafter, such consenting
Sponsoring Plan or consenting Blue Plan collectively referred to “Consenting
Plan(s)”) must clearly identify the Consenting Plan (for example, a statement on
such materials that reads “This product is offered with the cooperation of Blue
Cross and/or Blue Shield of [Geography]”);
(2)
To the extent the Consenting Plan has separate divisions or other
Affiliates that use the Licensed Marks in distinct geographic areas within its
Service Area, consent obtained under this Agreement may be limited to one or
more of such specific geographic areas as specified by the Consenting Plan in its
signed Consent Agreement. For purposes of this entire Agreement, all references
to the Service Area of a Sponsoring Plan, Blue Plan or Consenting Plan may
include the entire Service Area or a distinct geographic area within such Service
Area as specified in this Section 1 D (2);
(3)
Where BCBSA has licensed two or more Blue Plans to use the
same Licensed Marks in the same Service Area, in addition to the requirements
set forth in Section D (1) above, the sales, marketing and advertising materials
referenced in such section above must be communicated to the Consenting
Plan’s existing and prospective accounts through or with the approval of such
Consenting Plan, and the personnel of such Consenting Plan must actively
participate in all sales and marketing activities conducted by Life and Disability
Controlled Affiliate in the same Service Area, including participating in meetings
(whether in- person or via telephone, video or internet conference) with both
existing and prospective accounts of the Consenting Plan;
2
(4)
Life and Disability Controlled Affiliate shall be entitled to use in a
Service Area only those Licensed Marks that the Consenting Plan has been
granted by BCBSA the license to use under its Blue Plan license
(5)
agreements (for example, if a Consenting Plan is licensed to use
only the Blue Cross Marks in its Service Area, the materials used by Life and
Disability Controlled Affiliate in that Service Area may only contain or reference
the Blue Cross Marks and not the Blue Shield Marks).
(6)
If a Consent Agreement is terminated, Life and Disability Controlled
Affiliate shall, unless BCBSA and the Consenting Plan agree in their sole
discretion to a phase out in writing, immediately (i) cease all use of the Licensed
Marks, including in connection with any and all sales and marketing of the
Licensed Products in the Service Area where consent has been terminated, and
(ii) notify its customers that it is no longer a licensee and provide instruction on
how the customer can contact BCBSA or a designated licensee to obtain further
information on securing coverage. The notification required by this paragraph
shall be in writing and in form approved by BCBSA.
2.
QUALITY CONTROL
A.
Life and Disability Controlled Affiliate agrees to use the Licensed Marks
only in relation to the sale, marketing and administration of the Licensed Products and
further agrees to be bound by the conditions regarding quality control shown in Exhibit
A and the Guidelines to Administer the Standards for Trademark License Agreement
for Life and Disability Insurance Products attached thereto.
B.
Life and Disability Controlled Affiliate agrees that BCBSA may, from
time-to-time, upon reasonable notice, review and inspect the manner and method of
Life and Disability Controlled Affiliate's rendering of service and use of the Licensed
Marks.
C. Life and Disability Controlled Affiliate agrees that it will provide on an
annual basis (or more often if reasonably required by BCBSA) a report to BCBSA
demonstrating Life and Disability Controlled Affiliate's compliance with the requirements
of this Agreement including but not limited to the quality control provisions of Exhibit A.
D. As used herein, a Life and Disability Controlled Affiliate is defined as: An
entity organized and operated in such a manner that it is 100% owned and controlled
by Sponsoring Plans. Absent written approval by BCBSA of an alternative method of
control, control shall mean the legal authority, directly or indirectly through wholly-
owned subsidiaries: (a) to select members of the Life and Disability Controlled
Affiliate's governing body having not less than 100% voting control thereof; (b) to
exercise operational control with respect to the governance thereof; and (c) to prevent
any change in its articles of
3
incorporation, bylaws or other governing documents deemed inappropriate. In
addition, a Sponsoring Plan or Plans shall own at least 100% of any for profit Life and
Disability Controlled Affiliate.
3.
SERVICE MARK USE
Life and Disability Controlled Affiliate shall at all times make proper service mark
use of the Licensed Marks and shall ensure all uses of the Licensed Marks comply with
the BCBSA Brand Regulations, as amended by BCBSA from time to time. Life and
Disability Controlled Affiliate recognizes and agrees that all use of the Licensed Marks
by Life and Disability Controlled Affiliate shall inure to the benefit of BCBSA.
4.
SUBLICENSING AND ASSIGNMENT
The license hereby granted to Life and Disability Controlled Affiliate to use
the Licensed Marks is and shall be personal to Life and Disability Controlled
Affiliate and shall not be assignable by any act of the Life and
Disability Controlled Affiliate, directly or indirectly, without the written consent of BCBSA.
Said license shall not be assignable by operation of law, nor shall Life and Disability
Controlled Affiliate mortgage or part with possession or control of this license or any
right hereunder, and the Life and Disability Controlled Affiliate shall have no right to
grant any sublicense to use the Licensed Marks.
5.
INFRINGEMENTS
Life and Disability Controlled Affiliate shall promptly notify BCBSA of any
suspected acts of infringement, unfair competition or passing off which may occur in
relation to the Licensed Marks. Life and Disability Controlled Affiliate shall not be
entitled to require BCBSA to take any actions or institute any proceedings to prevent
infringement, unfair competition or passing off by third parties. Life and Disability
Controlled Affiliate agrees to render to BCBSA, free of charge, all reasonable
assistance in connection with any matter pertaining to the protection of the Licensed
Marks by BCBSA. BCBSA shall have sole control of the defense and resolution of any
claim of infringement brought or threatened by others.
6.
LIABILITY INDEMNIFICATION
Life and Disability Controlled Affiliate hereby agrees to save, defend, indemnify
and hold BCBSA harmless from and against all claims, damages, liabilities and costs
of every kind, nature and description which may arise as a result of Life and Disability
Controlled Affiliate's conduct.
4
7.
LICENSE TERM
A. The license granted by this Agreement shall remain in effect for a period
of one (1) year and shall be automatically extended for additional one (1) year periods,
unless either BCBSA or Life and Disability Controlled Affiliate notifies the other party in
writing of the termination hereof at least sixty (60) days prior to expiration of any license
period.
B. This Agreement may be terminated by BCBSA for cause at any time
provided that Life and Disability Controlled Affiliate has been given a reasonable
opportunity to cure and shall not effect such a cure within thirty (30) days of receiving
written notice of the intent to terminate (or commence a cure within such thirty day
period and continue diligent efforts to complete the cure if such curing cannot
reasonably be completed within such thirty day period). By way of example and not for
purposes of limitation, Life and Disability Controlled Affiliate's failure to abide by the
conditions regarding use of the Licensed Marks set forth in Section 1 of this Agreement
or the quality control provisions of Section 2 (other than with respect to Section 2 D
which is subject to immediate termination as stated in Section 7 C (1) below) shall be
considered proper grounds for termination of this Agreement.
C. This Agreement and all of Life and Disability Controlled Affiliate's rights
hereunder shall immediately terminate without any further action by any party or entity
in the event that:
(1)
Life and Disability Controlled Affiliate shall no longer comply
with Section 2 D (or Standard No. 1 (Organization and Governance) of
Exhibit A); or
(2)
Any Sponsoring Plan ceases to be authorized to use the
Licensed Marks; or
(3)
Appropriate fees for Life and Disability Controlled Affiliate
pursuant to Section 8 of this Agreement are more than sixty (60) days in arrears
to BCBSA.
Upon termination of this Agreement for cause or otherwise, Life and
Disability Controlled Affiliate agrees that it shall immediately discontinue all use of
the Licensed Marks.
In the event of any disagreement between Life and Disability Controlled
Affiliate and BCBSA as to whether grounds exist for termination or as to any
other term or condition hereof, the decision of BCBSA shall control, subject to
provisions for mediation or mandatory dispute resolution in effect between the
parties.
5
Upon termination of this Agreement, Licensed Life and Disability Controlled
Affiliate shall immediately notify all of its customers that it is no longer a licensee
of BCBSA and provide instruction on how the customer can contact BCBSA or a
designated licensee to obtain further information on securing coverage. The
notification required by this paragraph shall be in writing and in a form approved
by BCBSA. BCBSA shall have the right to audit the terminated entity's books and
records to verify compliance with this paragraph.
8.
ROYALTIES
Life and Disability Controlled Affiliate will pay to BCBSA a fee for this license
in accordance with the following formula:
• An annual fee of five thousand dollars ($5,000) per license, plus
•
•
.05% of gross revenue per year from group products sold under the
Licensed Marks, plus
.5% of gross revenue per year from individual products sold under the
Licensed Marks
In the event that any license period is greater or less than one (1) year, any
amounts due shall be prorated. Royalties under this formula will be calculated, billed
and paid in arrears.
Life and Disability Controlled Affiliate will promptly and timely transmit to BCBSA
all fees owed by Life and Disability Controlled Affiliate as determined by the above
formula.
9.
JOINT VENTURE
Nothing contained in this Agreement shall be construed as creating a joint
venture, partnership, agency or employment relationship between any Sponsoring
Plan and Life and Disability Controlled Affiliate or between among them and/or
BCBSA.
10.
VOTING
For all provisions of this Agreement referring to voting, the term ‘Plans’ shall
mean all entities licensed under the Blue Cross License Agreement and/or the Blue
Shield License Agreement, and in all votes of the Plans under this Agreement the
Plans shall vote together. For weighted votes of the Plans, the Plan shall have a
number of votes equal to the number of weighted votes (if any) that it holds as a Blue
Cross Plan plus the number of weighted votes (if any) that it holds as a Blue Shield
Plan. For all other votes of the Plans, the
6
Plan shall have one vote. For all questions requiring an affirmative three-fourths
weighted vote of the Plans, the requirement shall be deemed satisfied with a lesser
weighted vote unless the greater of: (i) 6/52 or more of the Plans (rounded to the
nearest whole number, with 0.5 or multiples thereof being rounded to the next higher
whole number) fail to cast weighted votes in favor of the question; or (ii) three (3) of the
Plans fail to cast weighted votes in favor of the question. Notwithstanding the foregoing
provision, if there are thirty-six
(36) Plans, the requirement of an affirmative three-fourths weighted vote shall be
deemed satisfied with a lesser weighted vote unless four (4) or more Plans fail to cast
weighted votes in favor of the question.
11.
NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or breach or
termination thereof shall be in writing and shall be addressed in duplicate to the last
known address of each other party, marked respectively to the attention of its President
and, if any, its General Counsel.
12.
COMPLETE AGREEMENT
This Agreement contains the complete understandings of the parties in
relation to the subject matter hereof. This Agreement may only be amended by:
(a) a writing signed by all parties; or (b) a writing approved by the affirmative vote of
three-fourths of the Blue Plans and three-fourths of the total then current weighted vote
of all the Blue Plans as officially recorded by the BCBSA Corporate Secretary. Upon
such adoption by the Blue Plans, this Agreement and all other Trademark License
Agreements for Life and Disability Insurance Products then in effect shall
simultaneously be amended.
13.
SEVERABILITY
If any term of this Agreement is held to be unlawful by a court of competent
jurisdiction, such finding shall in no way affect the remaining obligations of the parties
hereunder and the court may substitute a lawful term or condition for any unlawful
term or condition so long as the effect of such substitution is to provide the parties
with the benefits of this Agreement.
14.
NONWAIVER
No waiver by BCBSA of any breach or default in performance on the part of
the Life and Disability Controlled Affiliate or any other licensee of any of the terms,
covenants or conditions of this Agreement shall constitute a waiver of any subsequent
breach or default in performance of said terms, covenants or conditions.
15.
GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Illinois.
7
IN WITNESS WHEREOF, the parties have caused this License Agreement to be
executed, effective as of the date of last signature written below.
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By: _ Date: _
Life and Disability Controlled Affiliate:
By: _ Date: _
Sponsoring Plan:
By: _ Date: _ Name: Sponsoring Plan:
By: _ Date: _ Name: [Add other Sponsoring
Plans as necessary]
8
EXHIBIT A
LICENSE STANDARDS APPLICABLE TO TRADEMARK LICENSE
AGREEMENT FOR LIFE AND DISABILITY INSURANCE PRODUCTS
Page 1 of 2
Standard 1 - Organization and Governance
Any Life and Disability Controlled Affiliate licensed under the Trademark License
Agreement for Life and Disability Insurance Products (“licensee”) shall be organized
and operated in such a manner that it is an entity organized and operated in such a
manner that it is 100% owned and controlled by Sponsoring Plans. Absent written
approval by BCBSA of an alternative method of control, control shall mean the legal
authority, directly or indirectly through wholly-owned subsidiaries: (a) to select members
of the Life and Disability Controlled Affiliate's governing body having not less than 100%
voting control thereof; (b) to exercise operational control with respect to the governance
thereof; and (c) to prevent any change in its articles of incorporation, bylaws or other
governing documents deemed inappropriate. In addition, a Sponsoring Plan or Plans
shall own at least 100% of any for profit Life and Disability Controlled Affiliate.
Standard 2 - State Licensure
The licensee must maintain unimpaired licensure or certificate of authority to operate
under applicable state laws as a life company in each state in which the licensee does
business.
Standard 3 - Records and Examination
The licensee shall maintain and furnish, on a timely and accurate basis, such records
and reports regarding the licensee as may be required in order to establish compliance
with the Agreement. The licensee shall permit BCBSA to examine the affairs of the
licensee and shall agree that BCBSA's board may submit a written report to the chief
executive officer(s) and the board(s) of directors of the Sponsoring Plan(s).
Standard 4 - Mediation
The licensee, its Sponsoring Plan(s) and all consenting Blue Plans shall agree to use
the then-current BCBSA mediation and mandatory dispute resolution processes, in lieu
of a legal action between or among another licensed Life and Disability Controlled
Affiliate, a Sponsoring Plan and or consenting Blue Plan or BCBSA.
1
EXHIBIT A
LICENSE STANDARDS APPLICABLE TO TRADEMARK LICENSE
AGREEMENT FOR LIFE AND DISABILITY INSURANCE PRODUCTS
Page 2 of 2
Standard 5 - Financial Responsibility
The licensee shall maintain adequate financial resources to protect its
customers and meet its business obligations.
Standard 6 - Cooperation with BCBSA Governance
The licensee shall cooperate with BCBSA’s Board of Directors and its Brand
Enhancement & Protection Committee in the administration of and in addressing
licensee compliance problems that may be identified in connection with the
operation or administration of the Trademark License Agreement for Life and
Disability Insurance Products.
2
EXHIBIT B
CONSENT AGREEMENT
This Consent Agreement is made and entered into by and among the undersigned Blue
Plan, and (“Life and Disability Controlled Affiliate”), and the Blue Cross and Blue
Shield Association (“BCBSA”) and shall be deemed effective on (“Effective Date”).
Whereas, BCBSA owns the Blue Cross and Blue Shield word and design service marks
and any derivative mark thereof (the “Brands”);
Whereas, the undersigned Blue Plan is licensed to use one or more of the Brands within
a specific geographic area (“Service Area”);
Whereas Life and Disability Controlled Affiliate is licensed by BCBSA to use one or more
of the Brands to offer life and disability insurance products (“Products”) as defined and
authorized in the Trademark License Agreement for Life and Disability Insurance Products
(“Life and Disability License Agreement”);
Whereas neither the Blue Plan nor its affiliates offer the Products under any of the Brands
in such Blue Plan’s Service Area or portion thereof where Blue Plan has consented to
sale of the Products by Life and Disability Controlled Affiliate; and
Whereas BCBSA and the undersigned Blue Plan desire to consent to Life and
Disability Controlled Affiliate’s use of the Brands in Blue Plan’s Service Area
consistent with the terms of the Life and Disability License Agreement and this
Consent Agreement.
Now, therefore, in consideration of the obligations and conditions stated in this
Agreement, Blue Plan, Life and Disability Controlled Affiliate and BCBSA agree as
follows:
1.
2.
Life and Disability Controlled Affiliate may market, sell, administer and underwrite
the Products in Blue Plan’s Service Area under the Brands licensed to Blue Plan in
such Service Area subject to the terms of this Consent Agreement, the Life and
Disability License Agreement and Blue Plan’s license agreement(s) with BCBSA.
Life and Disability Controlled Affiliate’s rights under the Brands to offer the Products
under the Brands are limited to offering the Products only under the Brand(s)
licensed to the consenting Blue Plan.
Life and Disability Controlled Affiliate shall work with the undersigned Blue Plan to
develop a written sales and marketing agreement that identifies the relationship
between it and Blue Plan for the sales, marketing and customer service for the
Products. The term of the sales and marketing agreement shall be the same as the
term of this Consent Agreement.
1
3.
4.
5.
6.
7.
All sales, marketing and advertising materials developed by and proposed for use
by Life and Disability Controlled Affiliate in a consenting Blue Plan’s Service Area
must clearly identify the consenting Blue Plan (for example, a statement on such
materials that reads “This product is offered with the cooperation of Blue Cross
and/or Blue Shield of [Geography]”);
Life and Disability Controlled Affiliate may use the Brands to sell the Products in
the following Service Area or portion thereof as designated by Blue Plan:
If two or more Blue Plans to use the same Licensed Marks in the same Service
Area, Life and Disability Controlled Affiliate shall work with the consenting Blue
Plan in the following manner: (a) the sales, marketing and advertising materials
must be communicated to the consenting Blue Plan’s existing and prospective
accounts through or with the approval of such Blue Plan, and (b) the personnel of
such Blue Plan must actively participate in all sales and marketing activities
conducted by Life and Disability Controlled Affiliate in the same Service Area,
including participating in meetings (whether in-person or via telephone, video or
internet conference) with both existing and prospective accounts of the consenting
Blue Plan;
Life and Disability Controlled Affiliate shall be entitled to use in a Service Area
only those Licensed Marks that the consenting Blue Plan has been granted by
BCBSA the license to use under its license agreement (for example, if a
consenting Blue Plan is licensed to use only the Blue Cross Marks in its Service
Area, the materials used by Life and Disability Controlled Affiliate in that Service
Area may only contain or reference the Blue Cross Marks and not the Blue
Shield Marks).
If this Consent Agreement is terminated, Life and Disability Controlled Affiliate
shall, unless each BCBSA and the Blue Plan agree in their sole discretion to a
phase out in writing, immediately (i) cease all use of the Licensed Marks, including
in connection with any and all sales and marketing of the Licensed Products in the
Service Area where consent has been terminated, and (ii) notify its customers that
it is no longer a licensee of BCBSA and provide instruction on how the customer
can contact BCBSA or a designated licensee to obtain further information on
securing coverage. The notification required by this paragraph shall be in writing
and in form approved by BCBSA.
2
8.
The term of this Consent Agreement shall be one year from the Effective Date.
Unless either Blue Plan or Life and Disability Controlled Affiliate provides the other
party with written notice of its desire not to renew this Consent Agreement at least
60 days prior to expiration of the term or any extended term or unless terminated
as provided in Paragraph 9 below, this Consent Agreement shall automatically
renew for subsequent one year periods.
9.
This Consent Agreement may be terminated as follows:
a. Upon mutual written consent of Life and Disability Controlled Affiliate and
Blue Plan;
b. By Blue Plan or Life and Disability Controlled Affiliate upon 60 days
advance written notice to the non-terminating party and BCBSA; or
c. By Blue Plan immediately if Life and Disability Controlled Affiliate does not
comply with this Consent Agreement or the sales protocol agreement.
10. This Consent Agreement shall automatically terminate if Blue Plan’s primary
licensee agreement terminates for any reason or if the Life and Disability
License Agreement terminates for any reason.
Agreed and Accepted by: [Blue
Plan]:
By:
Title:
BLUE CROSS AND BLUE SHIELD ASSOCIATION:
By:
Title:
LIFE AND DISABILITY CONTROLLED AFFILIATE:
By:
Title:
3
BLUE CROSS
Exhibit 1B
CONTROLLED AFFILIATE LICENSE AGREEMENT APPLICABLE TO
REGIONAL MEDICARE ADVANTAGE PPO PRODUCTS
(Adopted by Member Plans at their September 17, 2020 meeting)
This Agreement by and among Blue Cross and Blue Shield Association
("BCBSA") and (“Controlled Affiliate"), a Controlled Affiliate of the Blue
WHEREAS, BCBSA is the owner of the BLUE CROSS and BLUE CROSS Design
service marks;
WHEREAS, under the Medicare Modernization Act, companies may apply to and be
awarded a contract by the Centers for Medicare and Medicaid Services (“CMS”) to offer
Medicare Advantage PPO products in geographic regions designated by CMS (hereafter
“regional MAPPO products”).
WHEREAS, some of the CMS-designated regions include the Service Areas, or
portions thereof, of more than one Plan.
WHEREAS, the Controlling Plans and Controlled Affiliate desire that the latter be
entitled to use the BLUE CROSS and BLUE CROSS Design service marks (collectively the
"Licensed Marks") as service marks and be entitled to use the term BLUE CROSS in a
trade name ("Licensed Name") to offer regional MAPPO products in a region that includes
the Service Areas, or portions thereof, of more than one Controlling Plan;
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
hereinafter set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1.
GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA hereby grants to
Controlled Affiliate the right to use the Licensed Marks and Name in connection with, and
only in connection with the sale, marketing and administration of regional MAPPO products
and related services.
This grant of rights is non-exclusive and is limited to the following states:
(the “Region”). Controlled Affiliate may use the Licensed
-1-
Marks and Name in its legal name on the following conditions: (i) the legal name must be
approved in advance, in writing, by BCBSA; (ii) Controlled Affiliate shall not do business
outside the Region under any name or mark except business conducted in the Service Area
of a Controlling Plan provided that Controlled Affiliate is separately licensed by BCBSA to
use the Licensed Marks and Name in connection with health care plans and related services
in the Service Area of such Controlling Plan; and (iii) Controlled Affiliate shall not use the
Licensed Marks and Name, or any derivative thereof, as part of any name or symbol used to
identify itself in any securities market. Controlled Affiliate may use the Licensed Marks and
Name in its Trade Name only with the prior, written, consent of BCBSA.
2.
QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks and Name only in
connection with the licensed services and further agrees to be bound by the conditions
regarding quality control shown in attached Exhibit A as they may be amended by BCBSA
from time-to-time.
B. Controlled Affiliate agrees to comply with all applicable federal, state and local
laws.
C. Controlled Affiliate agrees that it will provide on an annual basis (or more often if
reasonably required by the Controlling Plans or by BCBSA) a report or reports to the
Controlling Plans and BCBSA demonstrating Controlled Affiliate's compliance with the
requirements of this Agreement including but not limited to the quality control provisions of
this paragraph and the attached Exhibit A.
D. Controlled Affiliate agrees that the Controlling Plans and/or BCBSA may, from
time-to-time, upon reasonable notice, review and inspect the manner and method of
Controlled Affiliate's rendering of service and use of the Licensed Marks and Name.
E. As used herein, a Controlled Affiliate is defined as an entity organized and
operated in such a manner, that it meets the following requirements:
(1) Controlled Affiliate is owned or controlled by two or more
Controlling Plans;
(2) Each Controlling Plan is authorized pursuant to a separate Blue Cross
License Agreement to use the Licensed Marks in a geographic area in the
Region and every geographic area in the Region is so licensed to at least one of the
Controlling Plans; and
-2-
(3) The Controlling Plans must have the legal authority directly or indirectly
through wholly-owned subsidiaries:
(a) to select members of the Controlled Affiliate’s governing body having not less
than 100% voting control thereof;
(b) to prevent any change in the articles of incorporation, bylaws or other
establishing or governing documents of the Controlled Affiliate with which the Controlling
Plans do not concur;
(c) to exercise control over the policy and operations of the Controlled Affiliate;
and
Notwithstanding anything to the contrary in (a) through (c) hereof, the Controlled Affiliate’s
establishing or governing documents must also require written approval by each of the
Controlling Plans before the Controlled Affiliate can:
(i)
(ii)
(iii)
(iv)
change its legal and/or trade names;
change the geographic area in which it operates (except
such approval shall not be required with respect to
business of the Controlled Affiliate conducted under the
Licensed Marks within the Service Area of one of the
Controlling Plans pursuant to a separate controlled
affiliate license agreement with BCBSA sponsored by
such Controlling Plan);
change any of the type(s) of businesses in which it
engages (except such approval shall not be required with
respect to business of the Controlled Affiliate conducted
under the Licensed Marks within the Service Area of one
of the Controlling Plans pursuant to a separate controlled
affiliate license agreement with BCBSA sponsored by
such Controlling Plan);
take any action that any Controlling Plan or BCBSA
reasonably believes will adversely affect the Licensed
Marks and Name.
In addition, the Controlling Plans directly or indirectly through wholly owned
subsidiaries shall own 100% of any for-profit Controlled Affiliate.
-3-
3.
SERVICE MARK USE
A. Controlled Affiliate recognizes the importance of a comprehensive national
network of independent BCBSA licensees which are committed to strengthening the
Licensed Marks and Name. The Controlled Affiliate further recognizes that its actions
within the Region may affect the value of the Licensed Marks and Name nationwide.
B. Controlled Affiliate shall at all times make proper service mark use of the
Licensed Marks and Name, including but not limited to use of such symbols or words as
BCBSA shall specify to protect the Licensed Marks and Name and shall comply with such
rules (generally applicable to Controlled Affiliates licensed to use the Licensed Marks and
Name) relative to service mark use, as are issued from time-to-time by BCBSA.
Controlled Affiliate recognizes and agrees that all use of the Licensed Marks and Name by
Controlled Affiliate shall inure to the benefit of BCBSA.
C. Controlled Affiliate may not directly or indirectly use the Licensed Marks and
Name in a manner that transfers or is intended to transfer in the Region the goodwill
associated therewith to another mark or name, nor may Controlled Affiliate engage in
activity that may dilute or tarnish the unique value of the Licensed Marks and Name.
D. Controlled Affiliate shall use its best efforts to promote and build the value of
the Licensed Marks and Name in connection with the sale, marketing and administration
of regional MAPPO products and related services.
4.
SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not, directly or indirectly, sublicense, transfer, hypothecate,
sell, encumber or mortgage, by operation of law or otherwise, the rights granted hereunder
and any such act shall be voidable at the sole option of any Controlling Plan or BCBSA. This
Agreement and all rights and duties hereunder are personal to Controlled Affiliate.
-4-
5.
INFRINGEMENT
Controlled Affiliate shall promptly notify the Controlling Plans and the Controlling
Plans shall promptly notify BCBSA of any suspected acts of infringement, unfair competition
or passing off that may occur in relation to the Licensed Marks and Name. Controlled
Affiliate shall not be entitled to require the Controlling Plans or BCBSA to take any actions or
institute any proceedings to prevent infringement, unfair competition or passing off by third
parties. Controlled Affiliate agrees to render to the Controlling Plans and BCBSA, without
charge, all reasonable assistance in connection with any matter pertaining to the protection
of the Licensed Marks and Name by BCBSA.
6.
LIABILITY INDEMNIFICATION
Controlled Affiliate and the Controlling Plans hereby agree to save, defend,
indemnify and hold BCBSA harmless from and against all claims, damages, liabilities and
costs of every kind, nature and description (except those arising solely as a result of
BCBSA's negligence) that may arise as a result of or related to Controlled Affiliate's
rendering of services under the Licensed Marks and Name.
7.
LICENSE TERM
A. Except as otherwise provided herein, the license granted by this
Agreement shall remain in effect for a period of one (1) year and shall be
automatically extended for additional one (1) year periods unless terminated
pursuant to the provisions herein.
B. This Agreement and all of Controlled Affiliate's rights hereunder shall immediately
terminate without any further action by any party or entity in the event that: (i) any one of the
Controlling Plans ceases to be authorized to use the Licensed Marks and Name; or (ii)
pursuant to Paragraph 15(a)(x) of the Blue Cross License Agreement any one of the
Controlling Plans ceases to be authorized to use the Licensed Names and Marks in the
Region.
C. Notwithstanding any other provision of this Agreement, this license to use the
Licensed Marks and Name may be forthwith terminated by the Controlling Plans or the
affirmative vote of the majority of the Board of Directors of BCBSA present and voting at a
special meeting expressly called by BCBSA for the purpose on ten (10) days written notice
to the Controlling Plans advising of the specific matters at issue and granting the Controlling
Plans an opportunity to be heard and to present their response to the Board for: (1) failure to
comply with any applicable minimum capital or liquidity requirement under the quality control
standards of this
-5-
failure to comply with any of the applicable requirements of Standards 2, 3, 4, or 5 of
Agreement; or (2) failure to comply with the "Organization and Governance" quality control
standard of this Agreement; or (3) impending financial insolvency; or
1.
attached Exhibit A; or (5) the pendency of any action instituted against the Controlled
Affiliate seeking its dissolution or liquidation of its assets or seeking appointment of a
trustee, interim trustee, receiver or other custodian for any of its property or business or
seeking the declaration or establishment of a trust for any of its property or business, unless
this Controlled Affiliate License Agreement has been earlier terminated under paragraph
7(E); or (6) such other reason as is determined in good faith immediately and irreparably to
threaten the integrity and reputation of BCBSA, the Plans (including the Controlling Plans),
any other licensee including Controlled Affiliate and/or the Licensed Marks and Name.
D. Except as otherwise provided in Paragraphs 7(B), 7(C) or 7(E) herein, should
Controlled Affiliate fail to comply with the provisions of this Agreement and not cure such
failure within thirty (30) days of receiving written notice thereof (or commence a cure within
such thirty day period and continue diligent efforts to complete the cure if such curing cannot
reasonably be completed within such thirty day period) BCBSA or the Controlling Plans shall
have the right to issue a notice that the Controlled Affiliate is in a state of noncompliance. If
a state of noncompliance as aforesaid is undisputed by the Controlled Affiliate or is found to
exist by a mandatory dispute resolution panel and is uncured as provided above, BCBSA
shall have the right to seek judicial enforcement of the Agreement or to issue a notice of
termination thereof. Notwithstanding any other provisions of this Agreement, any disputes as
to the termination of this License pursuant to Paragraphs 7(B), 7(C) or 7(E) of this
Agreement shall not be subject to mediation and mandatory dispute resolution. All other
disputes between or among BCBSA, any of the Controlling Plans and/or Controlled Affiliate
shall be submitted promptly to mediation and mandatory dispute resolution. The mandatory
dispute resolution panel shall have authority to issue orders for specific performance and
assess monetary penalties. Except, however, as provided in Paragraphs 7(B) and 7(E) of
this Agreement, this license to use the Licensed Marks and Name may not be finally
terminated for any reason without the affirmative vote of a majority of the present and voting
members of the Board of Directors of BCBSA.
E. This Agreement and all of Controlled Affiliate's rights hereunder shall
immediately terminate without any further action by any party or entity in the event that:
(1)
Controlled Affiliate shall no longer comply with item 2(E) above;
(2) Appropriate dues, royalties and other payments for Controlled Affiliate
pursuant to paragraph 9 hereof, which are the royalties for this License Agreement,
are more than sixty (60) days in arrears to BCBSA; or
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(3) Any of the following events occur: (i) a voluntary petition shall be filed by
Controlled Affiliate seeking bankruptcy, reorganization, arrangement with creditors or other
relief under the bankruptcy laws of the United States or any other law governing insolvency
or debtor relief, or (ii) an involuntary petition or proceeding shall be filed against Controlled
Affiliate seeking bankruptcy, reorganization, arrangement with creditors or other relief under
the bankruptcy laws of the United States or any other law governing insolvency or debtor
relief and such petition or proceeding is consented to or acquiesced in by Controlled Affiliate
or is not dismissed within sixty (60) days of the date upon which the petition or other
document commencing the proceeding is served upon the Controlled Affiliate, or (iii) an
order for relief is entered against Controlled Affiliate in any case under the bankruptcy laws
of the United States, or Controlled Affiliate is adjudged bankrupt or insolvent as those terms
are defined in the Uniform Commercial Code as enacted in the State of Illinois by any court
of competent jurisdiction, or (iv) Controlled Affiliate makes a general assignment of its
assets for the benefit of creditors, or (v) any government or any government official, office,
agency, branch, or unit assumes control of Controlled Affiliate or delinquency proceedings
(voluntary or involuntary) are instituted, or (vi) an action is brought by Controlled Affiliate
seeking its dissolution or liquidation of its assets or seeking the appointment of a trustee,
interim trustee, receiver or other custodian for any of its property or business, or (vii) an
action is instituted by any governmental entity or officer against Controlled Affiliate seeking
its dissolution or liquidation of its assets or seeking the appointment of a trustee, interim
trustee, receiver or other custodian for any of its property or business and such action is
consented to or acquiesced in by Controlled Affiliate or is not dismissed within one hundred
thirty (130) days of the date upon which the pleading or other document commencing the
action is served upon the Controlled Affiliate, provided that if the action is stayed or its
prosecution is enjoined, the one hundred thirty (130) day period is tolled for the duration of
the stay or injunction, and provided further, that the Association’s Board of Directors may toll
or extend the 130 day period at any time prior to its expiration, or (viii) a trustee, interim
trustee, receiver or other custodian for any of Controlled Affiliate's property or business is
appointed or the Controlled Affiliate is ordered dissolved or liquidated. Notwithstanding any
other provision of this Agreement, a declaration or a request for declaration of the existence
of a trust over any of the Controlled Affiliate’s property or business shall not in itself be
deemed to constitute or seek appointment of a trustee, interim trustee, receiver or other
custodian for purposes of subparagraphs 7(E)(3)(vii) and
(viii) of this Agreement.
F. Upon termination of this Agreement for cause or otherwise, Controlled Affiliate
agrees that it shall immediately discontinue all use of the Licensed Marks and Name,
including any use in its trade name, except to the extent that it continues to be authorized to
use the Licensed Marks within the Service Area of one of the Controlling Plans pursuant to
a separate controlled affiliate license agreement with BCBSA sponsored by such
Controlling Plan.
7
G. Upon termination of this Agreement, Controlled Affiliate shall immediately notify
all of its customers to whom it provides products or services under the Licensed Marks
pursuant to this Agreement that it is no longer a licensee of BCBSA and, if directed by the
Association’s Board of Directors, shall provide instruction on how the customer can contact
BCBSA or a designated licensee to obtain further information on securing coverage. The
notification required by this paragraph shall be in writing and in a form approved by BCBSA.
The BCBSA shall have the right to audit the terminated entity's books and records to verify
compliance with this paragraph.
H.
In the event this Agreement terminates pursuant to 7(B) hereof, upon termination
of this Agreement the provisions of Paragraph 7(G) shall not apply and the following
provisions shall apply, except that, in the event that Controlled Affiliate is separately
licensed by BCBSA to use the Licensed Marks in the Service Area of a Controlling Plan and
termination of this Agreement is due to a partial termination of such Controlling Plan’s
license pursuant to Paragraph 15(a)(x)(ii) of the Blue Cross License Agreement, the
notices, national account listing, payment, and audit right listed below shall be applicable
solely with respect to the Region and the geographic area for which the Controlling Plan’s
license to use the Licensed Names and Marks is terminated:
(1) The Controlled Affiliate shall send a notice through the U.S. mails, with
first class postage affixed, to all individual and group customers,
providers, brokers and agents of products or services sold, marketed, underwritten or
administered by the Controlled Affiliate under the Licensed Marks and Name.
The form and content of the notice shall be specified by BCBSA and shall, at a
minimum, notify the recipient of the termination of the license, the consequences
thereof, and instructions for obtaining alternate products or services licensed by BCBSA.
This notice shall be mailed within 15 days after termination.
(2)
The Controlled Affiliate shall deliver to BCBSA within five days
of a request by BCBSA a listing of national accounts in which the Controlled Affiliate is
involved (in a control, participating or servicing capacity), identifying the national account
and the Controlled Affiliate’s role therein.
(3)
Unless the cause of termination is an event respecting BCBSA
stated in paragraph 15(a) or (b) of the Plan’s license agreement with BCBSA to use the
Licensed Marks and Name, the Controlled Affiliate, the Controlling Plans, and any other
Licensed Controlled Affiliates of the Controlling Plans shall be jointly liable for payment to
BCBSA of an amount equal to $25 multiplied by the number of Licensed Enrollees of the
Controlled Affiliate; provided that if any Plan other than a Controlling Plan is permitted by
BCBSA to use marks or names licensed by BCBSA in a geographic area in the Region, the
payment for Licensed Enrollees in such geographic area shall be multiplied by a fraction,
the numerator of which is the number of Licensed Enrollees of the Controlled Affiliate, the
Controlling Plans, and
8
any other Licensed Controlled Affiliates of the Controlling Plans in such geographic area
and the denominator of which is the total number of Licensed Enrollees in such geographic
area. Licensed Enrollee means each and every person and covered dependent who is
enrolled as an individual or member of a group receiving products or services sold,
marketed or administered under marks or names licensed by BCBSA as determined at the
earlier of (i) the end of the last fiscal year of the terminated entity which ended prior to
termination or (ii) the fiscal year which ended before any transactions causing the
termination began. Notwithstanding the foregoing, the amount payable pursuant to this
subparagraph H. (3) shall be due only to the extent that, in BCBSA’s opinion, it does not
cause the net worth of the Controlled Affiliate, the Controlling Plans or any other Licensed
Controlled Affiliates of the Controlling Plans to fall below 100% of the Health Risk-Based
Capital formula, or its equivalent under any successor formula, as set forth in the applicable
financial responsibility standards established by BCBSA (provided such equivalent is
approved for purposes of this subparagraph by the affirmative vote of three-fourths of the
Plans and three-fourths of the total then current weighted vote of all the Plans); measured
as of the date of termination, and adjusted for the value of any transactions not made in the
ordinary course of business. This payment shall not be due in connection with transactions
exclusively by or among Plans (including the Controlling Plans) or their affiliates, including
reorganizations, combinations or mergers, where the BCBSA Board of Directors determines
that the license termination does not result in a material diminution in the number of
Licensed Enrollees or the extent of their coverage. In the event that the Controlled Affiliate’s
license is reinstated by BCBSA or is deemed to have remained in effect without interruption
by a court of competent jurisdiction, BCBSA shall reimburse the Controlled Affiliate (and/or
the Controlling Plans or their other Licensed Controlled Affiliates, as the case may be) for
payments made under this subparagraph 7.H.(3) only to the extent that such payments
exceed the amounts due to BCBSA pursuant to paragraph 7.K. and any costs associated
with reestablishing the terminated Controlling Plan’s Service Area or the Region, including
any payments made by BCBSA to a Plan or Plans (including the other Controlling Plans), or
their Licensed Controlled Affiliates, for purposes of replacing the Controlled Affiliate.
(4)
BCBSA shall have the right to audit the books and records of
the Controlled Affiliate, the Controlling Plans, and any other Licensed Controlled
Affiliates of the Controlling Plans to verify compliance with this paragraph 7.H.
(5)
As to a breach of 7.H.(1), (2), (3) or (4), the parties agree that
the obligations are immediately enforceable in a court of competent jurisdiction. As to a
breach of 7.H.(1), (2) or (4) by the Controlled Affiliate, the parties agree there is no
adequate remedy at law and BCBSA is entitled to obtain specific performance.
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I. BCBSA shall be entitled to enjoin the Controlled Affiliate or any related party in a
court of competent jurisdiction from entry into any transaction which would result in a
termination of this Agreement unless a Controlling Plan’s license from BCBSA to use the
Licensed Marks and Names has been terminated pursuant to 10(d) of such Controlling
Plan’s license agreement upon the required 6 month written notice.
J. BCBSA acknowledges that it is not the owner of assets of the
Controlled Affiliate.
K.
In the event this Agreement terminates and is subsequently reinstated by BCBSA
or is deemed to have remained in effect without interruption by a court of competent
jurisdiction, the Controlled Affiliate, the Controlling Plans, and any other Licensed Controlled
Affiliates of the Controlling Plans shall be jointly liable for reimbursing BCBSA the
reasonable costs incurred by BCBSA in connection with the termination and the
reinstatement or court action, and any associated legal proceedings, including but not
limited to: outside legal fees, consulting fees, public relations fees, advertising costs, and
costs incurred to develop, lease or establish an interim provider network. Any amount due
to BCBSA under this subparagraph may be waived in whole or in part by the BCBSA Board
of Directors in its sole discretion.
8.
DISPUTE RESOLUTION
The parties agree that any disputes between or among them or between or among
any of them and one or more Plans or Controlled Affiliates of Plans that use in any manner
the Blue Cross and Blue Cross Marks and Name are subject to the Mediation and
Mandatory Dispute Resolution process attached to and made a part of each Controlling
Plan’s License from BCBSA to use the Licensed Marks and Name as Exhibit 5 as
amended from time-to-time, which documents are incorporated herein by reference as
though fully set forth herein.
9.
LICENSE FEE
Controlled Affiliate will pay to BCBSA a fee for this License determined
pursuant to the formula(s) set forth in Exhibit B.
10.
JOINT VENTURE
Nothing contained in this Agreement shall be construed as creating a joint
venture, partnership, agency or employment relationship between the Controlling Plans
and Controlled Affiliate or between either and BCBSA.
11.
NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or breach or termination
thereof shall be in writing and shall be addressed in duplicate to the last
10
known address of each other party, marked respectively to the attention of its
President and, if any, its General Counsel.
12.
COMPLETE AGREEMENT
This Agreement contains the complete understandings of the parties in relation to the
subject matter hereof. This Agreement may only be amended by the affirmative vote of
three-fourths of the Plans and three-fourths of the total then current weighted vote of all the
Plans as officially recorded by the BCBSA Corporate Secretary.
13.
SEVERABILITY
If any term of this Agreement is held to be unlawful by a court of competent
jurisdiction, such findings shall in no way affect the remaining obligations of the parties
hereunder and the court may substitute a lawful term or condition for any unlawful term or
condition so long as the effect of such substitution is to provide the parties with the benefits
of this Agreement.
14.
NONWAIVER
No waiver by BCBSA of any breach or default in performance on the part of
Controlled Affiliate or any other licensee of any of the terms, covenants or conditions of this
Agreement shall constitute a waiver of any subsequent breach or default in performance of
said terms, covenants or conditions.
14A. VOTING
For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean
all entities licensed under the Blue Cross License Agreement and/or the Blue Shield
License Agreement, and in all votes of the Plans under this Agreement the Plans shall vote
together. For weighted votes of the Plans, the Plan shall have a number of votes equal to
the number of weighted votes (if any) that it holds as a Blue Cross Plan plus the number of
weighted votes (if any) that it holds as a Blue Shield Plan. For all other votes of the Plans,
the Plan shall have one vote. For all questions requiring an affirmative three-fourths
weighted vote of the Plans, the requirement shall be deemed satisfied with a lesser
weighted vote unless the greater of: (i) 6/52 or more of the Plans (rounded to the nearest
whole number, with
0.5 or multiples thereof being rounded to the next higher whole number) fail to cast
weighted votes in favor of the question; or (ii) three (3) of the Plans fail to cast weighted
votes in favor of the question. Notwithstanding the foregoing provision, if there are thirty-six
(36) Plans, the requirement of an affirmative three-fourths weighted vote shall be deemed
satisfied with a lesser weighted vote unless four (4) or more Plans fail to cast weighted
votes in favor of the question.
11
15.
GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Illinois.
16.
HEADINGS
The headings inserted in this agreement are for convenience only and shall have
no bearing on the interpretation hereof.
12
IN WITNESS WHEREOF, the parties have caused this License Agreement to be
executed and effective as of the date of last signature written below.
Controlled Affiliate:
By:
Date:
Controlling Plan:
By:
Date:
Controlling Plan:
By:
Date:
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By:
Date:
13
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
APPLICABLE TO REGIONAL MEDICARE ADVANTAGE PPO
PRODUCTS
September 2020
PREAMBLE
The standards for licensing Controlled Affiliates for Medicare Advantage PPO Products are
established by BCBSA and are subject to change from time-to-time upon the affirmative
vote of three-fourths (3/4) of the Plans and three-fourths (3/4) of the total weighted vote.
Each Controlling Plan is required to use a standard Controlled Affiliate license form provided
by BCBSA and to cooperate fully in assuring that the licensed Controlled Affiliate maintains
compliance with the license standards.
Standard 1 - Organization and Governance
A Controlled Affiliate is defined as an entity organized and operated in such a
manner, that it meets the following requirements:
(1)
Controlled Affiliate is owned or controlled by two or more Controlling
Plans;
(2) Each Controlling Plan is authorized pursuant to a separate Blue Cross License
Agreement to use the Licensed Marks in a geographic area in the Region and every
geographic area in the Region is so licensed to at least one of the Controlling Plans; and
(3) The Controlling Plans must have the legal authority directly or indirectly through
wholly-owned subsidiaries:
(a)
(b)
(c)
to select members of the Controlled Affiliate’s governing body
having not less than 100% voting control thereof;
prevent any change in the articles of incorporation, bylaws or other
establishing or governing documents of the Controlled Affiliate with
which the Controlling Plans do not concur;
exercise control over the policy and operations of the Controlled
Affiliate; and
1
EXHIBIT A (continued)
Notwithstanding anything to the contrary in (a) through (c) hereof, the Controlled Affiliate’s
establishing or governing documents must also require written approval by each of the
Controlling Plans before the Controlled Affiliate can:
(i)
(ii)
(iii)
(iv)
change its legal and/or trade names;
change the geographic area in which it operates (except such
approval shall not be required with respect to business of the
Controlled Affiliate conducted under the Licensed Marks within
the Service Area of one of the Controlling Plans pursuant to a
separate controlled affiliate license agreement with BCBSA
sponsored by such Controlling Plan);
change any of the type(s) of businesses in which it engages
(except such approval shall not be required with respect to
business of the Controlled Affiliate conducted under the
Licensed Marks within the Service Area of one of the Controlling
Plans pursuant to a separate controlled affiliate license
agreement with BCBSA sponsored by such Controlling Plan);
take any action that any Controlling Plan or BCBSA
reasonably believes will adversely affect the Licensed Marks
and Name.
In addition, the Controlling Plans directly or indirectly through wholly owned
subsidiaries shall own 100% of any for-profit Controlled Affiliate.
Standard 2 - Financial Responsibility
A Controlled Affiliate shall be operated in a manner that provides reasonable
financial assurance that it can fulfill all of its contractual obligations to its customers.
Standard 3 - State Licensure/Certification
A Controlled Affiliate shall maintain appropriate and unimpaired licensure and
certifications.
2
EXHIBIT A (continued)
Standard 4 - Certain Disclosures
A Controlled Affiliate shall make adequate disclosure in contracting with third parties
and in disseminating public statements of:
a.
b.
the structure of the Blue Cross and Blue Shield System; and
the independent nature of every licensee.
Standard 5 - Reports and Records for Controlled Affiliates
A Controlled Affiliate and/or its Controlling Plans shall furnish, on a timely and
accurate basis, reports and records relating to these Standards and the License
Agreements between BCBSA and Controlled Affiliate.
Standard 6 - Best Efforts
During each year, a Controlled Affiliate shall use its best efforts to promote and
build the value of the Blue Cross Marks.
Standard 7 - Participation in Certain National Programs
A Controlled Affiliate shall effectively and efficiently participate in certain national
programs from time to time as may be adopted by Member Plans for the purposes of
providing ease of claims processing for customers receiving benefits outside of the
Controlled Affiliate’s service area.
National program requirements include:
a.
b.
Inter-Plan Teleprocessing System (ITS); and
Inter-Plan Medicare Advantage Program.
Standard 8 - Participation in Master Business Associate Agreement
Controlled Affiliates shall comply with the terms of the Business Associate
Agreement for Blue Cross and Blue Shield Licensees to the extent they perform the
functions of a business associate or subcontractor to a business associate, as defined by
the Business Associate Agreement.
Amended as of November 15, 2007
3
EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENTS
APPLICABLE TO REGIONAL MEDICARE ADVANTAGE PPO PRODUCTS
Controlled Affiliate will pay BCBSA a fee for this license in accordance with the
following formula:
An amount equal to its pro rata share of each Controlling Plan dues payable to
BCBSA computed with the addition of the Controlled Affiliate's members using the
Marks on regional MAPPO products and related services as reported on the Quarterly
Enrollment Report with BCBSA. The payment by each Controlling Plan of its dues to
BCBSA, including that portion described in this paragraph, will satisfy the requirement
of this paragraph, and no separate payment will be necessary.
Amended as of June 14, 2007
4
BLUE CROSS
Exhibit 1C
CONTROLLED AFFILIATE LICENSE AGREEMENT
APPLICABLE TO REGIONAL MEDICARE PART D PRESCRIPTION DRUG PLAN
PRODUCTS
(Adopted by Member Plans at their September 17, 2020 meeting)
This Agreement by and among Blue Cross and Blue Shield Association
("BCBSA") and (“Controlled Affiliate"), a Controlled Affiliate of the Blue Cross
Plan(s), known as _______ ("Controlling Plans"), each of which is also a Party
signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE CROSS and BLUE CROSS Design
service marks;
WHEREAS, under the Medicare Modernization Act, companies may apply to and be
awarded a contract by the Centers for Medicare and Medicaid Services (“CMS”) to offer
Medicare Part D Prescription Drug Plan products in geographic regions designated by
CMS (hereafter “regional PDP products).”
WHEREAS, some of the CMS-designated regions include the Service Areas, or
portions thereof, of more than one Plan.
WHEREAS, the Controlling Plans and Controlled Affiliate desire that the latter be
entitled to use the BLUE CROSS and BLUE CROSS Design service marks (collectively the
"Licensed Marks") as service marks and be entitled to use the term BLUE CROSS in a trade
name ("Licensed Name") to offer regional PDP products in a region that includes the
Service Areas, or portions thereof, of more than one Controlling Plan;
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
hereinafter set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1.
GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA hereby grants to
Controlled Affiliate the right to use the Licensed Marks and Name in connection with, and
only in connection with the sale, marketing and administration of regional PDP products
and related services.
This grant of rights is non-exclusive and is limited to the following states:
(the “Region”). Controlled Affiliate may use the Licensed
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Marks and Name in its legal name on the following conditions: (i) the legal name must
be approved in advance, in writing, by BCBSA; (ii) Controlled Affiliate shall not do
business outside the Region under any name or mark except business conducted in
the Service Area of a Controlling Plan provided that Controlled Affiliate is separately
licensed by BCBSA to use the Licensed Marks and Name in connection with health
care plans and related services in the Service Area of such Controlling Plan; and (iii)
Controlled Affiliate shall not use the Licensed Marks and Name, or any derivative
thereof, as part of any name or symbol used to identify itself in any securities market.
Controlled Affiliate may use the Licensed Marks and Name in its Trade Name only
with the prior, written, consent of BCBSA.
2.
QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks and Name only in
connection with the licensed services and further agrees to be bound by the conditions
regarding quality control shown in attached Exhibit A as they may be amended by BCBSA
from time-to-time.
B. Controlled Affiliate agrees to comply with all applicable federal, state and local
laws.
C. Controlled Affiliate agrees that it will provide on an annual basis (or more often if
reasonably required by the Controlling Plans or by BCBSA) a report or reports to the
Controlling Plans and BCBSA demonstrating Controlled Affiliate's compliance with the
requirements of this Agreement including but not limited to the quality control provisions of
this paragraph and the attached Exhibit A.
D. Controlled Affiliate agrees that the Controlling Plans and/or BCBSA may, from
time-to-time, upon reasonable notice, review and inspect the manner and method of
Controlled Affiliate's rendering of service and use of the Licensed Marks and Name.
E. As used herein, a Controlled Affiliate is defined as an entity organized and
operated in such a manner, that it meets the following requirements:
(1) Controlled Affiliate is owned or controlled by two or more
Controlling Plans;
(2) Each Controlling Plan is authorized pursuant to a separate Blue Cross
License Agreement to use the Licensed Marks in a geographic area in the
Region and every geographic area in the Region is so licensed to at least one of the
Controlling Plans; and
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(3) The Controlling Plans must have the legal authority directly or indirectly through
wholly-owned subsidiaries:
(a) to select members of the Controlled Affiliate’s governing Body
having not less than 100% voting control thereof;
(b)
to prevent any change in the articles of incorporation,
bylaws or other establishing or governing documents of the Controlled Affiliate with which
the Controlling Plans do not concur;
(c)
to exercise control over the policy and operations of the
Controlled Affiliate; and
Notwithstanding anything to the contrary in (a) through (c) hereof, the Controlled Affiliate’s
establishing or governing documents must also require written approval by each of the
Controlling Plans before the Controlled Affiliate can:
(i)change its legal and/or trade names;
(ii)change the geographic area in which it operates
(except such approval shall not be required with respect to business of the
Controlled Affiliate conducted under the Licensed Marks within the Service Area of
one of the Controlling Plans pursuant to a separate controlled affiliate license
agreement with BCBSA sponsored by such Controlling Plan);
(iii) change any of the type(s) of businesses in which it engages
(except such approval shall not be required with respect to business of the Controlled
Affiliate conducted under the Licensed Marks within the Service Area of one of the
Controlling Plans pursuant to a separate controlled affiliate license agreement with
BCBSA sponsored by such Controlling Plan);
(iv) take any action that any Controlling Plan or BCBSA
reasonably believes will adversely affect the Licensed Marks and Name.
In addition, the Controlling Plans directly or indirectly through wholly-owned
subsidiaries shall own 100% of any for-profit Controlled Affiliate.
-3-
3.
SERVICE MARK USE
A. Controlled Affiliate recognizes the importance of a comprehensive national
network of independent BCBSA licensees which are committed to strengthening the
Licensed Marks and Name. The Controlled Affiliate further recognizes that its actions
within the Region may affect the value of the Licensed Marks and Name nationwide.
B. Controlled Affiliate shall at all times make proper service mark use of the
Licensed Marks and Name, including but not limited to use of such symbols or words as
BCBSA shall specify to protect the Licensed Marks and Name and shall comply with such
rules (generally applicable to Controlled Affiliates licensed to use the Licensed Marks and
Name) relative to service mark use, as are issued from time-to-time by BCBSA.
Controlled Affiliate recognizes and agrees that all use of the Licensed Marks and Name by
Controlled Affiliate shall inure to the benefit of BCBSA.
C. Controlled Affiliate may not directly or indirectly use the Licensed Marks and
Name in a manner that transfers or is intended to transfer in the Region the goodwill
associated therewith to another mark or name, nor may Controlled Affiliate engage in
activity that may dilute or tarnish the unique value of the Licensed Marks and Name.
D. Controlled Affiliate shall use its best efforts to promote and build the value of
the Licensed Marks and Name in connection with the sale, marketing and administration
of regional PDP products and related services.
4.
SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not, directly or indirectly, sublicense, transfer, hypothecate,
sell, encumber or mortgage, by operation of law or otherwise, the rights granted hereunder
and any such act shall be voidable at the sole option of any Controlling Plan or BCBSA. This
Agreement and all rights and duties hereunder are personal to Controlled Affiliate.
5.
INFRINGEMENT
Controlled Affiliate shall promptly notify the Controlling Plans and the Controlling
Plans shall promptly notify BCBSA of any suspected acts of infringement, unfair competition
or passing off that may occur in relation to the Licensed Marks and Name. Controlled
Affiliate shall not be entitled to require the Controlling Plans or BCBSA to take any actions or
institute any proceedings to prevent infringement, unfair competition or passing off by third
parties. Controlled Affiliate agrees to render to the Controlling Plans and BCBSA, without
charge, all reasonable assistance in connection with any matter pertaining to the protection
of the Licensed Marks and Name by BCBSA.
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6.
LIABILITY INDEMNIFICATION
Controlled Affiliate and the Controlling Plans hereby agree to save, defend,
indemnify and hold BCBSA harmless from and against all claims, damages, liabilities and
costs of every kind, nature and description (except those arising solely
as a result of BCBSA's negligence) that may arise as a result of or related to Controlled
Affiliate's rendering of services under the Licensed Marks and Name.
7.
LICENSE TERM
A. Except as otherwise provided herein, the license granted by this Agreement shall
remain in effect for a period of one (1) year and shall be automatically extended for
additional one (1) year periods unless terminated pursuant to the provisions herein.
B. This Agreement and all of Controlled Affiliate's rights hereunder shall immediately
terminate without any further action by any party or entity in the event that: (i) any one of the
Controlling Plans ceases to be authorized to use the Licensed Marks and Name; or (ii)
pursuant to Paragraph 15(a)(x) of the Blue Cross License Agreement any one of the
Controlling Plans ceases to be authorized to use the Licensed Names and Marks in the
Region.
C. Notwithstanding any other provision of this Agreement, this license to use the
Licensed Marks and Name may be forthwith terminated by the Controlling Plans or the
affirmative vote of the majority of the Board of Directors of BCBSA present and voting at a
special meeting expressly called by BCBSA for the purpose on ten (10) days written notice
to the Controlling Plans advising of the specific matters at issue and granting the Controlling
Plans an opportunity to be heard and to present their response to the Board for: (1) failure to
comply with any applicable minimum capital or liquidity requirement under the quality control
standards of this Agreement; or (2) failure to comply with the "Organization and
Governance" quality control standard of this Agreement; or (3) impending financial
insolvency; or
1.
attached Exhibit A; or (5) the pendency of any action instituted against the Controlled
Affiliate seeking its dissolution or liquidation of its assets or seeking appointment of a
trustee, interim trustee, receiver or other custodian for any of its property or business or
seeking the declaration or establishment of a trust for any of its property or business, unless
this Controlled Affiliate License Agreement has been earlier terminated under paragraph
7(E); or (6) such other reason as is determined in good faith immediately and irreparably to
threaten the integrity and reputation of BCBSA, the Plans (including the Controlling Plans),
any other licensee including Controlled Affiliate and/or the Licensed Marks and Name.
failure to comply with any of the applicable requirements of Standards 2, 3, 4, or 5 of
D. Except as otherwise provided in Paragraphs 7(B), 7(C) or 7(E) herein, should
Controlled Affiliate fail to comply with the provisions of this Agreement and not cure such
failure within thirty (30) days of receiving written notice thereof (or commence a cure within
such thirty day period and continue diligent efforts to
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complete the cure if such curing cannot reasonably be completed within such thirty day
period) BCBSA or the Controlling Plans shall have the right to issue a notice that the
Controlled Affiliate is in a state of noncompliance. If a state of noncompliance as aforesaid is
undisputed by the Controlled Affiliate or is found to exist by a mandatory dispute resolution
panel and is uncured as provided above, BCBSA shall have the right to seek judicial
enforcement of the Agreement or to issue a notice of termination thereof. Notwithstanding
any other provisions of this Agreement, any disputes as to the termination of this License
pursuant to Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall not be subject to
mediation and mandatory dispute resolution. All other disputes between or among BCBSA,
any of the Controlling Plans and/or Controlled Affiliate shall be submitted promptly to
mediation and mandatory dispute resolution. The mandatory dispute resolution panel shall
have authority to issue orders for specific performance and assess monetary penalties.
Except, however, as provided in Paragraphs 7(B) and 7(E) of this Agreement, this license
to use the Licensed Marks and Name may not be finally terminated for any reason without
the affirmative vote of a majority of the present and voting members of the Board of
Directors of BCBSA.
E. This Agreement and all of Controlled Affiliate's rights hereunder shall
immediately terminate without any further action by any party or entity in the event that:
(1)
Controlled Affiliate shall no longer comply with item 2(E) above;
(2) Appropriate dues, royalties and other payments for Controlled Affiliate
pursuant to paragraph 9 hereof, which are the royalties for this License Agreement,
are more than sixty (60) days in arrears to BCBSA; or
(3)
Any of the following events occur: (i) a voluntary petition shall
be filed by Controlled Affiliate seeking bankruptcy, reorganization, arrangement with
creditors or other relief under the bankruptcy laws of the United States or any other law
governing insolvency or debtor relief, or (ii) an involuntary petition or proceeding shall be
filed against Controlled Affiliate seeking bankruptcy, reorganization, arrangement with
creditors or other relief under the bankruptcy laws of the United States or any other law
governing insolvency or debtor relief and such petition or proceeding is consented to or
acquiesced in by Controlled Affiliate or is not dismissed within sixty (60) days of the date
upon which the petition or other document commencing the proceeding is served upon the
Controlled Affiliate, or (iii) an order for relief is entered against Controlled Affiliate in any
case under the bankruptcy laws of the United States, or Controlled Affiliate is adjudged
bankrupt or insolvent as those terms are defined in the Uniform Commercial Code as
enacted in the State of Illinois by any court of competent jurisdiction, or (iv) Controlled
Affiliate makes a general assignment of its assets for the benefit of creditors, or (v) any
government or any government official, office, agency, branch, or unit assumes control of
Controlled Affiliate or delinquency proceedings (voluntary or involuntary) are instituted, or
(vi) an action is brought by Controlled Affiliate seeking its
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dissolution or liquidation of its assets or seeking the appointment of a trustee, interim
trustee, receiver or other custodian for any of its property or business, or (vii) an action is
instituted by any governmental entity or officer against Controlled Affiliate seeking its
dissolution or liquidation of its assets or seeking the appointment of a trustee, interim
trustee, receiver or other custodian for any of its property or business and such action is
consented to or acquiesced in by Controlled Affiliate or is not dismissed within one hundred
thirty (130) days of the date upon which the pleading or other document commencing the
action is served upon the Controlled Affiliate, provided that if the action is stayed or its
prosecution is enjoined, the one hundred thirty (130) day period is tolled for the duration of
the stay or injunction, and provided further, that the Association’s Board of Directors may toll
or extend the 130 day period at any time prior to its expiration, or (viii) a trustee, interim
trustee, receiver or other custodian for any of Controlled Affiliate's property or business is
appointed or the Controlled Affiliate is ordered dissolved or liquidated. Notwithstanding any
other provision of this Agreement, a declaration or a request for declaration of the existence
of a trust over any of the Controlled Affiliate’s property or business shall not in itself be
deemed to constitute or seek appointment of a trustee, interim trustee, receiver or other
custodian for purposes of subparagraphs 7(E)(3)(vii) and
(viii) of this Agreement.
F. Upon termination of this Agreement for cause or otherwise, Controlled Affiliate
agrees that it shall immediately discontinue all use of the Licensed Marks and Name,
including any use in its trade name, except to the extent that it continues to be authorized to
use the Licensed Marks within the Service Area of one of the Controlling Plans pursuant to
a separate controlled affiliate license agreement with BCBSA sponsored by such
Controlling Plan.
G. Upon termination of this Agreement, Controlled Affiliate shall immediately notify
all of its customers to whom it provides products or services under the Licensed Marks
pursuant to this Agreement that it is no longer a licensee of BCBSA and, if directed by the
Association’s Board of Directors, shall provide instruction on how the customer can contact
BCBSA or a designated licensee to obtain further information on securing coverage. The
notification required by this paragraph shall be in writing and in a form approved by BCBSA.
The BCBSA shall have the right to audit the terminated entity's books and records to verify
compliance with this paragraph.
H.
In the event this Agreement terminates pursuant to 7(B) hereof, upon termination
of this Agreement the provisions of Paragraph 7(G) shall not apply and the following
provisions shall apply, except that, in the event that Controlled Affiliate is separately
licensed by BCBSA to use the Licensed Marks in the Service Area of a Controlling Plan and
termination of this Agreement is due to a partial termination of such Controlling Plan’s
license pursuant to Paragraph 15(a)(x)(ii) of the Blue Cross
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License Agreement, the notices, national account listing, payment, and audit right listed
below shall be applicable solely with respect to the Region and the geographic area for
which the Controlling Plan’s license to use the Licensed Names and Marks is terminated:
(1) The Controlled Affiliate shall send a notice through the U.S. mails, with
first class postage affixed, to all individual and group customers,
providers, brokers and agents of products or services sold, marketed, underwritten or
administered by the Controlled Affiliate under the Licensed Marks and Name.
The form and content of the notice shall be specified by BCBSA and shall, at a
minimum, notify the recipient of the termination of the license, the consequences
thereof, and instructions for obtaining alternate products or services licensed by BCBSA.
This notice shall be mailed within 15 days after termination.
(2)
The Controlled Affiliate shall deliver to BCBSA within five days
of a request by BCBSA a listing of national accounts in which the Controlled Affiliate is
involved (in a control, participating or servicing capacity), identifying the national account
and the Controlled Affiliate’s role therein.
(3)
Unless the cause of termination is an event respecting BCBSA
stated in paragraph 15(a) or (b) of the Plan’s license agreement with BCBSA to use the
Licensed Marks and Name, the Controlled Affiliate, the Controlling Plans, and any other
Licensed Controlled Affiliates of the Controlling Plans shall be jointly liable for payment to
BCBSA of an amount equal to $25 multiplied by the number of Licensed Enrollees of the
Controlled Affiliate; provided that if any Plan other than a Controlling Plan is permitted by
BCBSA to use marks or names licensed by BCBSA in a geographic area in the Region, the
payment for Licensed Enrollees in such geographic area shall be multiplied by a fraction,
the numerator of which is the number of Licensed Enrollees of the Controlled Affiliate, the
Controlling Plans, and any other Licensed Controlled Affiliates of the Controlling Plans in
such geographic area and the denominator of which is the total number of Licensed
Enrollees in such geographic area. Licensed Enrollee means each and every person and
covered dependent who is enrolled as an individual or member of a group receiving
products or services sold, marketed or administered under marks or names licensed by
BCBSA as determined at the earlier of (i) the end of the last fiscal year of the terminated
entity which ended prior to termination or (ii) the fiscal year which ended before any
transactions causing the termination began. Notwithstanding the foregoing, the amount
payable pursuant to this subparagraph H. (3) shall be due only to the extent that, in
BCBSA’s opinion, it does not cause the net worth of the Controlled Affiliate, the Controlling
Plans or any other Licensed Controlled Affiliates of the Controlling Plans to fall below 100%
of the Health Risk-Based Capital formula, or its equivalent under any successor formula, as
set forth in the applicable financial responsibility standards established by BCBSA (provided
such equivalent is approved for purposes of this subparagraph by the affirmative vote of
three-fourths
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of the Plans and three-fourths of the total then current weighted vote of all the Plans);
measured as of the date of termination, and adjusted for the value of any transactions not
made in the ordinary course of business. This payment shall not be due in connection with
transactions exclusively by or among Plans (including the Controlling Plans) or their
affiliates, including reorganizations, combinations or mergers, where the BCBSA Board of
Directors determines that the license termination does not result in a material diminution in
the number of Licensed Enrollees or the extent of their coverage. In the event that the
Controlled Affiliate’s license is reinstated by BCBSA or is deemed to have remained in
effect without interruption by a court of competent jurisdiction, BCBSA shall reimburse the
Controlled Affiliate (and/or the Controlling Plans or their other Licensed Controlled Affiliates,
as the case may be) for payments made under this subparagraph 7.H.(3) only to the extent
that such payments exceed the amounts due to BCBSA pursuant to paragraph 7.K. and
any costs associated with reestablishing the terminated Controlling Plan’s Service Area or
the Region, including any payments made by BCBSA to a Plan or Plans (including the other
Controlling Plans), or their Licensed Controlled Affiliates, for purposes of replacing the
Controlled Affiliate.
(4)
BCBSA shall have the right to audit the books and records of
the Controlled Affiliate, the Controlling Plans, and any other Licensed Controlled
Affiliates of the Controlling Plans to verify compliance with this paragraph 7.H.
(5)
As to a breach of 7.H.(1), (2), (3) or (4), the parties agree that
the obligations are immediately enforceable in a court of competent jurisdiction. As to a
breach of 7.H.(1), (2) or (4) by the Controlled Affiliate, the parties agree there is no
adequate remedy at law and BCBSA is entitled to obtain specific performance.
I. BCBSA shall be entitled to enjoin the Controlled Affiliate or any related party in a
court of competent jurisdiction from entry into any transaction which would result in a
termination of this Agreement unless a Controlling Plan’s license from BCBSA to use the
Licensed Marks and Names has been terminated pursuant to 10(d) of such Controlling
Plan’s license agreement upon the required 6 month written notice.
J. BCBSA acknowledges that it is not the owner of assets of the
Controlled Affiliate.
K.
In the event this Agreement terminates and is subsequently reinstated by
BCBSA or is deemed to have remained in effect without interruption by a court of
competent jurisdiction, the Controlled Affiliate, the Controlling Plans, and any other
Licensed Controlled Affiliates of the Controlling Plans shall be jointly liable for reimbursing
BCBSA the reasonable costs incurred by BCBSA in connection with the
termination and the reinstatement or court action, and any associated legal proceedings,
including but not limited to: outside legal fees, consulting fees, public relations fees,
advertising costs, and costs incurred to develop, lease or establish an interim provider
network. Any amount due to BCBSA under this subparagraph may be waived in whole or in
part by the BCBSA Board of Directors in its sole discretion.
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8.
DISPUTE RESOLUTION
The parties agree that any disputes between or among them or between or among
any of them and one or more Plans or Controlled Affiliates of Plans that use in any manner
the Blue Cross and Blue Cross Marks and Name are subject to the Mediation and
Mandatory Dispute Resolution process attached to and made a part of each Controlling
Plan’s License from BCBSA to use the Licensed Marks and Name as Exhibit 5 as
amended from time-to-time, which documents are incorporated herein by reference as
though fully set forth herein.
9.
LICENSE FEE
Controlled Affiliate will pay to BCBSA a fee for this License determined
pursuant to the formula(s) set forth in Exhibit B.
10.
JOINT VENTURE
Nothing contained in this Agreement shall be construed as creating a joint
venture, partnership, agency or employment relationship between the Controlling Plans
and Controlled Affiliate or between either and BCBSA.
11.
NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or breach or termination
thereof shall be in writing and shall be addressed in duplicate to the last known address of
each other party, marked respectively to the attention of its President and, if any, its
General Counsel.
12.
COMPLETE AGREEMENT
This Agreement contains the complete understandings of the parties in relation to the
subject matter hereof. This Agreement may only be amended by the affirmative vote of
three-fourths of the Plans and three-fourths of the total then current weighted vote of all the
Plans as officially recorded by the BCBSA Corporate Secretary.
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13.
SEVERABILITY
If any term of this Agreement is held to be unlawful by a court of competent
jurisdiction, such findings shall in no way affect the remaining obligations of the parties
hereunder and the court may substitute a lawful term or condition for any unlawful term or
condition so long as the effect of such substitution is to provide the parties with the benefits
of this Agreement.
14.
NONWAIVER
No waiver by BCBSA of any breach or default in performance on the part of
Controlled Affiliate or any other licensee of any of the terms, covenants or conditions of this
Agreement shall constitute a waiver of any subsequent breach or default in performance of
said terms, covenants or conditions.
14A. VOTING
For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean
all entities licensed under the Blue Cross License Agreement and/or the Blue Shield
License Agreement, and in all votes of the Plans under this Agreement the Plans shall vote
together. For weighted votes of the Plans, the Plan shall have a number of votes equal to
the number of weighted votes (if any) that it holds as a Blue Cross Plan plus the number of
weighted votes (if any) that it holds as a Blue Shield Plan. For all other votes of the Plans,
the Plan shall have one vote. For all questions requiring an affirmative three-fourths
weighted vote of the Plans, the requirement shall be deemed satisfied with a lesser
weighted vote unless the greater of: (i) 6/52 or more of the Plans (rounded to the nearest
whole number, with
0.5 or multiples thereof being rounded to the next higher whole number) fail to cast
weighted votes in favor of the question; or (ii) three (3) of the Plans fail to cast weighted
votes in favor of the question. Notwithstanding the foregoing provision, if there are thirty-six
(36) Plans, the requirement of an affirmative three-fourths weighted vote shall be deemed
satisfied with a lesser weighted vote unless four (4) or more Plans fail to cast weighted
votes in favor of the question.
15.
GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Illinois.
16.
HEADINGS
The headings inserted in this agreement are for convenience only and shall have
no bearing on the interpretation hereof.
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IN WITNESS WHEREOF, the parties have caused this License Agreement to be
executed and effective as of the date of last signature written below.
Controlled Affiliate:
By:
Date:
Controlling Plan:
By:
Date:
Controlling Plan:
By:
Date:
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By:
Date:
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EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
APPLICABLE TO REGIONAL MEDICARE
PART D PRESCRIPTION DRUG PLAN PRODUCTS
September 2020
PREAMBLE
The standards for licensing Controlled Affiliates for Medicare Part D Prescription Drug Plan
Products are established by BCBSA and are subject to change from time- to-time upon the
affirmative vote of three-fourths (3/4) of the Plans and three-fourths (3/4) of the total
weighted vote. Each Controlling Plan is required to use a standard Controlled Affiliate
license form provided by BCBSA and to cooperate fully in assuring that the licensed
Controlled Affiliate maintains compliance with the license standards.
Standard 1 - Organization and Governance
A Controlled Affiliate is defined as an entity organized and operated in such a
manner, that it meets the following requirements:
(1)
Controlling Plans;
Controlled Affiliate is owned or controlled by two or more
(2)
Each Controlling Plan is authorized pursuant to a separate Blue Cross
License Agreement to use the Licensed Marks in a geographic area in the Region and
every geographic area in the Region is so licensed to at least one of the Controlling
Plans; and
(3)
The Controlling Plans must have the legal authority directly or
indirectly through wholly-owned subsidiaries:
(a)
to select members of the Controlled Affiliate’s governing body
having not less than 100% voting control thereof;
(b)
prevent any change in the articles of incorporation, bylaws or other
establishing or governing documents of the Controlled Affiliate with which the Controlling
Plans do not concur;
(c)
exercise control over the policy and operations of the
Controlled Affiliate; and
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EXHIBIT A (continued)
Notwithstanding anything to the contrary in (a) through (c) hereof, the Controlled
Affiliate’s establishing or governing documents must also require written approval by
each of the Controlling Plans before the Controlled Affiliate can:
(i)
(ii)
(iii)
(iv)
change its legal and/or trade names;
change the geographic area in which it operates (except
such approval shall not be required with respect to business
of the Controlled Affiliate conducted under the Licensed
Marks within the Service Area of one of the Controlling Plans
pursuant to a separate controlled affiliate license agreement
with BCBSA sponsored by such Controlling Plan);
change any of the type(s) of businesses in which it engages
(except such approval shall not be required with respect to
business of the Controlled Affiliate conducted under the
Licensed Marks within the Service Area of one of the
Controlling Plans pursuant to a separate controlled affiliate
license agreement with BCBSA sponsored by such
Controlling Plan);
take any action that any Controlling Plan or BCBSA
reasonably believes will adversely affect the Licensed Marks
and Name.
In addition, the Controlling Plans directly or indirectly through wholly-owned
subsidiaries shall own 100% of any for-profit Controlled Affiliate.
Standard 2 - Financial Responsibility
A Controlled Affiliate shall be operated in a manner that provides reasonable
financial assurance that it can fulfill all of its contractual obligations to its customers.
Standard 3 - State Licensure/Certification
A Controlled Affiliate shall maintain appropriate and unimpaired licensure and
certifications.
-14-
EXHIBIT A (continued)
Standard 4 - Certain Disclosures
A Controlled Affiliate shall make adequate disclosure in contracting with third
parties and in disseminating public statements of:
a.
b.
the structure of the Blue Cross and Blue Shield System; and
the independent nature of every licensee.
Standard 5 - Reports and Records for Controlled Affiliates
A Controlled Affiliate and/or its Controlling Plans shall furnish, on a timely and
accurate basis, reports and records relating to these Standards and the License
Agreements between BCBSA and Controlled Affiliate.
Standard 6 - Best Efforts
During each year, a Controlled Affiliate shall use its best efforts to promote and
build the value of the Blue Cross Marks.
Standard 7 - Participation in Master Business Associate Agreement
Controlled Affiliates shall comply with the terms of the Business Associate
Agreement for Blue Cross and Blue Shield Licensees to the extent they perform the
functions of a business associate or subcontractor to a business associate, as defined
by the Business Associate Agreement.
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EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENTS
APPLICABLE TO REGIONAL MEDICARE PART D PRESCRIPTION DRUG PLAN
PRODUCTS
Controlled Affiliate will pay BCBSA a fee for this license in accordance with the
following formula:
An amount equal to its pro rata share of each Controlling Plan dues payable to
BCBSA computed with the addition of the Controlled Affiliate's members using the
Marks on regional PDP products and related services as reported on the Quarterly
Enrollment Report with BCBSA. The payment by each Controlling Plan of its dues
to BCBSA, including that portion described in this paragraph, will satisfy the
requirement of this paragraph, and no separate payment will be necessary.
Amended as of June 14, 2007
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EXHIBIT 2
Membership Standards
Page 1 of 5
Preamble
The Membership Standards apply to all organizations seeking to become or to
continue as Regular Members of the Blue Cross and Blue Shield Association. Any
organization seeking to become a Regular Member must be found to be in substantial
compliance with all Membership Standards at the time membership is granted and the
organization must be found to be in substantial compliance with all Membership
Standards for a period of two (2) years preceding the date of its application. If
Membership is sought by an entity which controls or is controlled by one or more
Plans, such compliance shall be determined on the basis of compliance by such Plan
or Plans.
The Regular Member Plans shall have authority to interpret these Standards.
A Regular Member Plan that operates as a “Shell Holding Company” is defined as an
entity that assumes no underwriting risk and has less than 1% of the consolidated
enterprise assets (excludes investments in subsidiaries) and less than 5% of the
consolidated enterprise net general and administrative expenses.
A Regular Member Plan that operates as a “Hybrid Holding Company” is defined as an
entity that assumes no underwriting risk and has either more than 1% of the
consolidated enterprise assets (excludes investments in subsidiaries) or more than 5%
of the consolidated enterprise net general and administrative expenses.
Standard 1: A Plan shall maintain a governing Board, which shall control the Plan
and ensure that the Plan follows appropriate practices of corporate
governance. A Plan's Board shall not be controlled by any special
interest group, shall make an annual determination that a majority of
its directors are independent, and shall act in the best interest of its
Corporation and its customers. The Board shall be composed of a
majority of persons other than providers of health care services, who
shall be known as public members. A public member shall not be an
employee of or have a financial interest in a health care provider, nor
be a member of a profession which provides health care services.
Amended as of March 15, 2007
EXHIBIT 2
Membership Standards
Page 2 of 5
Standard 2: A Plan shall furnish to the Association on a timely and accurate basis
reports and records relating to compliance with these Standards and
the License Agreements between the Association and the Plans.
Such reports and records are the following:
A. BCBSA Membership Information Request;
B.
Triennial trade name and service mark usage material,
including disclosure material under Standard 7;
C. Changes in the governance of the Plan, including changes in a
Plan's Charter, Articles of Incorporation, or Bylaws, changes in
a Plan's Board composition, or changes in the identity of the
Plan's Principal Officers;
D. Quarterly Financial Report, Semi-annual “Health Risk- Based
Capital (HRBC) Report” as defined by the NAIC, Annual
Budget, Annual Certified Audit Report, Insurance Department
Examination Report, Annual Statement filed with State
Insurance Department (with all attachments), Plan, Subsidiary
and Affiliate Report; and
• Plans that are a Shell Holding Company as defined in the
Preamble hereto are required to furnish only a calendar year-
end “Health Risk-Based Capital (HRBC) Report” as defined
by the NAIC.
Amended as of November 17, 2011
EXHIBIT 2
Membership Standards
Page 3 of 5
E. Quarterly Enrollment Report, Quarterly Member Touchpoint
Measures Index (MTM) through 12/31/2011, and Semi-annual
MTM Index starting 1/1/2012 and thereafter.
• For purposes of MTM reporting only, a Plan shall file a
separate MTM report for each Geographic Market.
Standard 3: A Plan shall be operated in a manner that provides reasonable
financial assurance that it can fulfill its contractual
obligations to its customers.
Standard 4: A Plan shall be operated in a manner responsive to customer
needs and requirements.
Standard 5: A Plan shall effectively and efficiently participate in each national
program as from time to time may be adopted by the Member
Plans for the purposes of providing portability of membership
between the Plans and ease of claims processing for customers
receiving benefits outside of the Plan's Service Area.
Such programs are applicable to Blue Cross and Blue Shield
Plans, and include:
Inter-Plan Teleprocessing System (ITS);
BlueCard Program;
A.
B.
C. National Account Programs;
D.
Business Associate Agreement for Blue Cross and Blue
Shield Licensees, effective April 14, 2003; and
Inter-Plan Medicare Advantage Program.
E.
Amended as of November 21, 2014
EXHIBIT 2
Membership Standards
Page 4 of 5
Standard 6: In addition to requirements under the national programs listed in
Standard 5: Participation in National Programs, a Plan shall take
such action as required to ensure its financial performance in
programs and contracts of an inter-Plan nature or where the
Association is a party.
Standard 7: A Plan shall make adequate disclosure in contracting with third parties
and in disseminating public statements of (i) the structure of the
Blue Cross and Blue Shield System,
(ii) the independent nature of every Plan, and (iii) the Plan's
financial condition.
Standard 8: A Plan shall cooperate with the Association's Board of Directors and its
Brand Enhancement & Protection Committee in the
administration of the Plan Performance Response Process and
in addressing Plan performance problems identified thereunder.
Standard 9: A Plan shall obtain a rating of its financial strength from an independent
rating agency approved by the Association's Board of Directors
for such purpose.
Standard 10: Notwithstanding any other provision in this License Agreement, during
each year, a Plan and its Controlled Affiliate(s) engaged in
providing licensable services (excluding Life Insurance and
Charitable Foundation Services) shall use their best efforts to
promote and build the value of the Blue Cross Marks.
Standard 11: Neither a Plan nor any Larger Controlled Affiliate shall cause or permit
an entity other than a Plan or a Licensed Controlled Affiliate
thereof to obtain control of the Plan or Larger Controlled Affiliate
or to acquire a substantial portion of its assets related to
licensable services.
Amended as of June 16, 2005
EXHIBIT 2
Membership Standards
Page 5 of 5
Standard 12: No provider network, or portion thereof, shall be rented or otherwise
made available to a National Competitor if the Licensed Marks or
Names are used in any way with such network.
A provider network may be rented or otherwise made available,
provided there is no use of the Licensed Marks or Names with
respect to the network being rented.
Standard 13: Each Plan shall operate in a manner to reasonably: 1) protect the
security and confidentiality of Personally Identifiable Information
(PII) and Protected Health Information (PHI); 2) protect the
Brands from reputational damage; and 3) cooperate with BCBSA
and other Plans if a data security incident or data breach occurs.
Amended as of June 18, 2015
EXHIBIT 3
GUIDELINES WITH RESPECT TO USE OF
LICENSED NAME AND MARKS IN CONNECTION WITH NATIONAL ACCOUNTS
Page 1 of 3
The strength of the Blue Cross/Blue Cross National Accounts mechanism, and
1.
the continued provision of cost effective, quality health care benefits to National
Accounts, are predicated on locally managed provider networks coordinated on a
national scale in a manner consistent with effective service to National Account
customers and consistent with the preservation of the integrity of the Blue Cross/Blue
Shield system and the Licensed Marks. These guidelines shall be interpreted in keeping
with such ends.
A National Account is an entity with employee and/or retiree locations in more
2.
than one Plan's Service Area. Unless otherwise agreed, a National Account is deemed
located in the Service Area in which the corporate headquarters of the National Account
is located. A local plant, office or division headquarters of an entity may be deemed a
separate National Account when that local plant, office or division headquarters 1) has
employee locations in more than one Service Area, and 2) has independent health
benefit decision- making authority for the employees working at such local plant, office
or division headquarters and for employees working at other locations outside the
Service Area. In such a case, the local plant, office or division headquarters is a
National Account that is deemed located in the Service Area in which such local plant,
office or division headquarters is located. The Control Plan of a National Account is the
Plan in whose Service Area the National Account is located. A participating ("Par") Plan
is a Plan in whose Service Area the National Account has employee and/or retiree
locations, but in which the National Account is not located. In the event that a National
Account parent company consolidates health benefit-decision making for itself and its
wholly-owned subsidiary companies, the parent company and the subsidiary companies
shall be considered one National Account. The Control Plan for such a National
Account shall be the Plan in whose Service Area the parent company headquarters is
located.
3.
The National Account Guidelines enunciated herein below shall be applicable
only with respect to the business of new National Accounts acquired after January 1,
1991.
Control Plans shall utilize National Account identification cards complying with
4.
then currently effective BCBSA graphic standards in connection with all National
Accounts business to facilitate administration thereof, to minimize subscriber and
provider confusion, and to reflect a commitment to cooperation among Plans.
Amended as of June 12, 2003
EXHIBIT 3
Page 2 of 3
Disputes among Plans and/or BCBSA as to the interpretation or implementation
5.
of these Guidelines or as to other National Accounts issues shall be submitted to
mediation and mandatory dispute resolution as provided in the License Agreement. For
two years from the effective date of the License Agreement, however, such disputes
shall be subject to mediation only, with the results of such mediation to be collected and
reported in order to establish more definitive operating parameters for National
Accounts business and to serve as ground rules for future binding dispute resolution.
6.
The Control Plan may use the BlueCard Program (as defined by IPPC) to
deliver benefits to employees and non-Medicare eligible retirees in a Participating
Plan’s service area if an alternative arrangement with the Participating Plan cannot be
negotiated. The Participating Plan’s minimum servicing requirement for those
employees and non-Medicare retirees in its service area is to deliver benefits using
the BlueCard Program. Account delivery is subject to the policies, provisions and
procedures of the BlueCard Program.
7.
For provider payments in a Participating Plan’s area (on non-BlueCard claims),
payment to the provider may be made by the Participating Plan or the Control Plan at
the Participating Plan's option. If the Participating Plan elects to pay the provider, it
may not withhold payment of a claim verified by the Control Plan or its designated
processor, and payment must be in conformity with service criteria established by the
Board of Directors of BCBSA (or an authorized committee thereof) to assure prompt
payment, good service and minimum confusion with providers and subscribers. The
Control Plan, at the Participating Plan's request, will also assure that measures are
taken to protect the confidentiality of the data pertaining to provider reimbursement
levels and profiles.
Amended as of June 14, 1996
EXHIBIT 3
Page 3 of 3
8.
The Control Plan, in its financial agreements with a National Account, is
expected to reasonably reflect the aggregate amount of differentials passed along to
the Control Plan by all Participating Plans in a National Account.
9.
Other than in contracting with health care providers or soliciting such contracts
in areas contiguous to a Plan's Service Area in order to serve its subscribers or those
of its licensed Controlled Affiliate residing or working in its Service Area, a Control Plan
may not use the Licensed Marks and/or Name, as a tag line or otherwise, to negotiate
directly with providers outside its Service Area.
Amended as of March 13, 2003
EXHIBIT 4
GOVERNMENT PROGRAMS AND CERTAIN OTHER USES
Page 1 of 14
A Plan and its licensed Controlled Affiliate may use the Licensed Marks and
1.
Name in bidding on and executing a contract to serve a Government Program, and in
thereafter communicating with the Government concerning the Program. With respect,
however, to such contracts entered into after the 1st day of January, 1991, the Licensed
Marks and Name will not be used in communications or transactions with beneficiaries
or providers in the Government Program located outside a Plan's Service Area, unless
the Plan can demonstrate to the satisfaction of BCBSA's governing body that such a
restriction on use of the Licensed Marks and Name will jeopardize its ability to procure
the contract for the Government Program. As to both existing and future contracts for
Government Programs, Plans will discontinue use of the Licensed Marks and Name as
to beneficiaries and Providers outside their Service Area as expeditiously as
circumstances reasonably permit. Effective January 1, 1995, except as provided in the
first sentence above, all use by a Plan of the Licensed Marks and Name in Government
Programs outside of the Plan's Service Area shall be discontinued. Incidental
communications outside a Plan's Service Area with resident or former resident
beneficiaries of the Plan, and other categories of necessary incidental communications
approved by BCBSA, are not prohibited. For purposes of this Paragraph 1, the term
“Government Programs” shall mean Medicare Part A, Medicare Part B and other non-
risk government programs.
In connection with activity otherwise in furtherance of the License Agreement, a
2.
Plan and its Controlled Affiliates that are licensed to use the Licensed Marks and Name
in its Service Area pursuant to the Controlled Affiliate License Agreements authorized in
clauses a) through c) of Paragraph 2 of the Plan’s License Agreement with BCBSA may
use the Licensed Marks and Name outside the Plan’s Service Area in the following
circumstances which are deemed legitimate and necessary and not likely to cause
consumer confusion:
2.1 Common Business Communications
a.
b.
c.
sending letterhead, envelopes, and similar items solely for
administrative purposes (e.g., not for purposes of marketing,
advertising, promoting, selling or soliciting the sale of health care plans
and related services);
distributing business cards other than in marketing and selling;
advertising in publications or electronic media solely to persons for
employment;
Amended as of June 19, 2014
EXHIBIT 4
Page 2 of 14
2.2 Marketing Spillover
a.
b.
advertising in print, electronic or other media which serve, as a
substantial market, the Service Area of the Plan or licensed Controlled
Affiliate, provided that no Plan or Controlled Affiliate may advertise
outside its Service Area on the national broadcast and cable networks
and that advertisements in national print media are limited to the
smallest regional edition encompassing the Service Area;
advertising by direct mail where the addressee's zip code plus 4
includes, at least in part, the Plan's Service Area or that of a licensed
Controlled Affiliate;
2.3
Provider Contracting
a.
b.
c.
(1)
(2)
contracting with health care providers or soliciting such contracts in areas
contiguous to the Plan's Service Area in order to serve its subscribers or
those of such licensed Controlled Affiliates residing or working in its
service area;
issuing a small sign containing the legal name or trade name of the Plan
or such licensed Controlled Affiliates for display by a provider to identify
the latter as a participating provider of the Plan or Controlled Affiliate;
negotiating case-specific reimbursement rates with a provider that does
not have a contract applicable to a specific member’s services rendered
or to be rendered with the Licensee (or any of the Licensees in the case
of overlapping Service Areas) in whose Service Area the health care
provider is located, so long as
the Licensee engaging in the negotiations complies with all applicable
Inter-Plan Programs Policies and Provisions and Brand Regulations
related to case-specific rate negotiations, and
the Licensee (or all Licensees in the case of overlapping Service Areas)
in whose Service Area the health care provider is located provides
consent before negotiations commence.
Amended as of January 22, 2019
EXHIBIT 4
Page 3 of 14
d.
contracting with a pharmacy management organization (“Pharmacy
Intermediary”) to gain access to a national or regional pharmacy network
to provide self-administered prescription drugs to deliver a pharmacy
benefit for all of the Plan’s or licensed Controlled Affiliate’s members
nationwide, provided, however, that the Pharmacy Intermediary may not
use the Licensed Marks or Name in contracting with the pharmacy
providers in such network;
Amended as of January 22, 2019
EXHIBIT 4
Page 4 of 14
e.
f.
g.
h.
i.
j.
k.
contracting with the corporate owner of a national or regional retail
pharmacy chain to gain access to the pharmacies in the chain to provide
self-administered prescription drugs to deliver a pharmacy benefit for all of
the Plan’s or licensed Controlled Affiliate’s members nationwide, provided
that (1) the Plan and the Controlled Affiliate may not contract directly with
pharmacists or pharmacy stores outside the Plan’s Service Area, and (2)
neither the Plan’s or the Controlled Affiliate’s name nor the Licensed
Marks or Name may be posted or otherwise displayed at or by any
pharmacy store outside the Plan’s Service Area;
contracting with a dental management organization (“Dental
Intermediary”) to gain access to a national or regional dental network to
deliver a routine dental benefit for all of the Plan’s or licensed
Controlled Affiliate’s members nationwide, provided, however, that the
Dental Intermediary may not use the Licensed Marks or Name in
contracting with the dental providers in such network;
contracting with a vision management organization (“Vision
Intermediary”) to gain access to a national or regional vision network to
deliver a routine vision benefit for all of the Plan’s or licensed
Controlled Affiliate’s members nationwide, provided, however, that the
Vision Intermediary may not use the Licensed Marks or Name in
contracting with the vision providers in such network;
contracting with an independent clinical laboratory for analysis and clinical
assessment of specimens that are collected within the Plan’s Service
Area;
contracting with a durable medical equipment or home medical
equipment company for durable medical equipment and supplies and
home medical equipment and supplies that are shipped to a location
within the Plan’s Service Area;
contracting with a specialty pharmaceutical company for non- routine
biological therapeutics that are ordered by a health care professional
located within the Plan’s Service Area;
contracting with a company that operates provider sites in the Plan’s
Service Area, provided that the contract is solely for services rendered at
a site (e.g., hospital, mobile van) that is within the Plan’s Service Area;
EXHIBIT 4
Page 5 of 14
l.
m.
contracting with a company that makes health care professionals available
in the Plans’ Service Area (e.g., traveling home health nurse), provided
that the contract is solely for services rendered by health care
professionals who are located within the Plan’s Service Area.
permitting Control/Home Plans’ ability to resolve members’ service issues
requiring outreach to out-of-area providers as set forth in the Inter-Plan
Programs and Inter-Plan Medicare Advantage Program Policies.
2.4
Services to National Accounts
a.
in conjunction with contracting with a National Account as Control Licensee
or Alternate Control Licensee (as those terms are defined in the Inter-Plan
Programs Policies and Provisions (“IP Policies”)) to offer Blue-branded
Health Coverage to the National Account, offering Blue-branded Health and
Wellness Programs to all members of the National Account, including
members who have not enrolled in the Blue-branded Health Coverage
(“non-Blue Health Coverage members”), provided that:
(i)
(ii)
(iii)
the Plan and/or licensed Controlled Affiliate has no contact or
interaction with providers outside of the Plan’s Service Area, except
as specifically provided in the IP Policies and in
2.4 (b); and
if in accordance with IP Policies another Licensee is soliciting or
servicing under the Brands a local plant, office or division of the
account that is outside of the Plan’s Service Area, the Plan and/or
licensed Controlled Affiliate may not offer Blue-branded Health and
Wellness Programs to any employees working at such local plant,
office or division without the consent of such other Licensee; and
if the Plan and/or licensed Controlled Affiliate provides an
information card to the non-Blue Health Coverage members, the
card may not display the Symbols in the masthead, must contain a
prominent disclosure conveying that it is not a health insurance
card, and otherwise must be designed so that it is dissimilar to a
Blue member identification card.
Amended as of September 17, 2020
EXHIBIT 4
Page 6 of 14
2.4
Services to National Accounts (continued)
For purposes of this subparagraph a, the following definitions apply:
“Health and Wellness Program” shall mean a program that includes at
least one of the following elements or a related element:
– Health Risk Assessment and/or Preventive Screenings
– Exercise and Fitness Programs
– Health and Wellness Events (e.g., attendance at a health fair, a 5K
walk)
– Nutrition and Weight Management
– Health Education (e.g., smoking cessation classes)
– Prenatal and Parenting Education
– Disease or Chronic Condition Management
The above listing is intended to represent examples of the types of
programs that may be offered, and other programs, including those offered
through different media such as the internet or telephonically, may also be
deemed Health and Wellness programs.
“Health Coverage” shall mean providing or administering medical,
surgical, hospital, major medical, or catastrophic coverage, or any HMO,
PPO, POS or other managed care plan for the foregoing services.
b.
as part of a Health and Wellness Program that is otherwise compliant with
Brand Regulation 4.11.4(a), contracting with a health and wellness
organization to gain access to providers to deliver a discrete health and
wellness event (“Event”) held at a National Account’s worksite outside of
the Licensee’s Service Area, provided that:
(i)
the services delivered at the Event are limited to fingerstick
screenings for cholesterol and glucose, seasonal flu immunizations, blood
pressure measurements, body mass index measurements, and other
routine screenings, immunizations and measurements; and
neither such services nor their costs are applied as claims
(ii)
against any benefit plan; and
the Event is presented during one or more limited periods during
(iii)
a benefit year and is available to all employees at the worksite.
Amended as of March 26, 2015
EXHIBIT 4
Page 7 of 14
c.
in conjunction with contracting with a National Account as Control
Licensee or Alternate Control Licensee to offer Blue-branded Health
Coverage to the National Account, performing the Eligibility and
Enrollment functions of HR administration for all benefit plans offered by
the National Account to its members, including benefit plans that are not
underwritten or administered by the Plan, provided that:
(i)
(ii)
in performing such functions, the Plan and/or licensed Controlled
Affiliate does not use the Brands in any communications with health
care providers outside of the Plan’s Service Area, and otherwise
limits its use of the Brands outside of the Service Area to
communications with the account’s members, the other benefit plan
providers with which the account has contracted and other
reasonably necessary communications to perform such functions;
and
if in accordance with IP Policies another Licensee is soliciting or
servicing under the Brands a local plant, office or division of the
account that is outside of the Plan’s Service Area, the Plan and/or
licensed Controlled Affiliate may not perform Eligibility and
Enrollment functions for employees working at such local plant,
office or division without the consent of such other Licensee;
d.
in conjunction with contracting with a National Account as Control Licensee
or Alternate Control Licensee to perform or investigate fraud, waste and
abuse investigation activities for a non- participating provider in a Par/Host
Plan’s service area, as long as the Control/Home Plan is given permission
to do so by the Par/Host Plan and specific conditions are met in
accordance with Inter-Plan Programs and Inter-Plan Medicare Advantage
Program policies.
For purposes of this subparagraph b, the following definitions apply: “Health
Coverage” has the meaning set forth in subparagraph 2.4.a.
Amended September 27, 2018
EXHIBIT 4
Page 8 of 14
“Eligibility” means services that manage the account’s eligibility data and determine or
process determinations relating to eligibility for benefit plans offered by the account to its
employees, including such services as:
• monitoring and auditing data to ensure that only entitled individuals are
•
•
•
enrolled in each such benefit plan;
review of eligibility documentation (e.g. marriage licenses, birth certificates,
student status verification letters, employment records);
identification of key member segments such as over-age dependents, part-
time employees, employees reaching certain milestones (e.g. Medicare-
eligible, retirees);
termination of coverage for those individuals found to be ineligible for coverage
under a benefit plan, and, if applicable, generation of a COBRA event; and
• management of “hour-banking” for union environments in which union
members can bank hours to remain eligible for benefits.
“Enrollment” means services that enroll eligible individuals and their
spouses/dependents or terminate or change their enrollment in the account’s benefit
plans on an ongoing basis and during open enrollment periods, including such services
as:
•
•
•
•
•
•
the coordination of each step in open enrollment process from project planning
and system set-up to the generation of confirmation statements;
ongoing enrollment support for new hires and changes due to life events and
work status adjustments;
evidence of insurability (EOI) administration for life and disability
coverage;
transmission of eligibility/enrollment information to the account’s benefit plan
providers;
review and reconciliation of error reports received from the account’s benefit
plan providers; and
transmission of information to the account’s payroll system (e.g., benefit
deductions, employee demographic data).
Amended as of March 26, 2015
EXHIBIT 4
Page 9 of 14
2.5
Knowledge Sharing
a.
b.
submitting scholarly articles authored or co-authored by the Plan or
Controlled Affiliate or its respective employees for publication in peer-
reviewed journals;
permitting an internal representative of the Licensee (e.g., officer,
employee) to speak or present at a conference or symposium outside of
the Licensee’s Service Area regarding either (i) healthcare financing,
administration, delivery or policy, or (ii) topics within the representative’s
functional discipline or expertise at the Licensee, for which the event
sponsor will issue communications to promote, administer, and/or recap
the event that will identify the Licensee’s representative as a participant.
The communications outside of the Licensee’s Service Area that mention
the Licensee’s representative shall be limited to materials and digital
media provided to attendees, on-site signage, advertising in relevant trade
publications, direct mail and email to attendees and prospective
attendees, and the sponsor’s website. Participation in any conference or
symposium outside of the Licensee’s Service Area may not be for the
purpose of marketing or selling products or services.
If the Licensee’s representative wishes to use the Brands in any manner,
including use in his/her title, when participating as a speaker or presenter
outside of the Licensee’s Service Area about a topic that is not related to
healthcare financing, administration, delivery, or policy, or to topics within
the representative’s functional discipline or expertise at the Licensee, the
Licensee must notify BCBSA and receive prior approval from BCBSA
before participating;
Amended as of March 26, 2015
EXHIBIT 4
Page 10 of 14
2.6
Other Uses
a.
b.
c.
d.
entering into a license agreement between and among BCBSA, the Plan
and a debit card issuer located outside the Plan’s Service Area, and
entering into a corresponding operating agreement or agreements, in order
to offer a debit card bearing the Licensed Marks and Name to eligible
persons as defined by the aforementioned license agreement;
appearing in communications issued by an independent third party to
recognize outstanding performance of the Plan or Controlled Affiliate or a
member of the Plan’s or Controlled Affiliate’s senior management as part of
an established program of the third party for which the Plan has provided
information to be considered for the recognition, provided that such use
complies with regulations of general application specifically prescribed by
BCBSA from time to time;
to identify itself as being a joint sponsor of an event, program or activity
along with other Plans or such Plans’ licensed Controlled Affiliates,
provided that such use complies with regulations of general application
specifically prescribed by BCBSA from time to time;
hosting meetings or events (collectively, “events”) in Washington,
D.C. or a Plan’s State Capitol related to policy and business issues in the
Licensee’s Service Area, or hosting events in conjunction with the
assemblies or conventions of national political parties. Such events may
not involve marketing or selling products or services. Use of the Brands
outside the Licensee’s Service Area in connection with such events shall
be limited to materials and digital media provided to attendees and
prospective attendees and onsite signage. For any such events in
Washington, D.C. that are open to attendees other than government
officials or their staffs, or are briefings open to all Congressional staff, or
are otherwise likely to receive media coverage, the Licensee is required to
provide advance notice to BCBSA. For events hosted outside of
Washington, D.C. in conjunction with the assemblies or conventions of
national political parties, the Licensee is required to provide advance notice
to BCBSA and to the local Plan(s);
Amended as of March 26, 2015
EXHIBIT 4
Page 11 of 14
e.
permitting an affiliate that is not licensed to use the Licensed Marks to
identify its corporate relationship with the Plan, provided that such use
complies with regulations of general application specifically prescribed
by BCBSA from time to time.
3.
In connection with activity otherwise in furtherance of the License Agreement, a
Controlled Affiliate that is licensed to use the Licensed Marks and Name pursuant to a
Controlled Affiliate License Agreement authorized in clauses d) or e) of Paragraph 2 of
the Plan’s License Agreement with BCBSA may use the Licensed Marks and Name
outside the Region (as that term is defined in such respective Controlled Affiliate
License Agreements) in the following circumstances which are deemed legitimate and
necessary and not likely to cause consumer confusion:
a.
b.
c.
d.
sending letterhead, envelopes, and similar items solely for
administrative purposes (e.g., not for purposes of marketing,
advertising, promoting, selling or soliciting the sale of health care plans
and related services);
distributing business cards other than in marketing and selling;
contracting with health care providers or soliciting such contracts in areas
contiguous to the Region in order to serve its subscribers residing in the
Region, provided that the Controlled Affiliate may not use the names of
any of its Controlling Plans in connection with such contracting unless the
provider is located in a geographic area that is also contiguous to such
Controlling Plan’s Service Area;
issuing a small sign containing the legal name or trade name of the
Controlled Affiliate for display by a provider to identify the latter as a
participating provider of the Controlled Affiliate, provided that the
Controlled Affiliate may not use the names of any of its Controlling Plans
on such signs unless the provider is located in a geographic area that is
also contiguous to such Controlling Plan’s Service Area;
e.
advertising in publications or electronic media solely to persons for
employment;
Amended as of March 26, 2015
EXHIBIT 4
Page 12 of 14
f.
g.
h.
i.
j.
advertising in print, electronic or other media which serve, as a
substantial market, the Region, provided that the Controlled Affiliate may
not advertise outside its Region on the national broadcast and cable
networks and that advertisements in national print media are limited to
the smallest regional edition encompassing the Region, and provided
further that any such advertising by the Controlled Affiliate may not
reference the name of any of its Controlling Plans unless the respective
Controlling Plan is authorized under paragraph 2 of this Exhibit 4 to
advertise in such media;
advertising by direct mail where the addressee's zip code plus 4
includes, at least in part, the Region, provided that such advertising by
the Controlled Affiliate may not reference the name of any of its
Controlling Plans unless the respective Controlling Plan is authorized
under paragraph 2 of this Exhibit 4 to send direct mail to such zip code
plus 4.
[Intentionally left blank, pending review by the Inter-Plan Programs
Committee of the applicability of the case management rule to such
Controlled Affiliates.]
contracting with a pharmacy management organization (“Pharmacy
Intermediary”) to gain access to a national or regional pharmacy network
to provide self-administered prescription drugs to deliver a pharmacy
benefit for the Controlled Affiliate’s regional Medicare Advantage PPO or
regional Medicare Part D Prescription Drug members enrolled under the
Licensed Marks pursuant to such respective Controlled Affiliate License
Agreements, provided, however, that the Pharmacy Intermediary may not
use the Licensed Marks or Name in contracting with the pharmacy
providers in such network;
contracting with the corporate owner of a national or regional retail
pharmacy chain to gain access to the pharmacies in the chain to provide
self-administered prescription drugs to deliver a pharmacy benefit to the
Controlled Affiliate’s regional Medicare Advantage PPO or regional
Medicare Part D Prescription Drug members enrolled under the Licensed
Marks pursuant to such respective
EXHIBIT 4
Page 13 of 14
Controlled Affiliate License Agreements, provided that (1) the Controlled
Affiliate may not contract directly with pharmacists or pharmacy stores
outside the Region, and (2) neither the Controlled Affiliate’s name nor the
Licensed Marks or Name may be posted or otherwise displayed at or by
any pharmacy store outside the Region;
contracting with a dental management organization (“Dental
Intermediary”) to gain access to a national or regional dental network
to deliver a routine dental benefit for the Controlled Affiliate’s regional
Medicare Advantage PPO members enrolled under the Licensed
Marks pursuant to such Controlled Affiliate License Agreement,
provided, however, that the Dental Intermediary may not use the
Licensed Marks or Name in contracting with the dental providers in
such network;
contracting with a vision management organization (“Vision
Intermediary”) to gain access to a national or regional vision network to
deliver a routine vision benefit for the Controlled Affiliate’s regional
Medicare Advantage members enrolled under the Licensed Marks
pursuant to such Controlled Affiliate License Agreement, provided,
however, that the Vision Intermediary may not use the Licensed Marks or
Name in contracting with the vision providers in such network;
contracting with an independent clinical laboratory for analysis and clinical
assessment of specimens that are collected within the Controlled
Affiliate’s Region;
contracting with a durable medical equipment or home medical
equipment company for durable medical equipment and supplies and
home medical equipment and supplies that are shipped to a location
within the Controlled Affiliate’s Region;
contracting with a specialty pharmaceutical company for non- routine
biological therapeutics that are ordered by a health care professional
located within the Region;
contracting with a company that operates provider sites in the Region,
provided that the contract is solely for services rendered at a site (e.g.,
hospital, mobile van) that is within the Region;
k.
l.
m.
n.
o.
p.
EXHIBIT 4
Page 14 of 14
q.
contracting with a company that makes health care professionals
available in the Region (e.g., traveling home health nurse), provided that
the contract is solely for services rendered by health care professionals
who are located within the Region.
4.
BCBSA shall retain the right to use the Licensed Marks in conjunction with the
Federal Employee Program and with any other national offering made to federal
employees pursuant to the Federal Employees Health Benefits Program
(FEHBP), including the right to license such use to its vendors, but only in the
following manner.
a.
b.
c.
the Licensed Marks may only be used by BCBSA with the term “Federal
Employee Program”, “Federal”, “FEP”, or similar language identifying the
program as a benefit program for federal employees;
the Licensed Marks may not be used by BCBSA with the name(s) of a
specific Plan or Plans and;
any use by BCBSA in conjunction with a new national FEHBP
program proposed after the enactment of this amendment will require
the approval of the BCBSA Board of Directors.
5. Where required by applicable state or local law or regulation, a Plan or its licensed
Controlled Affiliate may submit documents that contain the Brands to, and file forms
that contain the Brands with, state or local regulators in a state not included in its
Service Area, provided that it gives reasonable advance notice to the local Plan of
its intent to submit such documents or file such forms. Notwithstanding, in no event
may a Plan or its licensed Controlled Affiliate use the Brands to register, or to obtain
or maintain a license, a certificate of authority, or an equivalent document
authorizing it to act as a risk-bearing entity or third party administrator in a state not
included in its Service Area. If the local Plan advises BCBSA that it believes its
License Agreement has been or would be violated by any submission or filing,
BCBSA shall determine whether such submission or filing is required by state or
local law or regulation and violates the License Agreement, subject to the Plan’s or
licensed Controlled Affiliate’s rights to obtain an independent review of such
determination under Paragraph 9(a) and Exhibit 5 of its License Agreement or
Paragraph 8 of the Controlled Affiliate License. For purposes of this paragraph,
“local Plan” is defined as each Plan whose Service Area includes all or part of the
state in which the foregoing applicable state or local law or regulation has been
enacted.
Amended as of March 26, 2015
EXHIBIT 5
Page 1 of 23
MEDIATION AND MANDATORY DISPUTE RESOLUTION (MMDR) RULES
The Blue Cross and Blue Shield Plans ("Plans") and the Blue Cross Blue Shield
Association ("BCBSA") recognize and acknowledge that the Blue Cross and Blue Shield
system is a unique nonprofit and for-profit system offering cost effective health care
financing and services. The Plans and BCBSA desire to utilize Mediation and Mandatory
Dispute Resolution (“MMDR”) to avoid expensive and time-consuming litigation that may
otherwise occur in the federal and state judicial systems. Even MMDR should be viewed,
however, as methods of last resort, all other procedures for dispute resolution having
failed. Except as otherwise provided in the License Agreements, the Plans, their
Controlled Affiliates and BCBSA agree to submit all disputes to MMDR pursuant to these
Rules and in lieu of litigation.
1.
Initiation of Proceedings
A.
Pre-MMDR Efforts
Before filing a Complaint to invoke the MMDR process, the CEO of a
complaining party, or his/her designated representative, shall undertake good faith
efforts with the other side(s) to try to resolve any dispute.
B.
Complaint
To commence a proceeding, the complaining party (or parties) shall provide by
certified mail, return receipt requested, a written Complaint to the BCBSA Corporate
Secretary (which shall also constitute service on BCBSA if it is a respondent) and to any
Plan(s) and/or Controlled Affiliate(s) named therein.
The Complaint shall contain:
i.
identification of the complaining party (or parties) requesting the
proceeding;
ii.
identification of the respondent(s);
iii.
iv.
v.
identification of any other persons or entities who are interested in a
resolution of the dispute;
a full statement describing the nature of the dispute;
identification of all of the issues that are being submitted for
resolution;
Amended as of November 21, 1996
EXHIBIT 5
Page 2 of 23
vi.
the remedy sought;
vii.
viii.
ix.
a statement as to whether the complaining party (or parties) elect(s)
first to pursue Mediation;
any request, if applicable, that the matter be handled on an expedited
basis and the reasons there for;
a statement signed by the CEO of the complaining party affirming
that the CEO has undertaken efforts, or has directed efforts to be
undertaken, to resolve the dispute before resorting to the MMDR
process;
The complaining party (or parties) shall file and serve with the Complaint copies of all
documents which the party (or parties) intend(s) to offer at the Arbitration Hearing and a
statement identifying the witnesses the party (or parties) intend(s) to present at the
Hearing, along with a summary of each witness' expected testimony.
C.
Answer
Within twenty (20) days after receipt of the Complaint, each respondent shall
serve on BCBSA and on the complaining party (or parties);
i.
ii.
iii.
iv.
a full Answer to the aforesaid Complaint;
a statement of any Counterclaims against the complaining party (or
parties), providing with respect thereto the information specified in
Paragraph 1.B., above;
a statement as to whether the respondent elects to first pursue
Mediation; and
any request, if applicable, that the matter be handled on an
expedited basis and the reasons therefor.
The respondent(s) shall file and serve with the Answer or by the date of the Initial
Conference set forth in Paragraph 3.C., below, copies of all documents which the
respondent(s) intend(s) to offer at the Arbitration Hearing and a statement identifying the
witnesses the party (or parties) intend(s) to present at the Hearing, along with a
summary of each witness' expected testimony.
Amended as of September 20, 2007
EXHIBIT 5
Page 3 of 23
D.
Reply To Counterclaim
Within ten (10) days after receipt of any Counterclaim, the complaining party (or
parties) shall serve on BCBSA and on the responding party (or parties), a Reply to the
Counterclaim. Such Reply must provide the same information required by Paragraph
1.C., above.
2.
Mediation
To facilitate the mediation of disputes between or among BCBSA, the Plans
and/or their Controlled Affiliates, the BCBSA Board has provided for Mediation under
these Rules. Mediation may be pursued in lieu of or in an effort to obviate the Mandatory
Dispute Resolution process, and all parties are strongly urged, but not required, to
exhaust the mediation procedure provided for herein. In the event any party refuses to
proceed with Mediation, the parties shall proceed immediately to Mandatory Dispute
Resolution, as provided in Section 3.
A.
Selection of Mediators
If all parties agree to pursue Mediation, they shall promptly attempt to agree
upon: (i) the number of mediators desired, not to exceed three mediators; and (ii) the
selection of experienced mediator(s) from an independent entity to mediate all disputes
set forth in the Complaint and Answer (and Counterclaim and Reply, if any). In the event
the parties are unable to agree upon the selection or number of mediators, both within
five (5) days of the service of the Answer or Reply to Counterclaim, whichever is later,
the BCBSA Corporate Secretary shall immediately refer the matter to a nationally
recognized professional ADR organization (such as CPR or JAMS) for mediation by a
single mediator to be selected by the ADR organization.
B.
Binding Decision
Before the Mediation Hearing described below, the BCBSA Corporate Secretary
shall contact the parties to determine whether they wish to be bound by any
recommendation of the selected mediator(s) for resolution of the disputes. If all wish to
be bound, the Corporate Secretary will send appropriate documentation to them for their
signatures before the Mediation Hearing begins.
Amended as of September 20, 2007
EXHIBIT 5
Page 4 of 23
C.
Mediation Procedure
The Mediator(s) shall apply the mediation procedures and processes provided for
herein (not the rules of the ADR organization with which they are affiliated) and shall
promptly advise the parties of a scheduled Mediation Hearing date. Unless a party
requests an expedited procedure, or unless all parties to the proceeding agree to one or
more extensions of time, the Mediation Hearing set forth below shall be completed
within forty (40) days of BCBSA's receipt of the Complaint. The selected mediator(s),
unless the parties otherwise agree, shall adhere to the following procedure:
i.
ii.
Each party must be represented by its CEO or other representative
who has been delegated full authority to resolve the dispute. However,
parties may send additional representatives as they see fit.
Each party will be given one-half hour to present its case, beginning
with the complaining party (or parties), followed by the other party or
parties. The parties are free to structure their presentations as they see
fit, using oral statements or direct examination of witnesses. However,
neither cross-examination nor questioning of opposing representatives
will be permitted. At the close of each presentation, the selected
mediator(s) will be given an opportunity to ask questions of the
presenters and witnesses. All parties must be present throughout the
Mediation Hearing. The selected mediator(s) may extend the time
allowed for each party's presentation at the Mediation Hearing. The
selected mediator(s) may meet in executive session, outside the
presence of the parties, or may meet with the parties separately, to
discuss the controversy.
iii.
After the close of the presentations, the parties will attempt to
negotiate a settlement of the dispute. If the parties desire, the
selected mediator(s), or any one or more of the selected mediators,
will sit in on the negotiations.
Amended as of September 20, 2007
EXHIBIT 5
Page 5 of 23
iv.
v.
vi.
After the close of the presentations, the selected mediator(s) may meet
privately to agree upon a recommendation for resolution of the dispute
which would be submitted to the parties for their consideration and
approval. If the parties have previously agreed to be bound by the
results of this procedure, this recommendation shall be binding upon
the parties.
The purpose of the Mediation Hearing is to assist the parties to settle
their grievances short of mandatory dispute resolution. As a result, the
Mediation Hearing has been designed to be as informal as possible.
Rules of evidence shall not apply. There will be no transcript of the
proceedings, and no party may make a tape recording of the Mediation
Hearing.
In order to facilitate a free and open discussion, the Mediation
proceeding shall remain confidential. A "Stipulation to Confidentiality"
which prohibits future use of settlement offers, all position papers or
other statements furnished to the selected mediator(s), and decisions
or recommendations in any Mediation proceeding shall be executed by
each party.
vii.
Upon request of the selected mediator(s), or one of the parties, BCBSA
staff may also submit documentation at any
the
proceedings.
time during
D.
Notice of Termination of Mediation
If the Mediation cannot be completed within the prescribed or agreed time period
due to the lack of cooperation of any party, as determined by the selected mediator(s),
or if the Mediation does not result in a final resolution of all disputes at the Mediation
Hearing or within ten (10) days after the Mediation Hearing, any party or any one of the
selected mediators shall so notify the BCBSA Corporate Secretary, who shall promptly
issue a Notice of Termination of Mediation to all parties, to the selected mediator(s), and
to the MDR Administrator. Such notice shall serve to bring the Mediation to an end and
to initiate Mandatory Dispute Resolution. Upon agreement of all parties and the
mediator(s), the Mediation process may continue at the same time the MDR process is
invoked. In such case, the Notice of Termination of Mediation described above serves to
initiate the MDR proceeding, but does not terminate mediation proceedings, which may
proceed simultaneous with the MDR proceeding.
Amended as of September 20, 2007
EXHIBIT 5
Page 6 of 23
3.
Mandatory Dispute Resolution (MDR)
If any party elects not to first pursue Mediation, or if a Notice of Termination of
Mediation is issued as set forth in Paragraph 2.D., above, then the unresolved disputes
set forth in any Complaint and Answer (and Counterclaim and Reply, if any) shall be
subject to mandatory binding arbitration (herein referred to as “MDR”).
A.
MDR Administrator
The Administrator for purposes of Mandatory Arbitration shall be an independent
nationally recognized entity such as CPR or JAMS, specializing in alternative dispute
resolution. In the event the parties pursued Mediation with CPR, JAMS or a similar
organization, that organization also shall serve as the MDR Administrator, unless all
parties notify the BCBSA Corporate Secretary in writing within two (2) days of receiving
the Notice of Termination of Mediation that they wish to pursue MDR with another
nationally recognized organization serving as MDR Administrator.
In the event the parties (i) did not pursue Mediation, (ii) pursued mediation with a
Mediator not affiliated with an ADR organization that offers a panel of arbitrators, or (iii)
all parties that pursued Mediation notified the BCBSA Corporate Secretary that they wish
to have an MDR Administrator that is different from the organization with which their
mediator was affiliated, they shall promptly attempt to agree on a nationally recognized
ADR entity that supplies a panel of arbitrators. If they reach such agreement within five
(5) days of the Notice of Termination of Mediation or receipt of the Answer or Reply to
Counterclaim (whichever is later), the parties shall promptly inform the BCBSA Corporate
Secretary of their agreed upon ADR organization. In the event the parties are unable to
reach agreement on an MDR Administrator within that timeframe, the BCBSA Corporate
Secretary shall immediately refer the matter to CPR, JAMS or a similar organization for
MDR.
Any person who served as a Mediator shall not serve as an arbitrator for the
same or similar dispute for purposes of MDR.
B.
Rules for MDR
The rules controlling all aspects of MDR shall be exclusively those provided for
herein. The rules promulgated or otherwise used by the MDR Administrator organization
shall not apply.
Amended as of September 20, 2007
EXHIBIT 5
Page 7 of 23
C.
Initial Conference
Within seven (7) days after a Notice of Termination has issued or the matter has
otherwise been referred to an MDR Administrator, or within five (5) days after the time for
filing and serving the Answer or Reply to any Counterclaim (whichever is later) if the
parties elect first not to mediate, the parties shall confer with the Administrator to discuss
selecting a dispute resolution panel ("the Panel"). This conference (the “Initial
Conference”) may be by telephone. The parties are encouraged to agree to the
composition of the Panel and to present that agreement to the Administrator at the Initial
Conference. If the parties do not agree on the composition of the Panel by the time of the
Initial Conference, or by any extension thereof agreed to by all parties and the
Administrator, then the Panel Selection Process set forth in subparagraph D, below, shall
be followed.
D.
Panel Selection Process
The Administrator shall designate, prior to the Initial Conference, at least seven
potential arbitrators. Each party shall be permitted to strike any designee for cause and
the Administrator shall determine the sufficiency thereof in its sole discretion. The
Administrator will designate a replacement for any designee so stricken. Each party shall
then be permitted one peremptory strike from the list of designees. The Administrator
shall set the dates for exercising all strikes, which shall be set to encourage the prompt
selection of arbitrators.
After the parties exercise any designee strikes for cause and their peremptory
strike against any designee of their choice, the parties shall each rank the remaining
panel members in order of preference and provide the Administrator, without serving on
any other party, their ranked list. The Administrator shall not disclose any party’s ranked
list to members of the panel or to other parties.
From the remaining designees, and after considering opportunities to maximize,
so far as possible, the collectively stated arbitrator preferences provided by the parties
on their ranked lists, the Administrator shall select a three member Panel. The Panel
Selection Process shall be completed no later than ten (10) days after the Initial
Conference.
Each Arbitrator shall be compensated at his or her normal hourly rate or, in the
absence of an established rate, at a reasonable hourly rate to be promptly fixed by the
Administrator for all time spent in connection with the proceedings and shall be
reimbursed for any travel and other reasonable expenses.
Amended as of September 20, 2007
EXHIBIT 5
Page 8 of 23
E.
Duties Of The Arbitrators
The Panel shall promptly designate a Presiding Arbitrator for the purposes
reflected below, but shall retain the power to review and modify any ruling or other action
of said Presiding Arbitrator. Each Arbitrator shall be an independent Arbitrator, shall be
governed by the Code of Ethics for Arbitrators in Commercial Disputes and shall at or
prior to the commencement of any Arbitration Hearing take an oath to that effect. Each
Arbitrator shall promptly disclose in writing to the Panel and to the parties any
circumstances, whenever arising, that might cause doubt as to such Arbitrator's
compliance, or ability to comply, with said Code of Ethics, and, absent resignation by
such Arbitrator, the remaining Arbitrators shall determine in their sole discretion whether
the circumstances so disclosed constitute grounds for disqualification and for
replacement. With respect to such circumstances arising or coming to the attention of a
party after an Arbitrator's selection, a party may likewise request the Arbitrator's
resignation or a determination as to disqualification by the remaining Arbitrators. With
respect to a sole Arbitrator, the determination as to disqualification shall be made by the
Administrator.
There shall be no ex parte communication between the parties or their
counsel and any member of the Panel.
F.
Panel's Jurisdiction And Authority
The Panel's jurisdiction and authority shall extend to all disputes between or
among the Plans, their Controlled Affiliates, and/or BCBSA, except for those disputes
excepted from these MMDR procedures as set forth in the License Agreements.
With the exception of punitive or treble damages, the Panel shall have full
authority to award the relief it deems appropriate to resolve the parties' disputes,
including monetary awards and injunctions, mandatory or prohibitory. The Panel has no
authority to award punitive or treble damages except that the Panel may allocate or
assess responsibility for punitive or treble damages assessed by another tribunal.
Subject to the above limitations, the Panel may, by way of example, but not of limitation:
Amended as of September 20, 2007
EXHIBIT 5
Page 9 of 23
i.
ii.
iii.
iv.
interpret or construe the meaning of any terms, phrase or provision in
any license between BCBSA and a Plan or a Controlled Affiliate
relating to the use of the BLUE CROSS® or BLUE SHIELD® service
marks.
determine whether BCBSA, a Plan or a Controlled Affiliate has violated
the terms or conditions of any license between the BCBSA and a Plan
or a Controlled Affiliate relating to the use of the BLUE CROSS® or
BLUE SHIELD® service marks.
decide challenges as to its own jurisdiction.
issue such orders for interim relief as it deems appropriate
pending Hearing and Award in any Arbitration.
It is understood that the Panel is expected to resolve issues based on governing
principles of law, preserving to the maximum extent legally possible the continued
integrity of the Licensed Marks and the BLUE CROSS/BLUE SHIELD system. The
Panel shall apply federal law to all issues which, if asserted in the United States District
Court, would give rise to federal question jurisdiction, 28 U.S.C. § 1331. The Panel shall
apply Illinois law to all issues involving interpretation, performance or construction of any
License Agreement or Controlled Affiliate License Agreement unless the agreement
otherwise provides. As to other issues, the Panel shall choose the applicable law based
on conflicts of law principles of the State of Illinois.
G.
Administrative Conference
Within five (5) days of the Panel being selected, the Presiding Arbitrator shall
confer with the parties and the other members of the Panel and shall schedule, in
writing, a conference in which the parties and the Panel shall participate (the
“Administrative Conference”). The Administrative Conference shall take place no later
than fifteen (15) days after the Panel is selected. At the Administrative Conference the
parties and the Panel shall discuss the scheduling of the Arbitration Hearing and any
other matter appropriate to be considered, including but not limited to: any written
discovery in the form of requests for production of documents or requests to admit facts;
the identity of any witness whose deposition a party may desire and a showing of
exceptional good cause for the taking of any such deposition; the desirability of
bifurcation or other separation of the issues; the need for and the type of record of
conferences and hearings, including the need for transcripts; the need for expert
witnesses and
Amended as of September 20, 2007
EXHIBIT 5
Page 10 of 23
how expert testimony should be presented; the appropriateness of motions to dismiss
and/or for full or partial summary judgment; consideration of stipulations; the desirability
of presenting any direct testimony in writing; and the necessity for any on-site inspection
by the Panel. If the parties agree, the Administrative Conference may be by telephone.
H.
Discovery
i.
ii.
Requests for Production of Documents: All requests for the
production of documents must be served no later than five (5) days
after the date of the Initial Conference. Within twenty (20) days after
receipt of a request for production of documents, a party shall (a)
serve responses and objections to the request,
(b) produce all responsive, non-privileged documents to the requesting
party, and (c) to the extent any responsive documents are withheld on
the grounds of attorney-client privilege or work product, produce a log
identifying such documents in the manner specified in Fed. R. Civ. P.
26(b)(5). If, after reviewing a privilege log, the requesting party believes
attorney-client privilege or work product protection was improperly
claimed by the producing party with respect to any document, the
requesting party may ask the Presiding Arbitrator to conduct an in-
camera inspection of the same. With respect to documentary and other
discovery produced in any MDR proceeding by BCBSA, the fact that a
party’s CEO or other senior officers may serve on the BCBSA Board of
Directors, BCBSA Board Committees or other BCBSA work groups,
task forces and the like, shall not be a basis for defeating an otherwise
valid claim of attorney-client privilege or work product protection over
such documentary or other discovery materials by BCBSA.
Requests for Admissions: Requests for Admissions may be served up
to twenty-one (21) days prior to the discovery cut-off set by the
Presiding Arbitrator. A party served with Requests For Admissions must
respond within twenty (20) days of receipt of said request. The good
faith use of and response to Requests for Admissions is encouraged,
and the Panel shall have full discretion, with reference to the Federal
Rules of Civil Procedure, in awarding appropriate sanctions with respect
to abuse of the procedure.
Amended as of September 20, 2007
EXHIBIT 5
Page 11 of 23
iii.
Depositions: As a general rule, the parties will not be permitted to take
party or non-party deposition testimony for discovery purposes. The
Presiding Arbitrator, in his or her sole discretion, shall have the authority
to permit a party to take such deposition testimony upon a showing of
exceptional good cause. The parties will be permitted to take de bene
esse deposition1 testimony to the fullest extent permitted by law of any
witness who cannot be compelled to testify at the Arbitration Hearing.
No deposition, for discovery purposes or otherwise, shall exceed three
(3) hours, excluding objections and colloquy of counsel. Depositions
may be recorded in any manner recognized by the Federal Rules of
Civil Procedure and the parties shall specify in each notice of deposition
or request for permission to take deposition testimony the manner in
which such deposition shall be recorded.
iv.
Expert witness(es): If a party intends to present the testimony of an
expert witness during the oral hearing, it shall provide all other parties
with a written statement setting forth the information required to be
provided by Fed. R. Civ. P. 26(a)(2)
A.
ten (10) days prior to the discovery cut-off set by the Presiding
Arbitrator. If a party intends to present the testimony of a rebuttal expert
witness during the Arbitration Hearing, it shall provide all other parties
with a written statement setting forth the information required to be
provided by Fed. R. Civ. P. 26(a)(2)(B) within twenty (20) days after the
date on which the written statement of the expert witness whose
testimony is to be rebutted was produced.
v. Discovery cut-off: The Presiding Arbitrator shall determine the date
on which the discovery period will end, but the discovery period shall
not exceed thirty (30) days from the date of the Administrative
Conference without the agreement of all parties.
Amended as of September 20, 2007
––––––––––––––––––––––––
1 As used in these Rules, "de bene esse deposition" means a deposition that is not taken for discovery
purposes, but is taken for the purpose of reading part or all of the deposition transcript into the record at
the Arbitration Hearing, to the extent permitted by the Panel, because the witness cannot be compelled to
testify at the Arbitration Hearing or has exercised a right provided under these Rules to provide deposition
testimony in lieu of testimony at the Arbitration Hearing.
EXHIBIT 5
Page 12 of 23
vi. Additional discovery: Any additional discovery will be at the
discretion of the Presiding Arbitrator.
vii. Discovery Disputes: Any discovery disputes shall be raised by motion
to the Presiding Arbitrator, who is authorized to resolve all such
disputes, and whose resolution will be binding on the parties unless
modified by the Arbitration Panel. Prior to raising any discovery dispute
with the Presiding Arbitrator, the parties shall meet and confer,
telephonically or in person, in an attempt to resolve or narrow the
dispute. If a party refuses to comply with a decision resolving a
discovery dispute, the Panel, in keeping with Fed. R. Civ. P. 37, may
refuse to allow that party to support or oppose designated claims or
defenses, prohibit that party from introducing designated matters into
evidence or, in extreme cases, decide an issue submitted for resolution
adversely to that party.
viii.Extensions: The time for responding to discovery requests may be
extended by the Presiding Arbitrator for good and sufficient cause
shown. Any request for such an extension shall be made in writing.
I.
Panel Suggested Settlement/Mediation
At any point during the proceedings, the Panel at the request of any party or on its
own initiative, may suggest that the parties explore settlement and that they do so at or
before the conclusion of the Arbitration Hearing, and the Panel shall give such
assistance in settlement negotiations as the parties may request and the Panel may
deem appropriate. Alternatively, the Panel may direct the parties to endeavor to mediate
their disputes as provided above, or to explore a mini-trial proceeding, or to have an
independent party render a neutral evaluation of the parties’ respective positions. The
Panel shall enter such sanctions as it deems appropriate with respect to any party failing
to pursue in good faith such Mediation or other alternate dispute resolution methods.
Amended as of September 20, 2007
EXHIBIT 5
Page 13 of 23
J.
Subpoenas on Third Parties
Pursuant to, and consistent with, the Federal Arbitration Act, 9 U.S.C. § 9 et
seq., and subject to Paragraph 3.G(iii) above, a party may request the issuance of a
subpoena on any third party, including but not limited to any third party Blue Plan or any
officer, employee or director of a third party Blue Plan, to compel deposition testimony
or the production of documents, and, if good and sufficient cause is shown, the Panel
shall issue such a subpoena.
K.
Arbitration Hearing
An Arbitration Hearing will be held within thirty (30) days after the Administrative
Conference if no discovery is taken, or within thirty (30) days after the close of discovery,
unless all parties and the Panel agree to extend the Arbitration Hearing date, or unless
the parties agree in writing to waive the Arbitration Hearing. The parties may mutually
agree on the location of the Arbitration Hearing. If the parties fail to agree, the Arbitration
Hearing shall be held in Chicago, Illinois, or at such other location determined by the
Presiding Arbitrator to be most convenient to the participants. The Panel will determine
the date(s) and time(s) of the Arbitration Hearing(s) after consultation with all parties and
shall provide reasonable notice thereof to all parties or their representatives.
L.
Arbitration Hearing Memoranda
Twenty (20) days prior to the Arbitration Hearing, each party shall submit to the
other party (or parties) and to the Panel an Arbitration Hearing Memorandum which sets
forth the applicable law and any argument as to any relevant issue. The Arbitration
Hearing Memorandum will supplement, and not repeat, the allegations, information and
documents contained in or with the Complaint, Answer, Counterclaim and Reply, if any.
Ten (10) days prior to the Arbitration Hearing, each party shall submit to each other party
a list of all expert and fact witnesses (but not including rebuttal fact witness) that such
party intends to have testify at the Arbitration Hearing and a brief summary of the
testimony each such witness is expected to give. In addition, no later than five (5) days
prior to the Arbitration, each party may submit to each other party and to the Panel a
Response Arbitration Hearing Memorandum which sets forth any response to another
party's Arbitration Hearing Memorandum.
Amended as of September 20, 2007
EXHIBIT 5
Page 14 of 23
M.
Notice For Testimony
Ten (10) days prior to the Arbitration Hearing, any party may serve a Notice on
any other party (or parties) requesting the attendance at the Arbitration Hearing of any
officer, employee or director of the other party (or parties) for the purpose of providing
noncumulative testimony. If a party fails to produce one of its officers, employees or
directors whose noncumulative testimony during the Arbitration Hearing is reasonably
requested by an adverse party, the Panel may refuse to allow that party to support or
oppose designated claims or defenses, prohibit that party from introducing designated
matters into evidence or, in extreme cases, decide an issue submitted for mandatory
dispute resolution adversely to that party; provided, however, that a party may refuse to
produce a director to testify if, within two (2) days of receiving a notice requesting the
attendance of such director at the Arbitration Hearing, the party agrees to make the
director available for a de bene esse deposition at a mutually convenient time at any
location within fifty (50) miles of the director’s primary residence chosen by the party
requesting the director’s testimony. This Rule may not be used for the purpose of
burdening or harassing any party, and the Presiding Arbitrator may impose such orders
as are appropriate so as to prevent or remedy any such burden or harassment.
Pursuant to, and consistent with, the Federal Arbitration Act, 9 U.S.C. § 9 et seq.,
twenty (20) days or more prior to the Arbitration Hearing, a party may request the
issuance of a subpoena on any third party, including but not limited to any third party
Blue Plan, BCBSA or any officer, employee or director of a third party Blue Plan or
BCBSA for the purpose of providing noncummulative testimony at the Arbitration
Hearing, and, if good and sufficient cause is shown, the Panel shall issue such a
subpoena; provided however, that a director of a third party Blue Plan or BCBSA may
refuse to testify if, within two (2) days of receiving a subpoena requesting the attendance
of such director at the Arbitration Hearing, the director agrees to make him/herself
available for a de bene esse deposition at a mutually convenient time at any location
within fifty
(50) miles of the director’s primary residence chosen by the party requesting the
director’s testimony. Each Blue Plan agrees to waive, on its own behalf and on behalf of
its directors and officers, any objection it otherwise might have to any such subpoena
based on service, venue or extraterritoriality.
Amended as of September 20, 2007
EXHIBIT 5
Page 15 of 23
N.
Arbitration Hearing Procedures
i. Attendance at Arbitration Hearing: Any person having a direct
interest in the proceeding is entitled to attend the Arbitration Hearing.
The Presiding Arbitrator shall otherwise have the power to require
the exclusion of any witness, other than a party or other essential
person, during the testimony of any other witness. It shall be
discretionary with the Presiding Arbitrator to determine the propriety
of the attendance of any other person.
ii. Confidentiality: The Panel and all parties shall maintain the privacy of
the Arbitration Proceeding. The parties and the Panel shall treat the
Arbitration Hearing and any discovery or other proceedings or events
related thereto, including any award resulting therefrom, as confidential
except as otherwise necessary in connection with a judicial challenge to
or enforcement of an award or unless otherwise required by law.
iii. Stenographic Record: Any party, or if the parties do not object, the
Panel, may request that a stenographic or other record be made of
any Arbitration Hearing or portion thereof. The costs of the recording
and/or of preparing the transcript shall be borne by the requesting
party and by any party who receives a copy thereof. If the Panel
requests a recording and/or a transcript, the costs thereof shall be
borne equally by the parties.
iv. Oaths: The Panel may require witnesses to testify under oath or
affirmation administered by any duly qualified person and,
if
requested by any party, shall do so.
v. Order of Arbitration Hearing: An Arbitration Hearing shall be opened
by the recording of the date, time, and place of the Arbitration
Hearing, and the presence of the Panel, the parties, and their
representatives, if any. The Panel may, at the beginning of the
Arbitration Hearing, ask for statements clarifying the issues involved.
Amended as of September 20, 2007
EXHIBIT 5
Page 16 of 23
Unless otherwise agreed, the complaining party (or parties) shall then
present evidence to support their claim(s). The respondent(s) shall
then present evidence supporting their defenses and Counterclaims, if
any. The complaining party (or parties) shall then present evidence
supporting defenses to the Counterclaims, if any, and rebuttal.
Witnesses for each party shall submit to questions by adverse parties
and/or the Panel.
The Panel has the discretion to vary these procedures, but shall afford
a full and equal opportunity to all parties for the presentation of any
material and relevant evidence.
vi. Evidence: The parties may offer such evidence as is relevant and
material to the dispute and shall produce such evidence as the Panel
may deem necessary to an understanding and resolution of the dispute.
Unless good cause is shown, as determined by the Panel or agreed to
by all other parties, no party shall be permitted to offer evidence at the
Arbitration Hearing which was not disclosed prior to the Arbitration
Hearing by that party. The Panel may receive and consider the
evidence of witnesses by affidavit upon such terms as the Panel deems
appropriate.
The Panel shall be the judge of the relevance and materiality of the
evidence offered, and conformity to legal rules of evidence, other than
enforcement of the attorney-client privilege and the work product
protection, shall not be necessary. The Federal Rules of Evidence shall
be considered by the Panel in conducting the Arbitration Hearing but
those rules shall not be controlling. All evidence shall be taken in the
presence of the Panel and all of the parties, except where any party is
in default or has waived the right to be present.
Settlement offers by any party in connection with Mediation or MDR
proceedings, decisions or recommendations of the selected mediators,
and a party's position papers or statements furnished to the selected
mediators shall not be admissible evidence or considered by the Panel
without the consent of all parties.
EXHIBIT 5
Page 17 of 23
vii. Closing of Arbitration Hearing: The Presiding Arbitrator shall
specifically inquire of all parties whether they have any further proofs
to offer or witnesses to be heard. Upon receiving negative replies or if
he or she is satisfied that the record is complete, the Presiding
Arbitrator shall declare the Arbitration Hearing closed with an
appropriate notation made on the record. Subject to being reopened as
provided below, the time within which the Panel is required to make the
award shall commence to run, in the absence of contrary agreement
by the parties, upon the closing of the Arbitration Hearing.
With respect to complex disputes, the Panel may, in its sole discretion,
defer the closing of the Arbitration Hearing for a period of up to thirty
(30) days after the presentation of proofs in order to permit the parties
to submit post-hearing briefs and argument, as the Panel deems
appropriate, prior to making an award.
For good cause, the Arbitration Hearing may be reopened for up to
thirty (30) days on the Panel's initiative, or upon application of a party,
at any time before the award is made
O.
Awards
An Award must be in writing and shall be made promptly by the Panel and,
unless otherwise agreed by the parties or specified by law, no later than thirty (30) days
from the date of closing the Arbitration Hearing. If all parties so request, the Award shall
contain findings of fact and conclusions of law. The Award, and all other rulings and
determinations by the Panel, may be by a majority vote.
Parties shall accept as legal delivery of the Award the placing of the Award or a
true copy thereof in the mail addressed to a party or its representative at its last known
address or personal service of the Award on a party or its representative.
Awards are binding only on the parties to the Arbitration and are not binding
on any non-parties to the Arbitration and may not be used or cited as precedent in
any other proceeding.
Amended as of September 20, 2007
EXHIBIT 5
Page 18 of 23
After the expiration of twenty (20) days from initial delivery, the Award (with
corrections, if any) shall be final and binding on the parties, and the parties shall
undertake to carry out the Award without delay.
Proceedings to confirm, modify or vacate an Award shall be conducted in
conformity with and controlled by the Federal Arbitration Act. 9 U.S.C. § 1, et seq.
P.
Return of Documents
Within sixty (60) days after the Award and the conclusion of any judicial
proceedings with respect thereto, each party and the Panel shall return any documents
produced by any other party, including all copies thereof. If a party receives a discovery
request in any other proceeding which would require it to produce any documents
produced to it by any other party in a proceeding hereunder, it shall not produce such
documents without first notifying the producing party and giving said party reasonable
time to respond, if appropriate, to the discovery request.
4.
Miscellaneous
A.
Expedited Procedures
Any party to a Mediation may direct a request for an expedited Mediation
Hearing to the Chairman of the Mediation Committee, to the selected Mediators, and to
all other parties at any time. The Chairman of the Mediation Committee, or at his or her
direction, the then selected Mediators, shall grant any request which is supported by
good and sufficient reasons. If such a request is granted, the Mediation shall be
completed within as short a period as practicable, as determined by the Chairman of the
Mediation Committee or, at his or her direction, the then selected Mediators.
Any party to an Arbitration may direct a request for expedited proceedings to the
Administrator, to the Panel, and to all other parties at any time. The Administrator, or the
Presiding Arbitrator if the Panel has been selected, shall grant any such request which is
supported by good and sufficient reasons. If such a request is granted, the Arbitration
shall be completed within as short a time as practicable, as determined by the
Administrator and/or the Presiding Arbitrator.
Amended as of September 20, 2007
EXHIBIT 5
Page 19 of 23
B.
Temporary or Preliminary Injunctive Relief
Any party may seek temporary or preliminary injunctive relief with the filing of a
Complaint or at any time thereafter. If such relief is sought prior to the time that an
Arbitration Panel has been selected, then the Administrator shall select a single
Arbitrator who is a lawyer who has no interest in the subject matter of the dispute, and
no connection to any of the parties, to hear and determine the request for temporary or
preliminary injunction. If such relief is sought after the time that an Arbitration Panel has
been selected, then the Arbitration Panel will hear and determine the request. The
request for temporary or preliminary injunctive relief will be determined with reference to
the temporary or preliminary injunction standards set forth in Fed. R. Civ. P. 65.
C.
Defaults and Proceedings in the Absence of a Party
Whenever a party fails to comply with the MDR Rules in a manner deemed
material by the Panel, the Panel shall fix a reasonable time for compliance and, if the
party does not comply within said period, the Panel may enter an Order of default or
afford such other relief as it deems appropriate.
Arbitration may proceed in the event of a default or in the absence of any party who,
after due notice, fails to be present or fails to obtain an extension. An Award shall not
be made solely on the default or absence of a party, but the Panel shall require the
party who is present to submit such evidence as the Panel may require for the making
of findings, determinations, conclusions, and Awards.
D.
Notice
Each party shall be deemed to have consented that any papers, notices, or
process necessary or proper for the initiation or continuation of a proceeding under
these rules or for any court action in connection therewith may be served on a party by
mail addressed to the party or its representative at its last known address or by
personal service, in or outside the state where the MDR proceeding is to be held.
The Corporate Secretary and the parties may also use facsimile transmission,
telex, telegram, or other written forms of electronic communication to give the notices
required by these rules.
EXHIBIT 5
Page 20 of 23
E.
Expenses
The expenses of witnesses shall be paid by the party causing or requesting the
appearance of such witnesses. All expenses of the MDR proceeding, including
compensation, required travel and other reasonable expenses of the Panel, and the cost
of any proof produced at the direct request of the Panel, shall be borne equally by the
parties and shall be paid periodically on a timely basis, unless they agree otherwise or
unless the Panel in the Award assesses such expenses, or any part thereof against any
party (or parties). In exceptional cases, the Panel may award reasonable attorneys' fees
as an item of expense, and the Panel shall promptly determine the amount of such fees
based on affidavits or such other proofs as the Panel deems sufficient.
F.
Disqualification or Disability of A Panel Member
In the event that any Arbitrator of a Panel with more than one Arbitrator should
become disqualified, resign, die, or refuse or be unable to perform or discharge his or
her duties after the commencement of MDR but prior to the rendition of an Award, and
the parties are unable to agree upon a replacement, the remaining Panel member(s):
i.
shall designate a replacement, subject to the right of any party to
challenge such replacement for cause.
ii. shall decide the extent to which previously held hearings shall be
repeated.
If the remaining Panel members consider the proceedings to have progressed
to a stage as to make replacement impracticable, the parties may agree, as an
alternative to the recommencement of the Mandatory Dispute Resolution process, to
resolution of the dispute by the remaining Panel members.
In the event that a single Arbitrator should become disqualified, resign, die, or
refuse or be unable to perform or discharge his or her duties after the
commencement of MDR but prior to the rendition of an Award, and the parties are
unable to agree upon a replacement, the Administrator shall appoint a successor,
subject to the right of any party to challenge such successor for cause, and the
successor shall decide the extent to which previously held proceedings shall be
repeated.
EXHIBIT 5
Page 21 of 23
G.
Extensions of Time
Subject to the provisions of Paragraph 3.H.(viii.), any time limit set forth in these
Rules may be extended upon agreement of the parties and approval of: (1) the Mediator
if the proceeding is then in Mediation; (2) the Administrator if the proceeding is in
Arbitration, but no Arbitration Panel has been selected; or (3) the Arbitration Panel, if the
proceeding is in Arbitration and the Arbitration Panel has been selected.
H.
Intervention
The Plans, their Controlled Affiliates, and BCBSA, to the extent subject to MMDR
pursuant to their License Agreements, shall have the right to move to intervene in any
pending Arbitration. A written motion for intervention shall be made to: (1) the
Administrator, if the proceeding is in Arbitration, but no Arbitration Panel has been
selected; or (2) the Arbitration Panel, if the proceeding is in Arbitration and the
Arbitration Panel has been selected. The written motion for intervention shall be
delivered to the BCBSA Corporate Secretary (which shall also constitute service on the
BCBSA if it is a respondent) and to any Plan(s) and/or Controlled Affiliate(s) which are
parties to the proceeding. Any party to the proceeding can submit written objections to
the motion to intervene. The motion for intervention shall be granted upon good cause
shown. Intervention also may be allowed by stipulation of the parties to the Arbitration
proceeding. Intervention shall be allowed upon such terms as the Arbitration Panel
decides.
I.
BCBSA Assistance in Resolution of Disputes
The resources and personnel of the BCBSA may be requested by any
member Plan at any time to try to resolve disputes with another Plan.
J.
Neutral Evaluation
The parties can voluntarily agree at any time to have an independent party render
a neutral evaluation of the parties’ respective positions.
Amended as of September 20, 2007
EXHIBIT 5
Page 22 of 23
K.
Recovery of Attorney Fees and Expenses
i. Motions to Compel
Nothwithstanding any other provisions of these Rules, any Party subject to the
License Agreements (for purposes of this Section K and all of its sub- sections
only hereinafter referred to collectively and individually as a “Party”) that initiates a
court action or administrative proceeding solely to compel adherence to these
Rules shall not be determined to have violated these Rules by initiating such
action or proceeding.
ii. Recovery of Fees, Expenses and Costs
The Arbitration Panel may, in its sole discretion, award a Party its reasonable
attorneys’ fees, expenses and costs associated with a filing to compel adherence
to these Rules and/or reasonable attorneys’ fees, expenses and costs incurred in
responding to an action filed in violation of these Rules; provided, however, that
neither fees, expenses, nor costs shall be awarded by the Arbitration Panel if the
Party from which the award is sought can demonstrate to the Arbitration panel, in
its sole discretion, that it did not violate these Rules or that it had reasonable
grounds for believing that its action did not violate these Rules.
iii. Requests for Reimbursement
For purposes of this Section K, any Party may request reimbursement of fees,
expenses and/or costs by submitting said request in writing to the Arbitration
Panel at any time before an award is delivered pursuant Paragraph to 3.O above
with a copy to the Party from which reimbursement is sought, explaining why it is
entitled to such reimbursement. The Party from which reimbursement is sought
shall have twenty (20) days to submit a response to such request to the Arbitration
Panel with a copy to the Party seeking reimbursement.
Amended as of September 20, 2007
EXHIBIT 5
Page 23 of 23
L.
Calculation of Time and Deadlines
In computing any period of time prescribed or allowed under these rules, the day
of the act or event from which the designated period of time begins to run shall not be
included. The last day of the period so computed shall be included, unless it is a Saturday,
a Sunday, or a legal holiday, in which event the period runs until the end of the next day
which is not one of the aforementioned days. When the period of time prescribed is less
than six (6) days, intermediate Saturdays, Sundays and legal holidays shall be excluded in
the computation. As used in this rule, “legal holiday” includes New Year’s Day, Martin
Luther King, Jr. Day, Washington’s Birthday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day and any other day
appointed as a holiday by the President or the Congress of the United States.
Amended as of September 20, 2007
BLUE SHIELD LICENSE AGREEMENT
(Includes revisions, if any, adopted by Member Plans through their September 17, 2020 meeting)
This agreement by and between Blue Cross and Blue Shield Association ("BCBSA") and The Blue Shield Plan,
known as ______________ (the "Plan").
Preamble
WHEREAS, the Plan and/or its predecessor(s) in interest (collectively the "Plan") had the right to use the BLUE
SHIELD and BLUE SHIELD Design service marks (collectively the "Licensed Marks") for health care plans in its
service area, which was essentially local in nature;
WHEREAS, the Plan was desirous of assuring nationwide protection of the Licensed Marks, maintaining uniform
quality controls among Plans, facilitating the provision of cost effective health care services to the public and
otherwise benefiting the public;
WHEREAS, to better attain such ends, the Plan and the predecessor of BCBSA executed the Agreement(s)
Relating to the Collective Service Mark "Blue Shield"; and
WHEREAS, BCBSA and the Plan desire to supercede said Agreement(s) to reflect their current practices and to
assure the continued integrity of the Licensed Marks and of the BLUE SHIELD system;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements hereinafter set forth and for
other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
agree as follows:
Agreement
1. BCBSA hereby grants to the Plan, upon the terms and conditions of this
License Agreement (“Agreement” or “Primary License Agreement”), the right to use
BLUE SHIELD in its trade and/or corporate name (the "Licensed Name"), and the right
to use the Licensed Marks, in the sale, marketing and administration of health care
plans and related services in the Service Area set forth and defined in paragraph 5
below. As used herein, health care plans and related services shall include acting as a
nonprofit health care plan, a for-profit health care plan, or mutual health insurer
operating on a not-for-profit or for-profit basis, under state law; financing access to
health care services; when working with a bank that holds the relevant license to use
the Licensed Name and Marks, offering: (i) tax-favored savings accounts for medical
expenses and means for accessing such accounts, such as debit cards or checks, that
are provided solely to support access to such tax-favored savings accounts, all
pursuant to such license, or (ii) prepaid rewards cards that are provided for completion
of a wellness program, all pursuant to such license; providing health care management
and administration; administering, but not underwriting, non-health portions of Workers’
Compensation Insurance; delivering health care services, except hospital services (as
defined in the Guidelines to Membership Standards Applicable to Regular Members);
and performing the Eligibility and Enrollment functions of HR administration for all
benefit plans offered by a group account to its members, including benefit plans not
provided by the Plan, provided that the Plan has contracted to provide Health
Coverage under the Licensed Marks to the account (as the terms “Health Coverage”,
“Eligibility” and “Enrollment” are defined in Exhibit 4, Paragraph 2.t.).
2. The Plan may use the Licensed Marks and Name in connection with the
offering of: i) health care plans and related services in the Service Area through
Controlled Affiliates, provided that each such Controlled Affiliate is separately licensed
to use the Licensed Marks and Name under the terms and conditions contained in the
Agreement attached as Exhibit 1 hereto (the "Controlled Affiliate License Agreement");
and ii) insurance coverages offered by life insurers under the applicable law in the
Service Area, other than those which the Plan may offer in its own name, provided
through Controlled Affiliates, provided that each such Controlled Affiliate is separately
licensed to use the Licensed Marks and Name under the terms and conditions
contained in the Agreement attached as Exhibit 1A hereto (the "Controlled Affiliate
License Agreement Applicable to Life Insurance Companies") or the Agreement
attached as Exhibit 1A1 hereto (the “Controlled Affiliate Trademark License Agreement
for Life and Disability Insurance Products”) and further provided that the offering of such
services does not and will not dilute or tarnish the unique value of the Licensed Marks
and Name; and iii) administration and underwriting of Workers’ Compensation
Insurance Controlled Affiliates, provided that each such Controlled Affiliate is separately
licensed to use the Licensed Marks and Name under the terms and conditions
contained in the Agreement attached as Exhibit 1 hereto (the “Controlled Affiliate
License”); and iv) regional Medicare Advantage PPO Products in cooperation with one
or more other Plans through jointly-held Controlled Affiliates, provided that each such
Controlled Affiliate is separately licensed to use the Licensed Marks and Name under
the terms and conditions contained in the Agreement attached as Exhibit 1B hereto (the
“Controlled Affiliate License Agreement Applicable to Regional Medicare Advantage
PPO Products”); and v) regional Medicare Part D Prescription Drug Plan products in
cooperation with one or more other Plans through jointly-held Controlled Affiliates,
provided that each such Controlled Affiliate is separately licensed to use the Licensed
Marks and Name under the terms and conditions contained in the Agreement attached
as Exhibit 1C hereto (the “Controlled Affiliate License Agreement Applicable to Regional
Medicare Part D Prescription Drug Plan Products”). As used herein, a Controlled
Affiliate is defined as an entity organized and operated in such a manner that it is
subject to the bona fide control of a Plan or Plans and, if the entity meets the standards
of Paragraph 2a.B but not Paragraph 2a.A, the entity, its owners, and persons with
Amended as of September 19, 2014
authority to select or appoint members or board members, other than a Plan or Plans,
have received written approval of BCBSA. Absent written approval by BCBSA of an
alternative method of control, bona fide control shall have the meaning set forth in
Paragraphs 2a. and 2b.
2a. With respect to the Controlled Affiliate Licenses authorized in clauses
i) through iii) of Paragraph 2, bona fide control shall mean that a Plan (the “Sponsoring
Plan”) authorized to use the Licensed Marks in the Service Area of the Controlled
Affiliate pursuant to this Primary License Agreement with BCBSA must have:
A. The legal authority, directly or indirectly through wholly-owned subsidiaries: (a) to select members of the
Controlled Affiliate's governing body having more than 50% voting control thereof; (b) to exercise
control over the policy and operations of the Controlled Affiliate; (c) to prevent any change in the articles
of incorporation, bylaws or other establishing or governing documents of the Controlled Affiliate with
which the Sponsoring Plan do not concur. In addition, the Sponsoring Plan directly or indirectly through
wholly-owned subsidiaries shall own more than 50% of any for-profit Controlled Affiliate, provided that in
instances where the Sponsoring Plan formed a publicly traded Controlled Affiliate Licensee and such
publicly traded Controlled Affiliate Licensee owns and controls other Controlled Affiliate Licensees, the
Sponsoring Plan directly or indirectly shall own and control more than 50% of any Controlled Affiliate
that is indirectly owned and controlled by the publicly traded Controlled Affiliate Licensee; or
B. The legal authority directly or indirectly through wholly-owned subsidiaries (a) to select members of the
Controlled Affiliate's governing body having not less than 50% voting control thereof; (b) to prevent any
change in the articles of incorporation, bylaws or other establishing or governing documents of the
Controlled Affiliate with which the Sponsoring Plan do not concur; (c) to exercise control over the policy
and operations of the Controlled Affiliate at least equal to that exercised by persons or entities (jointly or
individually) other than the Sponsoring Plan. Notwithstanding anything to the contrary in (a) through (c)
hereof, the Controlled Affiliate’s establishing or governing documents must also require written approval
by the Sponsoring Plan before the Controlled Affiliate can:
1. Change its legal and/or trade name;
2. Change the geographic area in which it operates;
3. Change any of the types of businesses in which it engages;
4. Create, or become liable for by way of guarantee, any indebtedness, other than
indebtedness arising in the ordinary course of business;
5. Sell any assets, except for sales in the ordinary course of business or sales of equipment
no longer useful or being replaced;
6. Make any loans or advances except in the ordinary course of business;
-2-
Amended as of March 26, 2015
7. Enter into any arrangement or agreement with any party
directly or indirectly affiliated with any of the owners of the
Controlled Affiliate or persons or entities with the authority to select or appoint members or
board members of the Controlled Affiliate, other than the Sponsoring Plan or other Plans
(excluding owners of stock holdings of under 5% in a publicly traded Controlled Affiliate);
8. Conduct any business other than under the Licensed Marks
and Name;
9. Take any action that the Sponsoring Plan or BCBSA
reasonably believes will adversely affect the Licensed
Marks or Names.
In addition, the Sponsoring Plan directly or indirectly through wholly owned subsidiaries shall own at least
50% of any for-profit Controlled Affiliate, provided that in instances where the Sponsoring Plan formed a
publicly traded Controlled Affiliate Licensee and such publicly traded Controlled Affiliate Licensee owns and
controls other Controlled Affiliate Licensees, the Sponsoring Plan directly or indirectly shall own and control
at least 50% of any Controlled Affiliate that is indirectly owned and controlled by the publicly traded
Controlled Affiliate Licensee; or
C.
With respect to a Controlled Affiliate that is 100% controlled by Plans including the Sponsoring Plan
and which offers solely Medicaid, Medicare Advantage PPO, Medicare Advantage HMO and/or
Special Need Plans products and services, the legal authority by the Sponsoring Plan together with
such other Plans (a) to select all members of the Controlled Affiliate’s governing body; (b) to prevent
any change in the articles of incorporation, bylaws, or other establishing or governing documents of
the Controlled Affiliate; (c) to exercise control over the policy and operations of the Controlled
Affiliate. In addition, the Sponsoring Plan and such other Plans shall own 100% of any for-profit
Controlled Affiliate, with the Sponsoring Plan and such other Plans each having an ownership
interest. Such 100% control and ownership by Plans shall be direct or, if indirect, solely through
affiliates that are licensed to use marks owned by BCBSA. Further, the Sponsoring Plan and such
other Plans shall execute the “Addendum to Controlled Affiliate License” attached as Exhibit B-1 to
Exhibit 1 attached hereto; or
Amended as of June 20, 2019
D. With respect to a Controlled Affiliate that is 100% controlled by a Sponsoring Plan which on a Blue-branded
basis, offers solely a Basic Medicare Part D Prescription Drug product, the legal authority by the
Sponsoring Plan (a) to select all members of the Controlled Affiliate’s governing body; (b) to prevent
any change in the articles of incorporation, bylaws or other establishing or governing documents of
the Controlled Affiliate; (c) to exercise control over the policy and operations of the Controlled
Affiliate. In addition, the Sponsoring Plan shall own 100% of any for-profit Controlled Affiliate. Such
100% control and ownership by the Plan shall be direct or, if indirect, solely through affiliates that are
licensed to use marks owned by BCBSA. Further, the Sponsoring Plan and Participating Plan as
defined on the Controlled Affiliate License Agreement shall execute the “Addendum to Controlled
Affiliate License” attached as Exhibit B-2 to Exhibit 1 attached hereto.
E. With respect to a Controlled Affiliate that operates as a clinic, the legal authority by the Sponsoring Plan to
exercise control over the policy and operations of the Controlled Affiliate as defined in Exhibit 1,
Standard 1(E) and the Guidelines to Administer Standard 1 (E). In addition, if the clinic is for-profit,
the Sponsoring Plan shall own at least 50% of the Controlled Affiliate and prevent any change in the
articles of incorporation, bylaws or other establishing documents of the Controlled Affiliate with which
the Sponsoring Plan does not concur.
2b. With respect to the Controlled Affiliate License Agreements authorized in
clauses iv) and v) of Paragraph 2, bona fide control shall mean that the Controlled Affiliate is organized and operated
in such a manner that it meets the following requirements:
A. The Controlled Affiliate is owned or controlled by two or more Plans authorized to use the Licensed Marks
pursuant to this License Agreement with BCBSA (for purposes of this subparagraph A. through subparagraph C., the
“Controlling Plans”); and
-2a-
Amended as of June 20, 2019
B. Each Controlling Plan is authorized pursuant to this Agreement to use the Licensed Marks in a
geographic area in the Region (as that term is defined in such Controlled Affiliate License
Agreements) and every
geographic area in the Region is so licensed to at least one of the Controlling Plans; and
C. The Controlling Plans must have the legal authority directly or indirectly through wholly-owned
subsidiaries (a) to select members of the Controlled Affiliate’s governing body having not less than
100% voting control thereof; (b) to prevent any change in the articles of incorporation, bylaws or
other establishing or governing documents of the Controlled Affiliate with which the Controlling Plans
do not concur; and (c) to exercise control over the policy and operations of the Controlled Affiliate.
Notwithstanding anything to the contrary in (a) through (c) of this subparagraph E., the Controlled
Affiliate’s establishing or governing documents must also require written approval by each of the
Controlling Plans before the Controlled Affiliate can:
1. Change its legal and/or trade names;
2. Change the geographic area in which it operates (except such approval shall not be required
with respect to business of the Controlled Affiliate conducted under the Licensed Marks
within the Service Area of one of the Controlling Plans pursuant to a separate controlled
affiliate license agreement with BCBSA sponsored by such Controlling Plan);
3. Change any of the type(s) of businesses in which it engages (except such approval shall not
be required with respect to business of the Controlled Affiliate conducted under the
Licensed Marks within the Service Area of one of the Controlling Plans pursuant to a
separate controlled affiliate license agreement with BCBSA sponsored by such Controlling
Plan);
4. Take any action that any Controlling Plan or BCBSA reasonably believes will adversely affect
the Licensed Marks and Name.
In addition, the Controlling Plans directly or indirectly through wholly- owned
subsidiaries shall own 100% of any for-profit Controlled Affiliate.
Amended as of June 20, 2019
(the next page is 3)
-2b-
3. With respect to a Controlled Affiliate that is not licensed to use the
Licensed Marks and Name, the Plan may, in communications that contain the Licensed Marks or Name, indicate its
corporate relationship to the Affiliate and permit such Affiliate to indicate its corporate relationship to the Plan, solely
in the circumstances, style and manner specified by BCBSA from time-to-time in regulations of general application
consistent with the avoidance of confusion or mistake or the dilution or tarnishment of the Licensed Marks and
Name. No rights are hereby created in any Controlled Affiliate to use the Licensed Marks or Name in its own name
or otherwise.
4. The Plan recognizes the importance of a comprehensive national network
of independent BCBSA licensees which are committed to strengthening the Licensed
Marks and Name. The Plan further recognizes that its actions within its Service Area
may affect the value of the Licensed Marks and Name nationwide. The Plan agrees
(a) to maintain in good standing its membership in BCBSA; (b) promptly to pay its dues
to BCBSA, said dues to represent the royalties for this License Agreement; (c)
materially to comply with all applicable laws; (d) to comply with the Membership Standards Applicable to Regular
Members of BCBSA, a current copy of which is attached as Exhibit 2 hereto; and (e) reasonably to permit BCBSA,
upon a written, good faith request and during reasonable business hours, to inspect the Plan's books and records
necessary to ascertain compliance herewith. As to other Plans and third parties, BCBSA shall maintain the
confidentiality of all documents and information furnished by the Plan pursuant hereto, or pursuant to the
Membership Standards, and clearly designated by the Plan as containing proprietary information of the Plan.
5. The rights hereby granted are exclusive to the Plan within the
geographical area(s) served by the Plan on June 30, 1972, and/or as to which the Plan
has been granted a subsequent license, which is hereby defined as the "Service Area,"
except that BCBSA reserves the right to use the Licensed Marks in said Service Area,
and except to the extent that said Service Area may overlap areas served by one or
more other licensed Blue Shield Plans as of said date or subsequent license, as to
which overlapping areas the rights hereby granted are nonexclusive as to such other
Plan or Plans only.
Amended as of June 19, 2014
-3-
6. Except as expressly provided by BCBSA with respect to National
Accounts, Government Programs and certain other necessary and collateral uses, the
current rules and regulations governing which are attached as Exhibit 3 and Exhibit 4
hereto, and are contained in other documents referenced herein, or as expressly
provided herein, the Plan may not use the Licensed Marks and Name outside the
Service Area or in connection with other goods and services, nor may the Plan use the
Licensed Marks or Name in a manner which is intended to transfer in the Service Area
the goodwill associated therewith to another mark or name. Nothing herein shall be
construed to prevent the Plan from engaging in lawful activity anywhere under other
marks and names not confusingly similar to the Licensed Marks and Name, provided
that engaging in such activity does and will not dilute or tarnish the unique value of the
Licensed Marks and Name. In addition to any and all remedies available hereunder,
BCBSA may impose monetary fines on the Plan for the Plan’s use of the Licensed
Marks and Names outside the Service Area, and provided that the procedure used in
imposing a fine is consistent with procedures specifically prescribed by BCBSA from
time to time in regulations of general application. In the case of regional Medicare
Advantage PPO and regional Medicare Part D Prescription Drug Plan products offered
by consenting and participating Plans in a region that includes the Service Areas, or
portions thereof, of more than one Plan, such fine may be imposed jointly on the
consenting and participating Plans for use of the Licensed Marks and Name in any
geographic area of the region in which a Plan having exclusive rights to the Licensed
Marks and Name does not consent to and participate in such offering, provided that the
basis for imposition of such fine is consistent with rules specifically prescribed by
BCBSA from time to time in regulations of general application.
7. The Plan agrees that it will display the Licensed Marks and Name only in
such form, style and manner as shall be specifically prescribed by BCBSA from
time-to-time in regulations of general application in order to prevent impairment of the distinctiveness of the Licensed Marks
and Name and the goodwill pertaining thereto.
The Plan shall cause to appear on all materials on or in connection with which the Licensed Marks or Name are used such
legends, markings and notices as BCBSA may reasonably request in order to give appropriate notice of service mark or other
proprietary rights therein or pertaining thereto.
8. BCBSA agrees that: (a) it will not grant any other license effective during
the term of this License Agreement for the use of the Licensed Marks or Name which is
inconsistent with the rights granted to the Plan hereunder; and (b) it will not itself use
the Licensed Marks in derogation of the rights of the Plan or in a manner to deprive the
Plan of the full benefits of this License Agreement, provided that BCBSA shall have the
right to use the Licensed Marks in conjunction with any national offering under the
Federal Employees Health Benefits Program in the manner set forth in Exhibit 4,
Paragraph 4 (including subparagraphs) to this License Agreement. The Plan agrees
that it will not attack the title of BCBSA in and to the Licensed Marks or Name or attack
the validity of the Licensed Marks or of this License Agreement. The Plan further
agrees that all use by it of the Licensed Marks and Name or any similar mark or name
shall inure to the benefit of BCBSA, and the Plan shall cooperate with BCBSA in
effectuating the assignment to BCBSA of any service mark or trademark registrations
of the Licensed Marks or any similar mark or name held by the Plan or a Controlled
Affiliate of the Plan, all or any portion of which registration consists of the Licensed
Marks.
Amended as of November 16, 2006
-3a-
9. (a). Should the Plan fail to comply with the provisions of paragraphs 2-4,
6, 7 and/or 12, and not cure such failure within thirty (30) days of receiving written
notice thereof (or commence curing such failure within such thirty day period and
continue diligent efforts to complete the curing of such failure if such curing cannot
reasonably be completed within such thirty day period), BCBSA shall have the right to
issue a notice that the Plan is in a state of noncompliance. Except as to the termination
of a Plan's License Agreement or the merger of two or more Plans, disputes as to
noncompliance, and all other disputes between or among BCBSA, the Plan, other Plans and/or Controlled Affiliates,
shall be submitted promptly to mediation and mandatory dispute resolution pursuant to the rules and regulations of
BCBSA, a current copy of which is attached as Exhibit 5 hereto, and shall be timely presented and resolved. The
mandatory dispute resolution panel shall have authority to issue orders for specific performance and assess
monetary penalties. If a state of noncompliance as aforesaid is undisputed by the Plan or is found to exist by a
mandatory dispute resolution panel and is uncured as provided above, BCBSA shall have the right to seek judicial
enforcement of the License Agreement. Except, however, as provided in paragraphs 9(d)(iii), 15(a)(i)-(viii), and 15(a)
(x) below, no Plan's license to use the Licensed Marks and Name may be finally terminated for any reason without
the affirmative vote of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the
Plans.
(b). Notwithstanding any other provision of this License Agreement, a
Plan's license to use the Licensed Marks and Name may be forthwith terminated by the affirmative vote of three-
fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans at a special meeting
expressly called by BCBSA for the purpose on ten (10) days written notice to the Plan advising of the specific
matters at issue and granting the Plan an opportunity to be heard and to present its response to Member Plans for:
(i) failure to comply with any minimum capital or liquidity requirement under the Membership Standard on Financial
Responsibility; or (ii) impending financial insolvency; or (iii) the pendency of any action instituted against the Plan
seeking its dissolution or liquidation or its assets or seeking appointment of a trustee, interim trustee, receiver or
other custodian for any of its property or business or seeking the declaration or establishment of a trust for any of its
property
of business, unless this License Agreement has been earlier terminated
under paragraph 15(a); or (iv) such other reason as is determined in good faith immediately and irreparably to
threaten the integrity and reputation of BCBSA, the Plans and/or the Licensed Marks.
-4-
Amended as of March 16, 2006
(c). To the extent not otherwise provided therein, neither: (i) the
Membership Standards Applicable to Regular Members of BCBSA; nor (ii) the rules and regulations governing
Government Programs and certain other uses; nor (iii) the
rules and regulations governing mediation and mandatory dispute resolution, may be amended unless and until each
such amendment is first adopted by the affirmative vote of threefourths of the Plans and of threefourths of the total
then current weighted vote of all the Plans. The rules and regulations governing National Accounts and other
national programs required by the Membership Standards Applicable to Regular Members of BCBSA (Exhibit 2) are
contained, in addition to those set forth in Exhibit 3, in the following documents, as amended from time to time: (1)
the Inter-Plan Programs Policies and Provisions; (2) Inter-Plan Medicare Advantage Program Policies and
Provisions. The voting requirements specified in rules and regulations governing such national programs may not be
amended unless and until each such amendment is first adopted by the affirmative vote of three-fourths of the Plans
and of three-fourths of the total then current weighted vote of all the Plans.
Amended as of November 21, 2014
-4a-
(d). The Plan may operate as a for-profit company on the following
conditions:
(i) The Plan shall discharge all responsibilities which it has to
the Association and to other Plans by virtue of this Agreement and the
Plan's membership in BCBSA.
(ii) The Plan shall not use the licensed Marks and Name, or
any derivative thereof, as part of its legal name or any symbol used to
identify the Plan in any securities market. The Plan shall use the
Licensed Marks and Name as part of its trade name within its service
area for the sale, marketing and administration of health care and related
services in the service area.
(iii) The Plan's license to use the Licensed Marks and Name
shall automatically terminate effective: (a) thirty days after the Plan
knows, or there is an SEC filing indicating that, any Institutional Investor,
has become the Beneficial Owner of securities representing 10% or more
of the voting power of the Plan (“Excess Institutional Voter”), unless such
Excess Institutional Voter shall cease to be an Excess Institutional Voter
prior to such automatic termination becoming effective; (b) thirty days
after the Plan knows, or there is an SEC filing indicating that, any
Noninstitutional Investor has become the Beneficial Owner of securities
representing 5% or more of the voting power of the Plan (“Excess
Noninstitutional Voter”) unless such Excess Noninstitutional Voter shall
cease to be an Excess Noninstitutional Voter prior to such automatic
termination becoming effective; (c) thirty days after the Plan knows, or
there is an SEC filing indicating that, any Person has become the
Beneficial Owner of 20% or more of the Plan’s then outstanding common
stock or other equity securities which (either by themselves or in
combination) represent an ownership interest of 20% or more pursuant to
determinations made under paragraph 9(d)(iv) below (“Excess Owner”),
unless such Excess Owner shall cease to be an Excess Owner prior to
such automatic termination becoming effective; (d) ten business days
after individuals who at the time the Plan went public constituted the
Board of Directors of the Plan (together with any new directors whose
election to the Board was approved by a vote of 2/3 of the directors then
still in office who were directors at the time the Plan went public or whose
election or nomination was previously so approved) (the "Continuing
Directors") cease for any reason to constitute a majority of the Board of
Directors; or (e) ten business days after the Plan consolidates with or
merges with or into any person or conveys, assigns, transfers or sells all
or substantially all of its assets to any person other than a merger in
which the Plan is the surviving entity and immediately after which merger,
no person is an Excess Institutional Voter, an Excess Noninstitutional
Voter or an Excess Owner: provided that, if requested by the affected
Plan in a writing received by BCBSA prior to such automatic termination
-5-
Amended as of September 17, 1997
becoming effective, the provisions of this paragraph 9(d)(iii) may be
waived, in whole or in part, upon the affirmative vote of a majority of the
disinterested Plans and a majority of the total then current weighted vote
of the disinterested Plans. Any waiver so granted may be conditioned
upon such additional requirements (including but not limited to imposing
new and independent grounds for termination of this License) as shall be
approved by the affirmative vote of a majority of the disinterested Plans
and a majority of the total then current weighted vote of the disinterested
Plans. If a timely waiver request is received, no automatic termination
shall become effective until the later of: (1) the conclusion of the
applicable time period specified in paragraphs 9(d)(iii)(a)-(d) above, or (2)
the conclusion of the first Member Plan meeting after receipt of such a
waiver request.
In the event that the Plan's license to use the Licensed Marks and Name
is terminated pursuant to this Paragraph 9(d)(iii), the license may be reinstated in BCBSA’s sole
discretion if, within 30 days of the date of such termination, the Plan demonstrates that the Person
referred to in clause (a), (b) or (c) of the preceding paragraph is no longer an Excess Institutional Voter,
an Excess Noninstitutional Voter or an Excess Owner.
than (i) shares of common stock having identical terms or options or
(iv) The Plan shall not issue any class or series of security other
derivatives of such common stock, (ii) non-voting, non-convertible debt securities or (iii) such other
securities as the Plan may approve, provided that BCBSA receives notice at least thirty days prior to
the issuance of such securities, including a description of the terms for such securities, and BCBSA
shall have the authority to determine how such other securities will be counted in determining whether
any Person is an Excess Institutional Voter, Excess Noninstitutional Voter or an Excess Owner.
(v) For purposes of paragraph 9(d)(iii), the following definitions shall apply:
(a) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934,
as amended and in effect on November 17, 1993 (the "Exchange
Act").
(b) A Person shall be deemed the "Beneficial Owner" of
and shall be deemed to "beneficially own" any securities:
-5a-
Amended as of September 17, 1997
(i) which such Person or any of such
Person's Affiliates or Associates beneficially owns, directly or
indirectly;
(ii) which such Person or any of such
Person's Affiliates or Associates has (A) the right to acquire (whether such right is exercisable immediately
or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise; or (B)
the right to vote pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall
not be deemed the Beneficial Owner of, or to beneficially own, any security if the agreement, arrangement or
understanding to vote such security (1) arises solely from a revocable proxy or consent given to such Person in
response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and
regulations promulgated under the Exchange Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly
or indirectly, by any other Person (or any Affiliate or Associate thereof) with
which such Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (other than customary agreements with and
between underwriters and selling group members with respect to a bona fide public
offering of securities) relating to the acquisition, holding, voting (except to the extent
contemplated by the proviso to (b)(ii)(B) above) or disposing of any securities of the
Plan.
Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase "then outstanding,"
when used with reference to a Person's Beneficial Ownership of securities of the Plan, shall mean the number of
such securities then issued and outstanding together with the number of such securities not then actually issued and
outstanding which such Person would be deemed to own beneficially hereunder.
(c) A Person shall be deemed an “Institutional Investor” if (but only if) such Person (i) is an entity or group
identified in the SEC’s Rule 13d-1(b)(1)(ii) as constituted on June 1, 1997, and (ii) every filing made by such Person
with the SEC under Regulation 13D-G (or any successor Regulation) with respect to such Person’s Beneficial
Ownership of Plan securities shall have contained a certification identical to the one required by item 10 of SEC
Schedule 13G as constituted on June 1, 1997.
(d) “Noninstitutional Investor” means any Person who is not an
Institutional Investor.
(e) Person" shall mean any individual, firm, partnership, corporation, trust, association, joint venture or other
entity, and shall include any successor (by merger or otherwise) of such entity.
-5b-
Amended as of September 17, 1997
(The next page is page 6)
10. This License Agreement shall remain in effect: (a) until terminated as
provided herein; or (b) until this and all such other License Agreements are terminated
by the affirmative vote of three-fourths of the Plans and three-fourths of the total then
current weighted vote of all the Plans; (c) until terminated by the Plan upon eighteen
(18) months written notice to BCBSA or upon a shorter notice period approved by
BCBSA in writing at its sole discretion.
11. Except as otherwise provided in paragraph 15 below or by the
affirmative vote of three-fourths of the Plans and three-fourths of the total then current
weighted vote of all the Plans, or unless this and all such other License Agreements
are simultaneously terminated by force of law, the termination of this License
Agreement for any reason whatsoever shall cause the reversion to BCBSA of all rights
in and to the Licensed Marks and Name, and the Plan agrees that it will promptly
discontinue all use of the Licensed Marks and Name, will not use them thereafter, and
will promptly, upon written notice from BCBSA, change its corporate name so as to
eliminate the Licensed Name therefrom.
12. The license hereby granted to Plan to use the Licensed Marks and
Name is and shall be personal to the Plan so licensed and shall not be assignable by
any act of the Plan, directly or indirectly, without the written consent of BCBSA. Said
license shall not be assignable by operation of law, nor shall Plan mortgage or part with
possession or control of this license or any right hereunder, and the Plan shall have no
right to grant any sublicense to use the Licensed Marks and Name.
13. BCBSA shall maintain appropriate service mark registrations of the
Licensed Marks and BCBSA shall take such lawful steps and proceedings as may be
necessary or proper to prevent use of the Licensed Marks by any person who is not
authorized to use the same. Any actions or proceedings undertaken by BCBSA under
the provisions of this paragraph shall be at BCBSA's sole cost and expense. BCBSA
shall have the sole right to determine whether or not any legal action shall be taken on
account of unauthorized use of the Licensed Marks, such right not to be unreasonably
exercised. The Plan shall report any unlawful usage of the Licensed Marks to BCBSA
in writing and agrees, free of charge, to cooperate fully with BCBSA's program of
enforcing and protecting the service mark rights, trade name rights and other rights in
the Licensed Marks.
14. The Plan hereby agrees to save, defend, indemnify and hold BCBSA
And any other Plan(s) harmless from and against all claims, damages, liabilities and
Costs of every kind, nature and description which may arise as a result of the activities
of the Plan or of any hospital, medical group, clinic or other provider of health services
that is owned or controlled directly or indirectly by Plan. BCBSA hereby agrees to
save, defend, indemnify and hold the Plan and any other Plan(s) harmless from and
against all claims, damages, liabilities and costs of every kind, nature and description
which may arise exclusively and directly as a result of the activities of BCBSA.
Amended as of June 21, 2012
-6-
15. (a). This Agreement shall automatically terminate upon the occurrence of
any of the following events: (i) a voluntary petition shall be filed by the Plan or by
BCBSA seeking bankruptcy, reorganization, arrangement with creditors or other relief
under the bankruptcy laws of the United States or any other law governing insolvency
or debtor relief, or (ii) an involuntary petition or proceeding shall be filed against the
Plan or BCBSA seeking bankruptcy, reorganization, arrangement with creditors or
other relief under the bankruptcy laws of the United States or any other law governing
insolvency or debtor relief and such petition or proceeding is consented to or
acquiesced in by the Plan or BCBSA or is not dismissed within sixty (60) days of the date upon which the petition or
other document commencing the proceeding is served upon the Plan or BCBSA respectively, or (iii) an order for
relief is entered against the Plan or BCBSA in any case under the bankruptcy laws of the United States, or the Plan
or BCBSA is adjudged bankrupt or insolvent (as that term is defined in the Uniform Commercial Code as enacted in
the state of Illinois) by any court of competent jurisdiction, or (iv) the Plan or BCBSA makes a general assignment of
its assets for the benefit of creditors, or (v) any government or any government official, office, agency, branch, or unit
assumes control of the Plan or delinquency proceedings (voluntary or involuntary) are instituted, or (vi) an action is
brought by the Plan or BCBSA seeking its dissolution or liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver or other custodian for any of its property or business, or (vii) an action is instituted
by any governmental entity or officer against the Plan or BCBSA seeking its dissolution or liquidation of its assets or
seeking appointment of a trustee, interim trustee, receiver or other custodian for any of its property or business and
such action is consented to or acquiesced in by the Plan or BCBSA or is not dismissed within one hundred thirty
(130) days of the date upon which the pleading or other document commencing the action is served upon the Plan
or BCBSA respectively, provided that if the action is stayed or its prosecution is enjoined, the one hundred thirty
(130) day period is tolled for the duration of the stay or injunction, and provided further, that the Association’s Board
of Directors may toll or extend the 130 day period at any time prior to its expiration, or (viii) a trustee, interim trustee,
receiver or other custodian for any of the Plan's or BCBSA's property or business is appointed, or the Plan or
BCBSA is ordered dissolved or liquidated, or (ix) the Plan shall fail to pay its dues and shall not cure such failure
within thirty (30) days of receiving written notice thereof, or (x) if, due to regulatory action, the Plan together with any
applicable Controlled Affiliate becomes unable to do business using the Names and Marks in any State or portion
thereof included in its Service Area, provided that: (i) automatic termination shall not occur prior to the exhaustion by
any such Plan of its rights to appeal or challenge such regulatory action; and (ii) in the event the Plan is licensed to
do business using the Names and Marks in multiple States or portions of States, the termination of its License
Agreement shall be solely limited to the State(s) or portions thereof in which the regulatory action applies. By not
appealing or challenging such regulatory action within the time prescribed by law or regulation, and in any event no
later than 120 days after such action is taken, a Plan shall be deemed to have exhausted its rights to appeal or
challenge, and automatic termination shall proceed.
-7-
Notwithstanding any other provision of this Agreement, a declaration or a
request for declaration of the existence of a trust over any of the Plan’s or BCBSA’s property or business shall not in
itself be deemed to constitute or seek appointment of a trustee, interim trustee, receiver or other custodian for
purposes of subparagraphs 15(a)(vii) and (viii) of this Agreement.
-7a-
Amended as of March 26, 2015
(b). BCBSA, or the Plans (as provided and in addition to the rights
conferred in Paragraph 10(b) above), may terminate this Agreement immediately upon written notice upon the
occurrence of either of the following events: (a) the Plan or BCBSA becomes insolvent (as that term is defined in the
Uniform Commercial Code enacted in the state of Illinois), or (b) any final judgment against the Plan or BCBSA
remains unsatisfied or unbonded of record for a period of sixty (60) days or longer.
(c). If this License Agreement is terminated as to BCBSA for any reason
stated in subparagraphs 15(a) and (b) above, the ownership of the Licensed Marks
shall revert to each of the Plans.
(d). Upon termination of this License Agreement or any Controlled Affiliate
License Agreement of a Larger Controlled Affiliate, as defined in Exhibit 1 to this License Agreement, the following
conditions shall apply, except that, in the event of a partial termination of this Agreement pursuant to Paragraph 15
(a)(x)(ii) of this Agreement, the notices, national account listing, payment and audit right listed below shall be
applicable solely with respect to the geographic area for which the Plan’s license to use the Licensed Names and
Marks is terminated:
(i) The terminated entity shall send a notice through the U.S. mails, with first class postage affixed, to
all individual and group customers, providers, brokers and agents of products or
services sold, marketed, underwritten or administered by the terminated entity or its
Controlled Affiliates under the Licensed Marks and Name. The form and content of
the notice shall be specified by BCBSA and shall, at a minimum, notify the recipient
of the termination of the license, the consequences thereof, and instructions for
obtaining alternate products or services licensed by BCBSA, subject to any
conflicting state law and state regulatory requirements. This notice shall be mailed
within 15 days after termination or, if termination is pursuant to paragraph 10(d) of
this Agreement, within 15 days after the written notice to BCBSA described in
paragraph 10(d).
(ii) The terminated entity shall deliver to BCBSA within five days of a request by BCBSA a listing of
national accounts in which the terminated entity is involved (in a Control,
Participating or Servicing capacity), identifying the national account and the
terminated entity's role therein. For those accounts where the terminated entity is the
Control Plan, the Plan must also indicate the Participating and Servicing Plans in the
national account syndicate.
Amended as of June 16, 2005
-8-
(iii) Unless the cause of termination is an event stated in paragraph 15(a) or (b) above respecting
BCBSA, the Plan and its Licensed Controlled Affiliates shall be jointly liable for
payment to BCBSA of an amount equal to the Re-Establishment Fee (described
below) multiplied by the number of Licensed Enrollees of the terminated entity and
its Licensed Controlled Affiliates;
provided that if any other Plan is permitted by BCBSA to use marks or names licensed by BCBSA in
the Service Area established by this Agreement, the Re-Establishment Fee shall be
multiplied by a fraction, the numerator of which is the number of Licensed
Enrollees of the terminated entity and its Licensed Controlled Affiliates and the denominator of which
is the total number of Licensed Enrollees in the Service Area. The Re-Establishment
Fee shall be indexed to a base fee of $80. The Re-Establishment Fee through
December 31, 2005 shall be $80. The
Re-Establishment Fee for calendar years after December 31, 2005 shall be adjusted on January 1 of
each calendar year up to and including January 1, 2010 and shall be the base fee
multiplied by 100% plus the cumulative percentage increase or decrease in the
Plans’ gross administrative expense (standard BCBSA definition) per Licensed
Enrollee since December 31, 2004. The adjustment shall end on January 1, 2011, at
which time the Re-Establishment Fee shall be fixed at the then-current amount and
no longer automatically adjusted. For example, if the Plans’ gross administrative
expense per Licensed Enrollee was $278.60, $285.00 and $290.00 for calendar year
end 2004, 2005 and 2006, respectively, the January 1, 2007 Re-Establishment Fee
would be $83.27 (100% of the base fee plus $1.84 for calendar year 2005 and $1.43
for calendar year 2006). Licensed Enrollee means each and every person and
covered dependent who is enrolled as an individual or member of a group receiving
products or services sold, marketed or administered under marks or names licensed
by BCBSA as determined at the earlier of (a) the end of the last fiscal year of the
terminated entity which ended prior to termination or (b) the fiscal year which ended
before any transactions causing the termination began. Notwithstanding the
foregoing, the amount payable pursuant to this subparagraph (d)(iii) shall be due
only
-8a-
Amended as of June 16, 2005
to the extent that, in BCBSA's opinion, it does not cause the net worth of the Plan to
fall below 100% of the Health Risk-Based Capital formula or its equivalent under any
successor formula, as set forth in the applicable financial responsibility standards
established by BCBSA (provided such equivalent is approved for purposes of this
sub paragraph by the affirmative vote of three-fourths of the Plans and three-fourths
of the
total then current weighted vote of all the Plans), measured as of the date of
termination and adjusted for the value of any transactions not made in the ordinary
course of business. This payment shall not be due in connection with transactions
exclusively by or among Plan or their affiliates, including reorganizations,
combinations or mergers, where the BCBSA Board of Directors determines that the
license termination does not result in a material diminution in the number of Licensed
Enrollees or the extent of their coverage. At least 50% of the Re-Establishment Fee
shall be awarded to the Plan (or Plans) that receive the new license(s) for the service
area(s) at issue; provided, however, that such award shall not become due or
payable until all disputes, if any, regarding the amount of and BCBSA’s right to such
Re-Establishment Fee have been finally resolved; and provided further that the
award shall be based on the final amount actually received by BCBSA. The Board of
Directors shall adopt a resolution which it may amend from time to time that shall
govern BCBSA’s use of its portion of the award. In the event that the terminated
entity’s license is reinstated by BCBSA or is deemed to have remained in effect
without interruption by a court of competent jurisdiction, BCBSA shall reimburse the
Plan (and/or its Licensed Controlled Affiliates, as the case may be) for payments
made under this subparagraph only to the extent that such payments exceed the
amounts due to BCBSA pursuant to subparagraph 15(d)(vi) and any costs
associated with reestablishing the Service Area, including any payments made by
BCBSA to a Plan or Plans (or their Licensed Controlled Affiliates) for purposes of
replacing the terminated entity.
(iv)
The terminated entity shall comply with all financial settlement procedures set forth
in BCBSA’s License Termination Contingency Plan, as amended from time
to time and shall work diligently and in good faith with
-8b-
Amended as of June 16, 2005
BCBSA, any Alternative Control Licensee or Replacement Licensee and any
existing or potential new account for Blue-branded products and services to
minimize the disruption of termination, and honor, to the fullest extent possible, the
desire of accounts to continue to receive or obtain Blue-branded products and
services through a new Licensee (“Transition”). Such diligence and good faith on the
part of the terminated entity shall include, but not be limited to: (a) working
cooperatively with BCBSA to protect the
Names and Marks from potential harm; (b) cooperating with BCBSA’s use of the
Names and Marks in the terminated entity’s former service area during the
termination and Transition; (c) transmitting, upon the request of an existing Blue
account or of BCBSA with
consent and on behalf of an existing Blue account, all member and account-data
relating to the Federal Employee Program to BCBSA, and all member and account
data relating to other programs to an Alternative Control Licensee or Replacement
Licensee; (d) working with BCBSA and the Alternative Control or Replacement
Licensee with respect to potential new Blue accounts headquartered in the
terminated entity’s former service area; (e) continuing to service Blue accounts
during the Transition; (f) continuing to comply with National Programs, Federal
Employee Program and NASCO policies and procedures and all voluntary BCBSA
programs, policies and performance standards, such as Away From Home Care,
including being responsible for payment of all penalties for non-compliance duly
levied in conformity with the License Agreements, Membership Standards, or the
Federal Employee Program agreements, that may arise during the Transition; (g)
maintaining and providing access to its provider networks, as defined by Federal
Employee Program agreements and National Account Program Policies and
Provisions, and Inter-Plan Programs Policies and Provisions, and making those
networks and discounts available to members and providers who participate in
National Programs and the Federal Employee Program during the Transition; (h)
maintaining its technical connections and processing capabilities during the
Transition; and (i) working diligently to conclude all financial settlements and
account reconciliations as negotiated in the termination transition agreement.
Amended as of November 16, 2006
-8c-
(v)
Notwithstanding any other provision in this Agreement, BCBSA shall have the right,
with the approval of its Board of Directors, to assess additional fines against the
terminated entity during the Transition in the event it fails to maintain and provide
access to provider networks as defined by Federal Employee Program agreements,
National Account Program Policies and Provisions, and Inter-Plans Programs
Policies and
Provisions, and/or pass on applicable discounts. Such
fines shall be in addition to any other assessments,
fees or liquidated damages payable herein, or under existing policies and programs
and shall be imposed to make whole BCBSA and/or the Plans. Terminated entity
shall pay any such fines to BCBSA no later than 30 days after they are approved by
the Board of Directors.
(vi) BCBSA shall have the right to examine and audit and/or hire at terminated entity’s expense a
third-party auditor to examine and audit the books and records of the terminated
entity and its Licensed Controlled Affiliates to verify compliance with the terms and
requirements of this paragraph 15(d).
(vii) Subsequent to termination of this Agreement, the terminated entity and its affiliates, agents, and
employees shall have an ongoing and continuing obligation to protect all BCBSA and
Blue Licensee data that was acquired or accessed during the period this Agreement
was in force, including but not limited to all confidential processes, pricing, provider,
discount and other strategic and competitively sensitive information (“Blue
Information”) from disclosure, and shall not, either alone or with another entity,
disclose such Blue Information or use it in any manner to compete without the
express written permission of BCBSA.
(viii) As to a breach of 15 (d) (i), (ii), (iii), (iv), (vi), or (vii) the parties agree that the obligations are
immediately enforceable in a court of competent jurisdiction. As to a breach of 15 (d)
(i), (ii), (iv), (vi), or (vii) by the Plan, the parties agree there is no adequate remedy at
law and BCBSA is entitled to obtain specific performance.
Amended as of November 16, 2006
-8d-
(ix) In the event that the terminated entity’s license is reinstated by BCBSA or is deemed to have
remained in effect without interruption by a court of competent jurisdiction, the Plan
and its Licensed Controlled Affiliates shall be jointly liable for reimbursing BCBSA the
reasonable costs incurred by BCBSA in connection with the termination and the
reinstatement or court action, and any associated legal proceedings, including but
not limited to: outside legal fees, consulting fees, public relations fees, advertising
costs, and costs incurred to develop, lease or establish an interim
provider network. Any amount due to BCBSA under this subparagraph may be waived in whole or in
part by the BCBSA Board of Directors in its sole discretion.
(e). BCBSA shall be entitled to enjoin the Plan or any related party in a
court of competent jurisdiction from entry into any transaction which would result in a
termination of this License Agreement unless the License Agreement has been
terminated pursuant to paragraph 10 (d) of this Agreement upon the required six (6)
month written notice.
(f). BCBSA acknowledges that it is not the owner of assets of the Plan.
Amended as of June 16, 2006
-8e-
16. This Agreement supersedes any and all other agreements between the parties
with respect to the subject matter herein, and contains all of the covenants and agreements of the parties as
to the licensing of the Licensed Marks and Name. This Agreement may be amended only by the affirmative
vote of three-fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans as
officially recorded by the BCBSA Corporate Secretary.
17. If any provision or any part of any provision of this Agreement is judicially declared unlawful, each and every
other provision, or any part of any provision, shall continue in full force and effect notwithstanding such judicial
declaration.
18. No waiver by BCBSA or the Plan of any breach or default in performance on the part of BCBSA or the Plan or
any other licensee of any of the terms, covenants or conditions of this Agreement shall constitute a waiver of
any subsequent breach or default in performance of said terms, covenants or conditions.
19a. All notices provided for hereunder shall be in writing and shall be sent in duplicate by regular mail to BCBSA
or the Plan at the address currently published for each by BCBSA and shall be marked respectively to the
attention of the President and, if any, the General Counsel, of BCBSA or the Plan.
19b. Except as provided in paragraphs 9(b), 9(d)(iii), 15(a), and 15(b) above, this
Agreement may be terminated for a breach only upon at least 30 days’ written notice to the Plan advising of
the specific matters at issue and granting the Plan an opportunity to be heard and to present its response to
the Member Plans.
19c. For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean all entities licensed under
the Blue Cross License Agreement and/or the Blue Shield License Agreement, and in all votes of the Plans
under this Agreement the Plans shall vote together. For weighted votes of the Plans, the Plan shall have a
number of votes equal to the number of weighted votes (if any) that it holds as a Blue Cross Plan plus the
number of weighted votes (if any) that it holds as a Blue Shield Plan. For all other votes of the Plans, the Plan
shall have one vote. For all questions requiring an affirmative three-fourths weighted vote of the Plans, the
requirement shall be deemed satisfied with a lesser weighted vote unless the greater of: (i) 6/52 or more of
the Plans
(rounded to the nearest whole number, with 0.5 or multiples thereof being rounded to the next higher whole
number) fail to cast weighted votes in favor of the question; or (ii) three (3) of the Plans fail to cast weighted
votes in favor of the question. Notwithstanding the foregoing provision, if there are thirty-six (36) Plans, the
requirement of an affirmative three-fourths weighted vote shall be deemed satisfied with a lesser weighted
vote unless four (4) or more Plans fail to cast weighted votes in favor of the question.
-8f-
Amended as of June 16, 2006
(The next page is page 9)
20. Nothing herein contained shall be construed to constitute the parties hereto as
partners or joint venturers, or either as the agent of the other, and Plan shall have no right to bind or obligate
BCBSA in any way, nor shall it represent that it has any right to do so. BCBSA shall have no liability to third
parties with respect to any aspect of the business, activities, operations, products, or services of the Plan.
21. This Agreement shall be governed, construed and interpreted in accordance
with the laws of the State of Illinois.
IN WITNESS WHEREOF, the parties have caused this License Agreement to be executed, effective as of the date of
last signature written below.
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By
Title
Date
Plan:
By
Title
Date
-9-
BLUE SHIELD
CONTROLLED AFFILIATE LICENSE AGREEMENT
(Includes revisions adopted by Member Plans through their September 17, 2020 meeting)
EXHIBIT 1
This Agreement by and among Blue Cross and Blue Shield Association ("BCBSA") and _______ (“Controlled
Affiliate"), a Controlled Affiliate of the Blue Shield Plan, known as _________ ("Plan" or “Sponsoring Plan”), which is
also a Party signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE SHIELD and BLUE SHIELD Design service marks;
WHEREAS, Plan and Controlled Affiliate desire that the latter be entitled to use the BLUE SHIELD and BLUE
SHIELD Design service marks (collectively the "Licensed Marks") as service marks and be entitled to use the term
BLUE SHIELD in a trade name ("Licensed Name");
NOW THEREFORE, in consideration of the foregoing and the mutual agreements hereinafter set forth and for
other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
hereby agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA hereby grants to Controlled Affiliate the right to use
the Licensed Marks and Name in connection with, and only in connection with: (i) health care plans and related
services, as defined in BCBSA's License Agreement with Plan, and administering the non-health portion of workers’
compensation insurance, and (ii) underwriting the indemnity portion of workers’ compensation insurance, provided
that Controlled Affiliate’s total premium revenue comprises less than 15 percent of the Sponsoring Plan’s net
subscription revenue.
This grant of rights is non-exclusive and is limited to the Service Area served by the Plan. Subject to Paragraph 3A(3)
of this Agreement, Controlled Affiliate may use the Licensed Marks and Name in its legal name on the following
conditions: (i) the legal name must be approved in advance, in writing, by BCBSA; (ii) Controlled Affiliate shall not do
business outside the Service Area under any name or mark; and (iii) Controlled Affiliate shall not use the Licensed
Marks and Name, or any derivative thereof, as part of any name or symbol used to identify itself in any securities
market, unless such Controlled Affiliate is a not-for-profit company which may use the Licensed Marks and Name, or
an approved derivative therefor, to identify itself in debt securities markets. Controlled Affiliate may use the Licensed
Marks and Name in its Trade Name only with the prior, written, consent of BCBSA.
Amended as of March 26, 2015
-1-
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks and Name only in connection with the licensed
services and further agrees to be bound by the conditions regarding quality control shown in attached Exhibit A as
they may be amended by BCBSA from time-to-time.
B. Controlled Affiliate agrees to comply with all applicable federal, state and local laws.
C. Controlled Affiliate agrees that it will provide on an annual basis (or more often if reasonably required by Plan
or by BCBSA) a report or reports to Plan and BCBSA demonstrating Controlled Affiliate's compliance with the
requirements of this Agreement including but not limited to the quality control provisions of this paragraph and the
attached Exhibit A.
D. Controlled Affiliate agrees that Plan and/or BCBSA may, from time-to-time, upon reasonable notice, review
and inspect the manner and method of Controlled Affiliate's rendering of service and use of the Licensed Marks and
Name.
E. As used herein, a Controlled Affiliate is defined as an entity organized and operated in such a manner, that the
Sponsoring Plan has:
(1) The legal authority directly or indirectly through wholly-owned subsidiaries:
(a) to select members of the Controlled Affiliate’s governing body having not less than 50% voting control
thereof; and
(b) to prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of
the Controlled Affiliate with which the Sponsoring Plan does not concur; and
(c) to exercise control over the policy and operations of the Controlled Affiliate at least equal to that exercised by
persons or entities (jointly or individually) other than the Sponsoring Plan; and
Notwithstanding anything to the contrary in (a) through (c) hereof, the Controlled Affiliate’s establishing or governing
documents must also require written approval by the Sponsoring Plan before the Controlled Affiliate can:
(i) change its legal and/or trade names;
(ii) change the geographic area in which it operates;
(iii) change any of the type(s) of businesses in which it engages;
Amended as of September 19, 2014
-2-
(iv) create, or become liable for by way of guarantee, any indebtedness, other than indebtedness
arising in the ordinary course of business;
(v) sell any assets, except for sales in the ordinary course of business or sales of equipment no longer
useful or being replaced;
(vi) make any loans or advances except in the ordinary course of business;
(vii) enter into any arrangement or agreement with any party directly or indirectly affiliated with any of
the owners or persons or entities with the authority to select or appoint members or board
members of the Controlled Affiliate, other than the Sponsoring Plan or other Plans (excluding
owners of stock holdings of under 5% in a publicly traded Controlled Affiliate);
(viii) conduct any business other than under the Licensed Marks and Name;
(ix) take any action that Sponsoring Plan or BCBSA reasonably believes will adversely affect the
Licensed Marks and Name.
In addition, the Sponsoring Plan directly or indirectly through wholly owned subsidiaries shall own at least 50% of any
for-profit Controlled Affiliate, provided that in instances where the Sponsoring Plan formed a publicly traded
Controlled Affiliate Licensee and such publicly traded Controlled Affiliate Licensee owns and controls other Controlled
Affiliate Licensees, the Sponsoring Plan directly or indirectly shall own and control at least 50% of any Controlled
Affiliate that is indirectly owned and controlled by the publicly traded Controlled Affiliate Licensee.
(2) The legal authority directly or indirectly through wholly-owned subsidiaries;
(a) to select members of the Controlled Affiliate’s governing body having more
than 50% voting control thereof and to:
Or
(b) to prevent any change in the articles of incorporation, bylaws or other
establishing or governing documents of the Controlled Affiliate with which the Sponsoring Plan do not
concur; and
c) to exercise control over the policy and operations of the Controlled
Affiliate.
-3-
Amended as of March 26, 2015
In addition, the Sponsoring Plan directly or indirectly through wholly-owned subsidiaries shall own more than 50% of
any for-profit Controlled Affiliate, provided that in instances where the Sponsoring Plan formed a publicly traded
Controlled Affiliate Licensee and such publicly traded Controlled Affiliate Licensee owns and controls other Controlled
Affiliate Licensees, the Sponsoring Plan directly or indirectly shall own and control more than 50% of any Controlled
Affiliate that is indirectly owned and controlled by the publicly traded Controlled Affiliate Licensee.
Or
(3) With respect to a Controlled Affiliate that is 100% controlled by Plans including the Sponsoring Plan and which
offers solely Medicaid, Medicare Advantage PPO, Medicare Advantage HMO and/or Special Need Plans products
and services, the Sponsoring Plan has the legal authority together with such other Plans:
(a) to select all members of the Controlled Affiliate’s governing body; and
(b) to prevent any change in the articles of incorporation, bylaws or other
establishing or governing documents of the Controlled Affiliate; and
(c) to exercise control over the policy and operations of the Controlled
Affiliate.
In addition, the Sponsoring Plan and such other Plans shall own 100% of any for-profit Controlled Affiliate, with the
Sponsoring Plan and such other Plans each having an ownership interest. Such control and ownership by Plans must
be direct or, if indirect, solely through affiliates that are licensed to use marks owned by BCBSA. Further, the
Sponsoring Plan and such other Plans shall execute a separate Addendum to Controlled Affiliate License Agreement
attached hereto as Exhibit B-1 for each product noted in Paragraph 2E(3) that is licensed to use the Marks.
Or
(4) With respect to a Controlled Affiliate that is 100% controlled by a Sponsoring Plan which on a Blue-branded
basis offers solely a Basic Medicare Part D Prescription Drug product, the Sponsoring Plan has the legal authority:
(a) to select all members of the Controlled Affiliate’s governing body; and
(b) to prevent any change in the articles of incorporation, bylaws or other establishing or governing
documents of the Controlled Affiliate; and
(c) to exercise control over the policy and operations of the Controlled Affiliate.
4
Amended June 20, 2019
In addition, the Sponsoring Plan shall own 100% of any for-profit Controlled Affiliate. Such 100% control and
ownership by Sponsoring Plan must be direct or, if indirect, solely through affiliates that are licensed to use marks
owned by BCBSA, Further, the Participating Plan as defined in Exhibit B-2 and the Sponsoring Plan shall execute the
Addendum to Controlled Affiliate License Agreement attached hereto as Exhibit B-2.
Or
(5) With respect to a Controlled Affiliate that is operating as a clinic, absent an alternative method of control
approved in writing by BCBSA, the Sponsoring Plan shall have bonafide operational control over the Controlled
Affiliate as specified in Exhibit A, Standard 1 (E) and the Guidelines to Administer Standard 1 (E). In addition, if the
clinic is for-profit, the Sponsoring Plan shall own at least 50% of the Controlled Affiliate and prevent any change in the
articles of incorporation, bylaws or other establishing documents of the Controlled Affiliate with which it does not
concur.
3. FOR-PROFIT, PUBLICLY TRADED LICENSEES
A. The Controlled Affiliate may operate as a for-profit publicly traded company on the following conditions:
(1) The Controlled Affiliate shall discharge all responsibilities which it has to
the Association and to other Plans by virtue of this Agreement.
(2) The Controlled Affiliate shall provide 90 days advance written notice to
BCBSA prior to the initial filing with the SEC.
(3) The Controlled Affiliate shall not use the Licensed Marks and Name, or
any derivative thereof, as part of its legal name or any symbol used to identify the
Controlled Affiliate in any securities market. The Controlled Affiliate shall use the
Licensed Marks and Name as part of its trade name within its service area for the
sale, marketing and administration of health care and related services in the
service area.
(4) The Controlled Affiliate’s license to use the Licensed Marks and Name
shall automatically terminate effective: (a) thirty days after the Controlled Affiliate
knows, or there is an SEC filing indicating that, any Institutional Investor, has
become the Beneficial Owner of securities representing 10% or more of the
voting power of the Controlled Affiliate (“Excess Institutional Voter”), unless such
Excess Institutional Voter shall cease to be an Excess Institutional Voter prior to
such automatic termination becoming effective; (b) thirty days after the Controlled
Affiliate knows, or there is an SEC filing indicating that, any Noninstitutional
Investor, other than a Plan or Plans or Controlled Affiliate licensee or licensees
has become the Beneficial Owner of securities representing 5% or more of the
voting power of the Controlled Affiliate (“Excess Noninstitutional Voter”) unless
such Excess Noninstitutional Voter shall cease to be an Excess Noninstitutional
Voter prior to such automatic termination becoming effective; (c) thirty days after
-5-
Amended as of June 29, 2019
the Controlled Affiliate knows, or there is an SEC filing indicating that, any
Person has become the Beneficial Owner, other than a Plan or Plans or
Controlled Affiliate licensee or licensees, of 20% or more of the Controlled
Affiliate’s then outstanding common stock or other equity securities which (either
by themselves or in combination) represent an ownership interest of 20% or
more pursuant to determinations made under Paragraph 3A(4) below (“Excess
Owner”), unless such Excess Owner shall cease to be an Excess Owner prior to
such automatic termination becoming effective; (d) ten business days after
individuals who at the time the Controlled Affiliate went public constituted the
Board of Directors of the Controlled Affiliate (together with any new directors
whose election to the Board was approved by a vote of 2/3 of the directors then
still in office who were directors at the time the Controlled Affiliate went public or
whose election or nomination was previously so approved) (the “Continuing
Directors”) cease for any reason to constitute a majority of the Board of Directors;
or (e) ten business days after the Controlled Affiliate consolidates with or merges
with or into any person or conveys, assigns, transfers or sells all or substantially
all of its assets to any person other than a merger in which the Sponsoring Plan
is the surviving entity and immediately after which merger, no person is an
Excess Institutional Voter, an Excess Noninstitutional Voter or an Excess Owner:
provided that, if requested by the affected Controlled Affiliate in a writing received
by BCBSA prior to such automatic termination becoming effective, the provision
of this paragraph 3A(4) may be waived, in whole or in part, upon the affirmative
vote of a majority of the disinterested Plans and a majority of the total then
current weighted vote of the disinterested Plans. Any waiver so granted may be
conditioned upon such additional requirements (including but not limited to
imposing new and independent grounds for termination of this License) as shall
be approved by the affirmative vote of a majority of the disinterested Plans and a
majority of the total then current weighted vote of the disinterested Plans. If a
timely waiver request is received, no automatic termination shall become
effective until the later of: (1) the conclusion of the applicable time period
specified in paragraphs 3A(4)(a)-(d) above, or (2) the conclusion of the first
Member Plan meeting after receipt of such a waiver request.
In the event that the Controlled Affiliate’s license, or any other license, to use the Licensed Marks and Name is
terminated pursuant to Paragraph 3A(4), the license may be reinstated in BCBSA’s sole discretion if, within 30
days of the date of such termination, the Controlled Affiliate demonstrates that the Person referred to in clause
(a), (b) or (c) of the preceding paragraph is no longer an Excess Institutional Voter, an Excess Noninstitutional
Voter or an Excess Owner.
(5) The Controlled Affiliate shall not issue any class or series of security other
than (i) shares of common stock having identical terms or options or derivatives
of such common stock, (ii) non-voting, non-convertible debt securities, or (iii)
such other securities as the Controlled Affiliate may approve, provided that
BCBSA receives notice at least thirty days prior to the issuance of such
securities, including a description of the terms for such securities, and BCBSA
shall have the authority to determine how such other securities will be counted in
determining whether any Person is an Excess Institutional Voter, Excess
Noninstitutional Voter or an Excess Owner. Amended as of March 26, 2015
-6-
(6) For purposes of paragraph 3(A) above, the following definitions shall
apply:
(i) “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as amended and in effect on
November 17, 1993 (the “Exchange Act”).
(ii) A Person shall be deemed the “Beneficial Owner” of and shall be deemed to “beneficially own” any
securities:
(1) which such Person or any of such Person’s Affiliates or Associates beneficially owns, directly or
indirectly;
(2) which such Person or any of such Person’s Affiliates or Associates has (A) the right to acquire
(whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options,
or otherwise; or (B) the right to vote pursuant to any agreement, arrangement or understanding; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security if the
agreement, arrangement or understanding to vote such security (1) arises
solely from a revocable proxy or consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules and regulations promulgated under
the Exchange Act and (2) is not also then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(3) which are beneficially owned, directly or indirectly, by any other Person (or any Affiliate or
Associate thereof) with which such Person (or any of such Person’s Affiliates or Associates) has any
agreement, arrangement or understanding (other than customary agreements with and between underwriters
and selling group members with respect to a bona fide public offering of securities) relating to the acquisition,
holding, voting (except to the extent contemplated by the proviso to (ii)2(B) above) or disposing of any
securities of the Controlled Affiliate.
Notwithstanding anything in this definition of Beneficial Ownership to the contrary, the phrase “then
outstanding”, when used with reference to a Person’s Beneficial Ownership of securities of the Controlled
Affiliate, shall mean the number of such securities then issued and outstanding together with the number of
such securities not then actually issued and outstanding which such Person would be deemed to own
beneficially hereunder.
-7-
Amended as of March 26, 2015
(iii) A Person shall be deemed an “Institutional Investor” if (but only if) such Person (i) is an entity or group
identified in the SEC’s Rule 13d-1(b)(1)(ii) as constituted on June 1, 1997, and (ii) every filing made by such Person
with the SEC under Regulation 13D-G (or any successor Regulation) with respect to such Person’s Beneficial
Ownership of Plan securities shall have contained a certification identical to the one required by item 1 of SEC
Schedule 13G as constituted on June 1, 1997.
(iv) “Noninstitutional Investor” means any Person who is not an Institutional Investor.
(v) “Person” shall mean any individual, firm, partnership, corporation, trust, association, joint venture or other
entity, and shall include any successor (by merger or otherwise) of such entity.
4. SERVICE MARK USE
A. Controlled Affiliate recognizes the importance of a comprehensive national network of independent BCBSA
licensees which are committed to strengthening the Licensed Marks and Name. The Controlled Affiliate further
recognizes that its actions within its Service Area may affect the value of the Licensed Marks and Name nationwide.
B. Controlled Affiliate shall at all times make proper service mark use of the Licensed Marks and Name, including
but not limited to use of such symbols or words as BCBSA shall specify to protect the Licensed Marks and Name and
shall comply with such rules (generally applicable to Controlled Affiliates licensed to use the Licensed
Marks and Name) relative to service mark use, as are issued from time-to-time by BCBSA. Controlled Affiliate
recognizes and agrees that all use of the Licensed Marks and Name by Controlled Affiliate shall inure to the benefit of
BCBSA.
C. Controlled Affiliate may not directly or indirectly use the Licensed Marks and Name in a manner that transfers
or is intended to transfer in the Service Area the goodwill associated therewith to another mark or name, nor may
Controlled Affiliate
engage in activity that may dilute or tarnish the unique value of the Licensed Marks and Name.
D. If Controlled Affiliate meets the standards of 2E(1) but not 2E(2) above and any of Controlled Affiliate's
advertising or promotional material is reasonably determined by BCBSA and/or the Plan to be in contravention of
rules and regulations governing the use of the Licensed Marks and Name, Controlled Affiliate shall for ninety (90)
days thereafter obtain prior approval from BCBSA of advertising and promotional efforts using the Licensed Marks
and Name, approval or disapproval thereof to be forthcoming within five (5) business days of receipt of same by
BCBSA or its designee.
In all advertising and promotional efforts, Controlled Affiliate shall observe the Service Area limitations applicable to
Plan.
-8-
Amended as of March 26, 2015
E. Notwithstanding any other provision in the Plan’s License Agreement with BCBSA or in this Agreement,
Controlled Affiliate shall use its best efforts to promote and build the value of the Licensed Marks and Name.
5. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not, directly or indirectly, sublicense, transfer, hypothecate, sell, encumber or mortgage, by
operation of law or otherwise, the rights granted hereunder and any such act shall be voidable at the sole option of
Plan or BCBSA. This Agreement and all rights and duties hereunder are personal to Controlled Affiliate.
6. INFRINGEMENT
Controlled Affiliate shall promptly notify Plan and Plan shall promptly notify BCBSA of any suspected acts of
infringement, unfair competition or passing off that
may occur in relation to the Licensed Marks and Name. Controlled Affiliate shall not be entitled to require Plan or
BCBSA to take any actions or institute any proceedings to prevent infringement, unfair competition or passing off by
third parties. Controlled Affiliate agrees to render to Plan and BCBSA, without charge, all reasonable assistance in
connection with any matter pertaining to the protection of the Licensed Marks and Name by BCBSA.
7. LIABILITY INDEMNIFICATION
Controlled Affiliate and Plan hereby agree to save, defend, indemnify and hold BCBSA harmless from and against
all claims, damages, liabilities and costs of every kind, nature and description (except those arising solely as a result
of BCBSA's negligence) that may arise as a result of or related to: (i) Controlled Affiliate's rendering of services under
the Licensed Marks and Name; or (ii) the activities of any hospital, medical group, clinic or other provider of health
services that is owned or controlled directly or indirectly by Plan or Controlled Affiliate.
8. LICENSE TERM
A. Except as otherwise provided herein, the license granted by this Agreement shall remain in effect for a period
of one (1) year and shall be automatically extended for additional one (1) year periods unless terminated pursuant to
the provisions herein.
B. This Agreement and all of Controlled Affiliate's rights hereunder shall immediately terminate without any
further action by any party or entity in the event that: (i) the Plan ceases to be authorized to use the Licensed Marks
and Name; or (ii) pursuant to Paragraph 15(a)(x) of the Blue Cross License Agreement the Plan ceases to be
authorized to use the Licensed Names and Marks in the geographic area served by the Controlled Affiliate provided,
however, that if the Controlled Affiliate is serving more than one State or portions thereof, the termination of this
Agreement shall be
-9-
Amended as of March 26, 2015
limited to the State(s) or portions thereof in which the Plan’s license to use the Licensed Marks and Names is
terminated. By not appealing or challenging such regulatory action
within the time prescribed by law or regulation, and in any event no later than 120 days after such action is taken, a
Plan shall be deemed to have exhausted its rights to appeal or challenge, and automatic termination shall
proceed.
C. Notwithstanding any other provision of this Agreement, this license to use the Licensed Marks and Name may
be forthwith terminated by the Plan or the affirmative vote of the majority of the Board of Directors of BCBSA present
and voting at a special meeting expressly called by BCBSA for the purpose on ten (10) days written notice to the Plan
advising of the specific matters at issue and granting the Plan an opportunity to be heard and to present its response
to the Board for: (1) failure to comply with any applicable minimum capital or liquidity requirement under the quality
control standards of this Agreement; or (2) failure to comply with the "Organization and Governance" quality control
standard of this Agreement; or (3) impending financial
insolvency; or (4) for a Smaller Controlled Affiliate (as defined in Exhibit A), failure to comply with any of the
applicable requirements of Standards 2, 3, 4, 5 or 7 of attached Exhibit A; or (5) the pendency of any action instituted
against the Controlled Affiliate seeking its dissolution or liquidation of its assets or seeking appointment of a trustee,
interim trustee, receiver or other custodian for any of its property or business or seeking the declaration or
establishment of a trust for any of its property or business, unless this Controlled Affiliate License Agreement has
been earlier terminated under paragraph
8(E); or (6) failure by a Controlled Affiliate that meets the standards of 2E(1) but not 2E(2) above to obtain BCBSA's
written consent to a change in the identity of any owner, in the extent of ownership, or in the identity of any person or
entity with the authority to select or appoint members or board members, provided that as to publicly traded
Controlled Affiliates this provision shall apply only if the change affects a person or entity that owns at least 5% of the
Controlled Affiliate's stock before or after the change; or (7) such other reason as is determined in good faith
immediately and irreparably to threaten the integrity and reputation of BCBSA, the Plans, any other licensee including
Controlled Affiliate and/or the Licensed Marks and Name.
D. Except as otherwise provided in Paragraphs 8(B), 8(C) or 8(E) herein, should Controlled Affiliate fail to comply
with the provisions of this Agreement and not cure such failure within thirty (30) days of receiving written notice
thereof (or commence a cure within such thirty day period and continue diligent efforts to complete the cure if such
curing cannot reasonably be completed within such thirty day period) BCBSA or the Plan shall have the right to issue
a notice that the Controlled Affiliate is in a state of noncompliance. If a state of noncompliance as aforesaid is
undisputed by the Controlled Affiliate or is found to exist by a mandatory dispute resolution panel and is uncured as
provided above, BCBSA shall have the right to seek judicial enforcement of the Agreement or to issue a notice of
termination thereof. Notwithstanding any other provisions of this Agreement, any disputes as to the termination of this
License pursuant to Paragraphs 8(B), 8(C) or 8(E) of this Agreement shall not be subject to mediation and mandatory
dispute resolution. All other disputes between BCBSA, the Plan and/or Controlled Affiliate shall be submitted promptly
to mediation and mandatory dispute
Amended as of March 26, 2015
-10-
resolution. The mandatory dispute resolution panel shall have authority to issue orders for specific performance and
assess monetary penalties. Except, however, as provided
in Paragraphs 8(B) and 8(E) of this Agreement, this license to use the Licensed Marks and Name may not be finally
terminated for any reason without the affirmative vote of a majority of the present and voting members of the Board of
Directors of BCBSA.
E. This Agreement and all of Controlled Affiliate's rights hereunder shall
immediately terminate without any further action by any party or entity in the event that:
(1) Controlled Affiliate shall no longer comply with item 2(E) above;
(2) Appropriate dues, royalties and other payments for Controlled
Affiliate pursuant to paragraph 10 hereof, which are the royalties for this License Agreement, are more than sixty (60)
days in arrears to BCBSA; or
(3) Any of the following events occur: (i) a voluntary petition shall be
filed by Controlled Affiliate seeking bankruptcy, reorganization, arrangement with creditors or other relief under the
bankruptcy laws of the United States or any other law governing insolvency or debtor relief, or (ii) an involuntary
petition or proceeding shall be filed against Controlled Affiliate seeking bankruptcy, reorganization, arrangement with
creditors or other relief under the bankruptcy laws of the United States or any other law governing insolvency or
debtor relief and such petition or proceeding is consented to or acquiesced in by Controlled Affiliate or is not
dismissed within sixty (60) days of
the date upon which the petition or other document commencing the proceeding is served upon the Controlled
Affiliate, or (iii) an order for relief is entered against Controlled Affiliate in any case under the bankruptcy laws of the
United States, or Controlled Affiliate is adjudged bankrupt or insolvent as those terms are defined in the Uniform
Commercial Code as enacted in the State of Illinois by any court of competent jurisdiction, or (iv) Controlled Affiliate
makes a general assignment of its assets for the benefit of creditors, or (v) any government or any government
official, office, agency, branch, or unit assumes control of Controlled Affiliate or delinquency proceedings (voluntary or
involuntary) are instituted, or (vi) an action is brought by Controlled Affiliate seeking its dissolution or liquidation of its
assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for any of its property or
business, or (vii) an action is instituted by any governmental entity or officer against Controlled Affiliate seeking its
dissolution or liquidation of its assets or seeking the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business and such action is consented to or acquiesced in by Controlled Affiliate
or is not dismissed within one hundred thirty (130) days of the date upon which the pleading or other document
commencing the action is served upon the Controlled Affiliate, provided that if the action is stayed or its prosecution is
enjoined, the one hundred thirty (130) day period is tolled for the duration of the stay or injunction, and provided
further, that the Association’s Board of Directors may toll or extend the 130 day period at any time prior to its
expiration, or (viii) a trustee, interim trustee, receiver or other custodian for any of Controlled Affiliate's property or
business is appointed or the Controlled Affiliate
is ordered dissolved or liquidated. Notwithstanding any other provision of this Agreement, a declaration or a request
for declaration of the existence of a trust over any of the Controlled Affiliate’s property or business shall not in itself be
deemed to
Amended as of March 26, 2015
-11-
constitute or seek appointment of a trustee, interim trustee, receiver or other custodian for purposes of
subparagraphs 8(E)(3)(vii) and (viii) of this Agreement.
(4) The for-profit, publicly traded Controlled Affiliate is terminated
pursuant to Paragraph 3A(4) of this Agreement. In which case, the licenses of any controlled Affiliates directly or
indirectly owned by the terminated for profit, publicly traded Controlled Affiliate also shall immediately terminate as
provided for in paragraph 3A(4) of this Agreement
F. Upon termination of this Agreement for cause or otherwise, Controlled Affiliate agrees that it shall
immediately discontinue all use of the Licensed Marks and Name, including any use in its trade name.
G. Upon termination of this Agreement, Controlled Affiliate shall immediately notify all of its customers that it
is no longer a licensee of BCBSA and, if directed by the Association’s Board of Directors, shall provide instruction on
how the customer can contact BCBSA or a designated licensee to obtain further information on securing coverage.
The notification required by this paragraph shall be in writing and in a form approved by BCBSA. The BCBSA shall
have the right to audit the terminated entity's books and records to verify compliance with this paragraph.
H. In the event this Agreement terminates pursuant to 8(b) hereof, or in the event the Controlled Affiliate is a
Larger Controlled Affiliate (as defined in Exhibit A), upon termination of this Agreement, the provisions of Paragraph
8.G. shall not apply and the following provisions shall apply, except that, in the event of a partial termination of this
Agreement pursuant to Paragraph 8(B)(ii) of this Agreement, the notices, national account listing, payment, and audit
right listed below shall be applicable solely with respect to the geographic area for which the Plan’s license to use the
Licensed Names and Marks is terminated:
(1) The Controlled Affiliate shall send a notice through the U.S. mails,
with first class postage affixed, to all individual and group customers, providers, brokers and agents of products or
services sold, marketed, underwritten or administered by the Controlled Affiliate under the Licensed Marks and
Name. The form and content of the notice shall be specified by BCBSA and shall, at a minimum, notify the recipient
of the termination of the license, the consequences thereof, and instructions for obtaining alternate products or
services licensed by BCBSA, subject to any conflicting state law and state regulatory requirements. This notice shall
be mailed within 15 days after termination.
(2) The Controlled Affiliate shall deliver to BCBSA within five days of a
request by BCBSA a listing of national accounts in which the Controlled Affiliate is involved (in a control, participating
or servicing capacity), identifying the national account and the Controlled Affiliate’s role therein.
-12-
Amended as of March 26, 2015
(3) Unless the cause of termination is an event respecting BCBSA
stated in paragraph 15(a) or (b) of the Plan’s license agreement with BCBSA to use the Licensed Marks and Name,
the Controlled Affiliate, the Plan, and any other Licensed Controlled Affiliates of the Plan shall be jointly liable for
payment to BCBSA of an
amount equal to the Re-Establishment Fee (described below) multiplied by the number of Licensed Enrollees of the
Controlled Affiliate; provided that if any other Plan is permitted by BCBSA to use marks or names licensed by BCBSA
in the Service Area established by this Agreement, the Re-Establishment Fee shall be multiplied by a fraction, the
numerator of which is the number of Licensed Enrollees of the Controlled Affiliate, the Plan, and any other Licensed
Controlled Affiliates and the denominator of which is the total number of Licensed Enrollees in the Service Area.
The Re-Establishment Fee shall be indexed to a base fee of $80. The Re-Establishment Fee through December 31,
2005 shall be $80. The Re-Establishment Fee for calendar years after December 31, 2005 shall be adjusted on
January 1 of each calendar year up to and including January 1, 2010 and shall be the base fee multiplied by 100%
plus the cumulative percentage increase or decrease in the Plans’ gross administrative expense (standard BCBSA
definition) per Licensed Enrollee since December 31, 2004. The adjustment shall end on January 1, 2011, at which
time the Re-Establishment Fee shall be fixed at the then-current amount and no longer automatically adjusted. For
example, if the Plans’ gross administrative expense per Licensed Enrollee was $278.60, $285.00 and $290.00 for
calendar year end 2004, 2005 and 2006, respectively, the January 1, 2007 Re-Establishment Fee would be $83.27
(100% of base fee plus $1.84 for calendar
year 2005 and $1.43 for calendar year 2006. Licensed Enrollee means each and every person and covered
dependent who is enrolled as an individual or member of a group receiving products or services sold, marketed or
administered under marks or names licensed by BCBSA as determined at the earlier of (i) the end of the last fiscal
year of the terminated entity which ended prior to termination or (ii) the fiscal year which ended before any
transactions causing the termination began. Notwithstanding the foregoing, the amount payable pursuant to this
subparagraph H. (3) shall be due only to the extent that, in BCBSA’s opinion, it does not cause the net worth of the
Controlled Affiliate, the Plan or any other Licensed Controlled Affiliates of the Plan to fall below 100% of the Health
Risk-Based Capital formula, or its equivalent under any successor formula, as set forth in the applicable financial
responsibility standards established by BCBSA (provided such equivalent is approved for purposes of this sub
paragraph by the affirmative vote of three-fourths of the Plans and three-fourths of the total then current weighted
vote of all the Plans); measured as of the date of termination, and adjusted for the value of any transactions not made
in the ordinary course of business. This payment shall not be due in connection with transactions exclusively by or
among Plans or their affiliates, including reorganizations, combinations or mergers, where the BCBSA Board of
Directors determines that the license termination does not result in a material diminution in the number of Licensed
Enrollees or the extent of their coverage. At least 50% of the Re-Establishment Fee shall be awarded to the Plan (or
Plans) that receive the new license(s) for the service area(s) at issue; provided, however, that such award shall not
become due or payable until all disputes, if any, regarding the amount of and BCBSA’s right to such Re-
Establishment Fee have been finally resolved; and provided
-13-
Amended as of March 26, 2015
further that the award shall be based on the final amount actually received by BCBSA. The Board of Directors shall
adopt a resolution which it may amend from time to time that shall govern BCBSA’s use of its portion of the award. In
the event that the Controlled Affiliate’s license is reinstated by BCBSA or is deemed to have remained in effect
without interruption by a court of competent jurisdiction, BCBSA shall reimburse the Controlled Affiliate (and/or the
Plan or its other Licensed Controlled Affiliates, as the
case may be) for payments made under this subparagraph 8.H.(3) only to the extent that such payments exceed the
amounts due to BCBSA pursuant to paragraph 8.M. and any cost associated with reestablishing the Service Area,
including any payments made by BCBSA to a Plan or Plans (or their Licensed Controlled Affiliates) for purposes of
replacing the Controlled Affiliate.
(4) BCBSA shall have the right to examine and audit and/or hire at
terminated entity’s expense a third party auditor to examine and audit the books and records of the Controlled
Affiliate, the Plan, and any other Licensed Controlled Affiliates of the Plan to verify compliance with this paragraph
8.H.
(5) Subsequent to termination of this Agreement, the terminated entity
and its affiliates, agents, and employees shall have an ongoing and continuing obligation to protect all BCBSA and
Blue Licensee data that was acquired or accessed during the period this Agreement was in force, including but not
limited to all confidential processes, pricing, provider, discount and other strategic and competitively sensitive
information (“Blue Information”) from disclosure, and shall not, either alone or with another entity, disclose such Blue
Information or use it in any manner to compete without the express written permission of BCBSA.
(6) As to a breach of 8.H.(1), (2), (3), (4) or (5) the parties agree that
the obligations are immediately enforceable in a court of competent jurisdiction. As to a breach of 8.H.(1), (2) or (4) by
the Controlled Affiliate, the parties agree there is no adequate remedy at law and BCBSA is entitled to obtain specific
performance.
I. This Agreement shall remain in effect until terminated by the
Controlled Affiliate or the Plan upon not less than eighteen (18) months written notice to the Association or upon a
shorter notice period approved by BCBSA in writing at its sole discretion, or until terminated as otherwise provided
herein. The Plan’s right to terminate without cause upon such notice is unfettered and may be exercised in the Plan’s
sole discretion.
J. In the event the Controlled Affiliate is a Smaller Controlled Affiliate
(as defined in Exhibit A), the Controlled Affiliate agrees to be jointly liable for the amount described in H.3.and M.
hereof upon termination of the BCBSA license agreement of any Larger Controlled Affiliate of the Plan.
K. BCBSA shall be entitled to enjoin the Controlled Affiliate or any related party in a court of competent
jurisdiction from entry into any transaction which would result in a termination of this Agreement unless the Plan’s
license from BCBSA to use the Licensed Marks and Names has been terminated pursuant to 10(d) of the Plan’s
license agreement upon the required 18 months written notice.
-14-
Amended as March 26, 2015
L. BCBSA acknowledges that it is not the owner of assets of the
Controlled Affiliate.
M. In the event that the Plan has more than 50 percent voting control of the Controlled Affiliate under
Paragraph 2(E)(2) above and is a Larger Controlled Affiliate (as defined in Exhibit A), then the vote called for in
Paragraphs 8(C) and 8(D)
above shall require the affirmative vote of three-fourths of the Plans and three-fourths of the total then current
weighted vote of all the Plans.
N. In the event this Agreement terminates and is subsequently
reinstated by BCBSA or is deemed to have remained in effect without interruption by a court of competent jurisdiction,
the Controlled Affiliate, the Plan, and any other Licensed Controlled Affiliates of the Plan shall be jointly liable for
reimbursing BCBSA the reasonable costs incurred by BCBSA in connection with the termination and the
reinstatement or court action, and any associated legal proceedings, including but not limited to: outside legal fees,
consulting fees, public relations fees, advertising costs, and costs incurred to develop, lease or establish an interim
provider network. Any amount due to BCBSA under this subparagraph may be waived in whole or in part by the
BCBSA Board of Directors in its sole discretion.
9. DISPUTE RESOLUTION
The parties agree that any disputes between them or between or among either of them and one or more Plans or
Controlled Affiliates of Plans that use in any manner the Blue Shield and Blue Shield Marks and Name are subject to
the Mediation and Mandatory Dispute Resolution process attached to and made a part of Plan's License from BCBSA
to use the Licensed Marks and Name as Exhibit 5 as amended from time-to-time, which documents are incorporated
herein by reference as though fully set forth herein.
10. LICENSE FEE
Controlled Affiliate will pay to BCBSA a fee for this License determined pursuant to the formula(s) set forth in
Exhibit C.
11. JOINT VENTURE
Nothing contained in the Agreement shall be construed as creating a joint venture, partnership, agency or
employment relationship between Plan and Controlled Affiliate or between either and BCBSA.
12. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or breach or termination thereof shall be in writing and shall
be addressed in duplicate to the last known address of each other party, marked respectively to the attention of its
President and, if any, its General Counsel.
Amended as of March 26, 2015
-15-
13. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the parties in relation to the subject matter hereof. This
Agreement may only be amended by the affirmative vote of three-fourths of the Plans and three-fourths of the total
then current weighted vote of all the Plans as officially recorded by the BCBSA Corporate Secretary.
14. SEVERABILITY
If any term of this Agreement is held to be unlawful by a court of competent jurisdiction, such findings shall in no
way affect the remaining obligations of the parties hereunder and the court may substitute a lawful term or condition
for any unlawful term or condition so long as the effect of such substitution is to provide the parties with the benefits
of this Agreement.
15. NONWAIVER
No waiver by BCBSA of any breach or default in performance on the part of Controlled Affiliate or any other
licensee of any of the terms, covenants or conditions of this Agreement shall constitute a waiver of any subsequent
breach or default in performance of said terms, covenants or conditions.
15A. VOTING
For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean all entities licensed under the
Blue Cross License Agreement and/or the Blue Shield License Agreement, and in all votes of the Plans under this
Agreement the Plans shall vote together. For weighted votes of the Plans, the Plan shall have a number of votes
equal to the number of weighted votes (if any) that it holds as a Blue Cross Plan plus the number of weighted votes
(if any) that it holds as a Blue Shield Plan. For all other votes of the Plans, the Plan shall have one vote. For all
questions requiring an affirmative three-fourths weighted vote of the Plans, the requirement shall be deemed
satisfied with a lesser weighted vote unless the greater of: (i) 6/52 or more of the Plans (rounded to the nearest
whole number, with 0.5 or multiples thereof being rounded to the next higher whole number) fail to cast weighted
votes in favor of the question; or (ii) three (3) of the Plans fail to cast weighted votes in favor of the question.
Notwithstanding the foregoing provision, if there are thirty-six (36) Plans, the requirement of an affirmative three-
fourths weighted vote shall be deemed satisfied with a lesser weighted vote unless four (4) or more Plans fail to cast
weighted votes in favor of the question.
Amended as of March 26, 2015
-16-
THIS PAGE IS INTENTIONALLY BLANK.
16. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of
Illinois.
17. HEADINGS
The headings inserted in this agreement are for convenience only and shall have no bearing on the interpretation
hereof.
IN WITNESS WHEREOF, the parties have caused this License Agreement to be executed and effective as of the
date of last signature written below.
Controlled Affiliate:
By:
Date:____________________________________
Plan:
By:
Date:____________________________________
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By:______________________________________
Date:____________________________________
Amended as of March 26, 2015
-17-
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
September 2020
PREAMBLE
For purposes of definition:
•
•
A "smaller Controlled Affiliate:" (1) comprises less than fifteen percent (15%) of Sponsoring Plan's and its
licensed Controlled Affiliates' total member enrollment (as reported on the BCBSA Quarterly Enrollment
Report, excluding rider and freestanding coverage, and treating an entity seeking licensure as licensed);*
or (2) underwrites the indemnity portion of workers’ compensation insurance and has total premium
revenue less than 15 percent of the Sponsoring Plan’s net subscription revenue.
A "larger Controlled Affiliate" comprises fifteen percent (15%) or more of Sponsoring Plan's and its
licensed Controlled Affiliates' total member enrollment (as reported on the BCBSA Quarterly Enrollment
Report, excluding rider and freestanding coverage, and treating an entity seeking licensure as licensed.)*
Changes in Controlled Affiliate status:
If any Controlled Affiliate's status changes regarding: its Plan ownership level, its risk acceptance or direct delivery of
medical care, the Controlled Affiliate shall notify BCBSA within thirty (30) days of such occurrence in writing and
come into compliance with the applicable standards within six (6) months.
If a smaller Controlled Affiliate’s health and workers’ compensation administration business reaches or surpasses
fifteen percent (15%) of the total member enrollment of the Sponsoring Plan and licensed Controlled Affiliates, the
Controlled Affiliate shall:
Amended as of September 19, 2014
-18-
EXHIBIT A (continued)
1. Within thirty (30) days, notify BCBSA of this fact in writing, including evidence that the Controlled Affiliate meets
the minimum liquidity and capital (BCBSA “Health Risk-Based Capital (HRBC)” as defined by the NAIC and state-
established minimum reserve) requirements of the larger Controlled Affiliate Financial Responsibility standard;
and
2. Within six (6) months after reaching or surpassing the fifteen percent (15%) threshold, demonstrate compliance
with all license requirements for a larger Controlled Affiliate.
If a Controlled Affiliate that underwrites the indemnity portion of workers’ compensation insurance receives a change
in rating or proposed change in rating, the Controlled Affiliate shall notify BCBSA within 30 days of notification by the
external rating agency.
*For purposes of this calculation,
The numerator equals:
Applicant Controlled Affiliate's member enrollment, as defined in BCBSA's Quarterly Enrollment Report (excluding
rider and freestanding coverage).
The denominator equals:
Numerator PLUS Sponsoring Plan and all other licensed Controlled Affiliates' member enrollment, as reported in
BCBSA's Quarterly Enrollment Report (excluding rider and freestanding coverage).
Amended as of September 19, 2014
-19-
EXHIBIT A (continued)
Each licensed controlled affiliate shall be subject to certain standards as determined below:
STANDARDS FOR LICENSED CONTROLLED AFFILIATES
1. What percent of the licensed controlled affiliate is controlled by the Sponsoring Plan and other Plans?
More than 50% by
Sponsoring Plan
50% by Sponsoring
Plan
ò
ò
Standard 1A, 4
Standard 1B, 4
100% Plan Control but
less than 50%
Sponsoring Plan
Control and it offers
solely Medicaid,
Medicare Advantage
PPO, Medicare
Advantage HMO and/or
Special Need Plans
products and services
ò
Standard 1C, 4
100% Sponsoring Plan
control and on a Blue-
branded basis, it only offers
Basic Medicare Part D
Prescription Drug Plan
product
ò
At least 50% by Sponsoring
Plan or operational Control by
Sponsoring Plan and it solely
operates as a Clinic as
defined in Standard 1E.
ò
Standard 1D, 4
Standard 1E, 4
2. Is risk being assumed?
Yes
÷
Controlled Affiliate
underwrites any
indemnity portion of
workers’
compensation
insurance
ò
Standards 7A-7E, 11
ò
Controlled Affiliate
comprises < 15% of
total member
enrollment of
Sponsoring Plan and
its licensed affiliates,
and does not
underwrite the
indemnity portion of
workers’ compensation
insurance
ø
Controlled Affiliate
comprises > 15% of
total member
enrollment of
Sponsoring Plan and
its licensed affiliates,
and does not
underwrite the
indemnity portion of
workers’ compensation
insurance
IN ADDITION,
÷
Controlled Affiliate
comprises < 15% of
total member
enrollment of
Sponsoring Plan and
its licensed affiliates
No
ò
Controlled Affiliate
comprises > 15% of
total member
enrollment of
Sponsoring Plan and
its licensed affiliates
ò
Standard 6H
ò
ò
ò
Standard 2 (Guidelines
1.1,1.2) and Standard
11
Standard 6H
3. Is medical care being directly provided as a staff model HMO?
Yes
ò
Standard 3A
Standard 2
(Guidelines 1.1,1.3)
and Standard 11
IN ADDITION,
No
ò
Standard 3B
-20-
Amended as of June 20, 2019
EXHIBIT A (continued)
Each licensed controlled affiliate shall be subject to certain standards as determined below:
STANDARDS FOR LICENSED CONTROLLED AFFILIATES
4. Is the licensed controlled affiliate operating as a Clinic, as defined in Standard 1(E)?
IN ADDITION,
ò
Standard 3C and Standard 2, 1.4 (if organized as a health plan that also operates as a Clinic.
Yes
5. If the controlled affiliate has health or workers’ compensation administration business, does such business comprise 15% or more of the total member
enrollment of Plan and its licensed Controlled Affiliates?
No
Yes
ò
Standards 6A-6J
÷
Controlled Affiliate
is not a former
primary licensee and is
not subject to Standard
1(C)
ò
Standards 5,8,9B,10,11
÷
Controlled Affiliate is a
former primary licensee
ò
Standards 5,8,9A,10,11
ø
Controlled Affiliate
is not a former
primary licensee
and is subject to
Standard 1(C)
ò
Standards
5,8,9B,11
Amended as of June 20, 2019
-21-
EXHIBIT A (continued)
Standard 1 - Organization and Governance
1A.) The Standard for more than 50% Plan control is:
A Controlled Affiliate shall be organized and operated in such a manner that a Plan authorized to use the Licensed
Marks in the Service Area of the Controlled Affiliate pursuant to the separate Primary License Agreement with
BCBSA has the legal authority, directly or indirectly through wholly-owned subsidiaries: 1) to select members of the
Controlled Affiliate’s governing body having more than 50% voting control thereof; and 2) to prevent any change in
the articles of incorporation, bylaws or other establishing or governing documents of the Controlled Affiliate with which
the Sponsoring Plan do not concur; and 3) to exercise control over the policy and operations of the Controlled
Affiliate. In addition, the Sponsoring Plan directly or indirectly through wholly-owned subsidiaries shall own more than
50% of any for-profit Controlled Affiliate.
1B.) The Standard for 50% Plan control is:
A Controlled Affiliate shall be organized and operated in such a manner that a Plan authorized to use the Licensed
Marks in the Service Area of the Controlled Affiliate pursuant to the separate Primary License Agreement with
BCBSA has the legal authority, directly or indirectly through wholly-owned subsidiaries:
1) to select members of the Controlled Affiliate’s governing body having not less than 50% voting control thereof;
and
2) to prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of the
Controlled Affiliate with which the Sponsoring Plan do not concur; and
3) to exercise control over the policy and operations of the Controlled Affiliate at least equal to that exercised by
persons or entities (jointly or individually) other than the Sponsoring Plan.
Amended September 19, 2014
-22-
EXHIBIT A (continued)
Notwithstanding anything to the contrary in 1) through 3) hereof, the Controlled Affiliate’s establishing or governing
documents must also require written approval by the Sponsoring Plan before the Controlled Affiliate can:
o change the geographic area in which it operates
o change its legal and/or trade names
o change any of the types of businesses in which it engages
o create, or become liable for by way of guarantee, any indebtedness, other than indebtedness arising in the
ordinary course of business
o sell any assets, except for sales in the ordinary course of business or sales of equipment no longer useful or
being replaced
o make any loans or advances except in the ordinary course of business
o enter into any arrangement or agreement with any party directly or indirectly affiliated with any of the owners or
persons or entities with the authority to select or appoint members or board members of the Controlled
Affiliate, other than the Sponsoring Plan or other Plans (excluding owners of stock holdings of under 5%
in a publicly traded Controlled Affiliate)
o conduct any business other than under the Licensed Marks and Name
o take any action that the Sponsoring Plan or BCBSA reasonably believes will adversely affect the Licensed
Marks and Name.
In addition, the Sponsoring Plan directly or indirectly through wholly-owned subsidiaries shall own at least 50% of any
for-profit Controlled Affiliate.
-23-
Amended September 27, 2018
1C.) The Standard for a Controlled Affiliate that offers solely Medicaid, Medicare Advantage PPO, Medicare
Advantage HMO and/or Special Need Plans products and service and has100% Plan control but less than 50%
Sponsoring Plan Control:
A Controlled Affiliate shall be organized and operated in such a manner that (i) it offers solely Medicaid, Medicare
Advantage PPO, Medicare Advantage HMO and/or Special Need Plans products and services; and (ii) a Plan
authorized to use the Licensed Marks in the Service Area of the Controlled Affiliate pursuant to the separate Primary
License Agreement with BCBSA (the “Sponsoring Plan,) has the legal authority together with Other Plans:
1) to select all members of the Controlled Affiliate’s governing body; and
2) to prevent any change in the articles of incorporation, bylaws, or other establishing or governing documents of
the Controlled Affiliate; and
3) to exercise control over the policy and operations of the Controlled Affiliate.
In addition, the Sponsoring Plan and such other Plans shall own 100% of any for-profit Controlled Affiliate, with the
Sponsoring Plan and such other Plans each having an ownership interest. Such 100% control and ownership by
Plans shall be direct or, if indirect, solely through affiliates that are licensed to use marks owned by BCBSA. Further,
the Sponsoring Plan and such other Plans shall execute the Addendum to Controlled Affiliate License.
1D). The Standard for a Controlled Affiliate that on a Blue-branded basis, only offers a Basic Medicare Part D
Prescription Drug product and has 100% Plan control is:
A Controlled Affiliate shall be organized and operated in such a manner that (i) on a Blue-branded basis, it only offers
a Basic Medicare Part D Prescription Drug product; and (ii) the Sponsoring Plan has the legal authority:
1) to select all members of the Controlled Affiliate’s governing body; and
2) to prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of the
Controlled Affiliate; and
3) to exercise control over the policy and operations of the Controlled Affiliate.
In addition, the Sponsoring Plan shall own 100% of any for-profit Controlled Affiliate. Such 100% control and
ownership by Sponsoring Plan must be direct or, if indirect, solely through affiliates that are licensed to use marks
owned by BCBSA.
Further, the Sponsoring Plan and Participating Plan shall execute the Addendum to Controlled Affiliate License.
-24-
1E). The Standard for a Controlled Affiliate that operates as a Clinic and the Sponsoring Plan has control of the
Clinic is:
A Controlled Affiliate shall be organized in such a manner that it operates as a Clinic and Sponsoring Plan exercises
operational control over the Controlled Affiliate.
In addition, if the Clinic is for-profit, the Sponsoring Plan shall own at least 50% of the Controlled Affiliate and prevent
any change in the articles of incorporation, bylaws or other establishing or governing documents of the Controlled
Affiliate.
-25-
Amended June 20, 2019
EXHIBIT A (continued)
Standard 2 - Financial Responsibility
A Controlled Affiliate shall be operated in a manner that provides reasonable financial assurance that it can fulfill all of
its contractual obligations to its customers. If a risk-assuming Controlled Affiliate ceases operations for any reason,
Blue Cross and/or Blue Cross Plan coverage will be offered to all Controlled Affiliate subscribers without exclusions,
limitations or conditions based on health status. If a nonrisk-assuming Controlled Affiliate ceases operations for any
reason, Sponsoring Plan will provide for services to its customers.
The requirements of the preceding two sentences shall apply to all lines of business unless a line of business is
specially exempted from the requirement(s) by the BCBSA Board of Directors.
Standard 3 - State Licensure/Certification
3A.) The Standard for a Controlled Affiliate that employs, owns or contracts on a substantially exclusive basis for
medical services is:
A Controlled Affiliate shall maintain unimpaired licensure or certification for its medical care providers to operate
under applicable state laws.
3B.) The Standard for a Controlled Affiliate that does not employ, own or contract on a substantially exclusive basis
for medical services is:
A Controlled Affiliate shall maintain unimpaired licensure or certification to operate under applicable state laws.
3C.) The Standard for a Controlled Affiliate that operates as a Clinic as defined in Standard 1(E) is:
A Controlled Affiliate shall maintain appropriate and unimpaired licensure and
certifications.
Standard 4 - Certain Disclosures
A Controlled Affiliate shall make adequate disclosure in contracting with third parties and in disseminating public
statements of 1) the structure of the Blue Cross and Blue Shield System; and 2) the independent nature of every
licensee; and 3) the Controlled Affiliate's financial condition.
Amended as of June 20, 2019
-26-
EXHIBIT A (continued)
Standard 5 - Reports and Records for Certain Smaller Controlled Affiliates
For a smaller Controlled Affiliate that does not underwrite the indemnity portion of workers’ compensation insurance,
the Standard is:
A Controlled Affiliate and/or its Sponsoring licensed Plan shall furnish, on a timely and accurate basis, reports and
records relating to these Standards and the License Agreements between BCBSA and Controlled Affiliate.
Standard 6 - Other Standards for Larger Controlled Affiliates
Standards 6(A) - (I) that follow apply to larger Controlled Affiliates.
Standard 6(A): Board of Directors
A Controlled Affiliate Governing Board shall act in the interest of its Corporation in providing cost-effective health care
services to its customers. A Controlled Affiliate shall maintain a governing Board, which shall control the Controlled
Affiliate, composed of a majority of persons other than providers of health care services, who shall be known as
public members. A public member shall not be an employee of or have a financial interest in a health care provider,
nor be a member of a profession which provides health care services.
Standard 6(B): Responsiveness to Customers
A Controlled Affiliate shall be operated in a manner responsive to customer needs and requirements.
Standard 6(C): Participation in National Programs
A Controlled Affiliate shall effectively and efficiently participate in each national program as from time to time may be
adopted by the Member Plans for the purposes of providing portability of membership between the licensees and
ease of claims processing for customers receiving benefits outside of the Controlled Affiliate's Service Area.
Amended as of September 19, 2014
-27-
EXHIBIT A (continued)
Standard 6(C): Participation in National Programs (continued)
Such programs are applicable to licensees, and include:
1. BlueCard Program;
2.
InterPlan Teleprocessing System (ITS);
3. National Account Programs;
4. Business Associate Agreement for Blue Cross and Blue Shield Licensees, effective April 14, 2003; and
5.
Inter-Plan Medicare Advantage Program.
Standard 6(D): Financial Performance Requirements
In addition to requirements under the national programs listed in
Standard 6C: Participation in National Programs, a Controlled Affiliate shall take such action as required to ensure its
financial performance in programs and contracts of an inter-licensee nature or where BCBSA is a party.
Standard 6(E): Cooperation with Plan Performance Response Process
A Controlled Affiliate shall cooperate with BCBSA's Board of Directors and its Brand Enhancement & Protection
Committee in the administration of the Plan Performance Response Process and in addressing Controlled Affiliate
performance problems identified thereunder.
Standard 6(F): Independent Financial Rating
A Controlled Affiliate shall obtain a rating of its financial strength from an independent rating agency approved by
BCBSA's Board of Directors for such purpose.
Standard 6(G): Local and National Best Efforts
Notwithstanding any other provision in the Plan’s License Agreement with BCBSA or in this License Agreement,
during each year, a Controlled Affiliate shall use its best efforts to promote and build the value of the Blue Shield
Mark.
Amended as of November 21, 2014
-28-
EXHIBIT A (continued)
Standard 6(H): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that provides reasonable financial assurance that it can fulfill all of
its contractual obligations to its customers.
Standard 6(I): Reports and Records
A Controlled Affiliate shall furnish to BCBSA on a timely and accurate basis reports and records relating to
compliance with these Standards and the License Agreements between BCBSA and Controlled Affiliate. Such reports
and records are the following:
A) BCBSA Controlled Affiliate Licensure Information Request; and
B) Triennial trade name and service mark usage material, including disclosure material; and
C) Changes in the ownership and governance of the Controlled Affiliate, including changes in its charter, articles
of incorporation, or bylaws, changes in a Controlled Affiliate's Board composition, or changes in the
identity of the Controlled Affiliate's Principal Officers, and changes in risk acceptance, contract growth,
or direct delivery of medical care; and
D) Semi-annual “Health Risk-Based Capital (HRBC) Report” as defined by the NAIC, Annual Certified Audit
Report, Insurance Department Examination Report, Annual Statement filed with State Insurance
Department (with all attachments), and
Amended as of November 17, 2011
-29-
EXHIBIT A (continued)
Standard 6(J): Control by Unlicensed Entities Prohibited
No Controlled Affiliate shall cause or permit an entity other than a Plan or a Licensed Controlled Affiliate thereof
to obtain control of the Controlled Affiliate or to acquire a substantial portion of its assets related to licensable
services.
Standard 7 - Other Standards for Risk-Assuming Workers’ Compensation Controlled Affiliates
Standards 7(A) - (E) that follow apply to Controlled Affiliates that underwrite the indemnity portion of workers’
compensation insurance.
Standard 7 (A): Financial Responsibility
A Controlled Affiliate shall be operated in a manner that provides reasonable financial assurance that it can fulfill all of
its contractual obligations to its customers.
Standard 7(B): Reports and Records
A Controlled Affiliate shall furnish, on a timely and accurate basis, reports and records relating to compliance
with these Standards and the License Agreements between BCBSA and the Controlled Affiliate. Such reports
and records are the following:
A. BCBSA Controlled Affiliate Licensure Information Request; and
B. Triennial trade name and service mark usage materials, including disclosure materials; and
C. Annual Certified Audit Report, Annual Statement as filed with the State Insurance Department (with all
attachments), Annual NAIC’s Risk-Based Capital Worksheets for Property and Casualty Insurers; and
D. Quarterly Estimated Risk-Based Capital for Property and Casualty Insurers, Insurance Department
Examination Report; and
Amended as of November 17, 2011
-30-
EXHIBIT A (continued)
E. Notification of all changes and proposed changes to independent ratings within 30 days of receipt and
submission of a copy of all rating reports; and
F. Changes in the ownership and governance of the Controlled Affiliate including changes in its charter,
articles of incorporation, or bylaws, changes in a Controlled Affiliate’s Board composition, Plan control,
state license status, operating area, the Controlled Affiliate’s Principal Officers or direct delivery of medical
care.
Standard 7(C): Loss Prevention
A Controlled Affiliate shall apply loss prevention protocol to both new and existing business.
Standard 7(D): Claims Administration
A Controlled Affiliate shall maintain an effective claims administration process that includes all the necessary
functions to assure prompt and proper resolution of medical and indemnity claims.
Standard 7(E): Disability and Provider Management
A Controlled Affiliate shall arrange for the provision of appropriate and necessary medical and rehabilitative
services to facilitate early intervention by medical professionals and timely and appropriate return to work.
Amended as of November 16, 2000
-31-
EXHIBIT A (continued)
Standard 8 - Cooperation with Controlled Affiliate License Performance Response Process Protocol
A Controlled Affiliate and its Sponsoring Plan shall cooperate with BCBSA’s Board of Directors and its Brand
Enhancement & Protection Committee in the administration of the Controlled Affiliate License Performance
Response Process Protocol (ALPRPP) and in addressing Controlled Affiliate compliance problems identified
thereunder.
Standard 9(A) - Participation in National Programs by Smaller Controlled Affiliates that were former Primary
Licensees
A smaller controlled affiliate that formerly was a Primary Licensee shall effectively and efficiently participate in certain
national programs from time to time as may be adopted by Member Plans for the purposes of providing ease of
claims processing for customers receiving benefits outside of the Controlled Affiliate’s service area and be subject to
certain relevant financial and reporting requirements.
A.
National program requirements include:
•
•
•
BlueCard Program;
Inter-Plan Teleprocessing System (ITS);
National Account Programs.
B.
Financial Requirements include:
•
•
Standard 6(D): Financial Performance Requirements and Standard 6(H): Financial Responsibility; or
A financial guarantee covering the Controlled Affiliate’s Inter-Plan Programs obligations in a form, and
from a guarantor, acceptable to BCBSA.
Amended as of November 21, 2014
-32-
EXHIBIT A (continued)
Standard 9(A) - Participation in National Programs by Smaller Controlled Affiliates that were former Primary
Licensees
C.
Reporting requirements include:
a.
The Semi-annual Health Risk-Based Capital (HRBC) Report.
Amended as of June 13, 2002
-33-
Exhibit A (continued)
Standard 9(B) - Participation in National Programs by Smaller Controlled Affiliates
A smaller controlled affiliate shall participate in national programs in accordance with BlueCard and other relevant
Policies and Provisions shall effectively and efficiently participate in national programs from time to time as may be
adopted by Member Plans for the purposes of providing ease of claims processing for customers receiving benefits
outside of the controlled affiliate’s service area and be subject to certain relevant financial and reporting requirements.
A.
National program requirements include:
• BlueCard Program;
•
Inter-Plan Teleprocessing System (ITS);
• National Account Programs.
B.
Financial Requirements include:
• Standard 6(D): Financial Performance Requirements and Standard 6(H): Financial Responsibility; or
• A financial guarantee covering the Controlled Affiliate’s Inter-Plan Programs obligations in a form, and from
a guarantor, acceptable to BCBSA.
Amended as of June 20, 2013
-34-
EXHIBIT A (continued)
Standard 10 - Participation in Inter-Plan Medicare Advantage Program
A smaller controlled affiliate for which this standard applies pursuant to the Preamble section of Exhibit A of the
Controlled Affiliate License Agreement shall effectively and efficiently participate in certain national programs
from time to time as may be adopted by Member Plans for the purposes of providing ease of claims processing
for customers receiving benefits outside of the controlled affiliate’s service area.
National program requirements include:
A.
Inter-Plan Medicare Advantage Program.
Standard 11: Participation in Master Business Associate Agreement by Smaller Controlled Affiliate
Licensees
Effective April 14, 2003, all smaller controlled affiliates shall comply with the terms of the Business
Associate Agreement for Blue Cross and Blue Shield Licensees to the extent they perform the functions
of a business associate or subcontractor to a business associate, as defined by the Business Associate
Agreement.
Amended as of September 19, 2014
-35-
EXHIBIT B-1
ADDENDUM TO CONTROLLED AFFILIATE LICENSE TO BE EXECUTED BY CONTROLLED AFFILIATES
LICENSED UNDER CONTROLLED AFFILIATE LICENSE STANDARD 1C.
ADDENDUM TO CONTROLLED AFFILIATE LICENSE
This Addendum is made to that certain Blue Shield Controlled Affiliate License Agreement executed by and among
Blue Cross and Blue Shield Association (“Licensor”), __________________________ (“Controlled Affiliate Licensee”)
and _________________________________________(“Sponsoring Plan”) dated the _____ day of ____________ ,
_____ (“Agreement”). The parties to this Addendum are Licensor, Controlled Affiliate Licensee, Sponsoring Plan, and
the undersigned other Plans (‘Other Plans”). This Addendum is made and shall be deemed effective as of the date of
the Agreement.
WHEREAS, the Sponsoring Plan asserts that it can serve the Medicaid, Medicare Advantage PPO, Medicare
Advantage HMO and/or Special Need Plans market in its Service Area more efficiently and with less risk through an
enterprise jointly owned and controlled with other Plans than through a wholly owned and Controlled Affiliate
Licensee;
WHEREAS, in such circumstance Controlled Affiliate License Standard 1C permits the licensing of a Controlled
Affiliate that is less than 50% owned and controlled by the Sponsoring Plan but which is 100% owned and controlled
by Plans including the Sponsoring Plan, subject to certain conditions;
WHEREAS, one such condition is that the Sponsoring Plan and all such other owning and controlling Plans enter into
this Addendum;
NOW THEREFORE, for good and valuable consideration, including the promises and covenants set forth herein, the
parties agree as follows:
1. This Addendum is limited to [identify product name].
2. The Sponsoring Plan shall participate operationally in Controlled Affiliate’s business that is conducted under
the Licensed Marks. The parties understand that participation may take many forms, one of which should be
providing a network of providers in the Service Area of the Controlled Affiliate for the Medicaid, Medicare
Advantage PPO, Medicare Advantage HMO and/or Special Need Plans services being offered under the
Agreement and being involved in network development and provider engagement functions.
3. Each of the Other Plans agrees that (i) it will cooperate fully with the Sponsoring Plan and BCBSA as needed
to enable Sponsoring Plan and Controlled Affiliate Licensee to meet their obligations to Licensor under the
Agreement and all associated rules and regulations of Licensor, including the Brand Regulations, (ii) it
-36-
will not take any action, either individually or jointly with any of the Other Plans, that
would cause Sponsoring Plan or Controlled Affiliate Licensee to violate the
Agreement, and (iii) it will not fail to take any action, either individually or jointly with
any of the Other Plans, where such failure would cause Sponsoring Plan or
Controlled Affiliate Licensee to violate the Agreement.
4. Each of the Other Plans acknowledges that it has reviewed the Agreement and understands that Sponsoring
Plan has the right to terminate the Agreement without cause upon notice as provided in Paragraph 8 of the
Agreement, and that such right is unfettered and may be exercised by Sponsoring Plan in its sole discretion.
WHEREFORE, by signing below the parties agree to be bound to the terms stated herein.
BLUE CROSS BLUE SHIELD ASSOCIATION
By: ________________________________________
[Controlled Affiliate Licensee]
By: ________________________________________
[Sponsoring Plan]
By: ________________________________________
[Other Plan 1]
By: ________________________________________
[Other Plan 2]
By: ________________________________________
Amended as of September 27, 2018
-37-
EXHIBIT B-2
ADDENDUM TO CONTROLLED AFFILIATE LICENSE TO BE EXECUTED BY CONTROLLED AFFILIATES
LICENSED UNDER CONTROLLED AFFILIATE LICENSE STANDARD 1D.
ADDENDUM TO CONTROLLED AFFILIATE LICENSE
This Addendum is made to that certain Blue Shield Controlled Affiliate License Agreement executed by and among
Blue Cross and Blue Shield Association (“Licensor”), __________________________ (“Controlled Affiliate
Licensee”), _____________________________________(“Sponsoring Plan”) and
___________________________________ (“Participating Plan”) dated the _____ day of ____________ , _____
(“Agreement”).
WHEREAS, the Participating Plan is defined as the Plan that holds the Primary License with BCBSA to use the
Service Marks in the Service Area where the Controlled Affiliate will use the Service Marks;
WHEREAS, the Participating Plan asserts that it can offer a lower cost Basic Medicare Part D Prescription Drug Plan
product more efficiently in the Participating Plan’s Service Area through the Controlled Affiliate Licensee;
WHEREAS, the Controlled Affiliate shall only use the Service Marks inside of the Participating Plan(s) Service Area
subject to each Participating Plan signing a separate Addendum;
WHEREAS, in such circumstance Controlled Affiliate License Standard 1D permits the licensing of a Controlled
Affiliate that is 100% owned and controlled by a Sponsoring Plan, subject to certain conditions;
WHEREAS, one such condition is that the Sponsoring Plan, Controlled Affiliate and the Participating Plan enter into
this Addendum;
NOW THEREFORE, for good and valuable consideration, including the promises and covenants set forth herein, the
parties agree as follows:
1. The Participating Plan shall participate in Controlled Affiliate’s business that is conducted under the Licensed
Marks. The parties understand that the Participating Plan shall conduct sales support and marketing of the
Controlled Affiliate’s Basic Medicare Part D Prescription Drug Plan product offered in the Participating Plan’s
Service Area. Any other form of participation shall require BCBSA’s written approval.
2. Participating Plan agrees that (i) it will cooperate fully with the Sponsoring Plan and BCBSA as needed to
enable Sponsoring Plan and
38
Controlled Affiliate Licensee to meet their obligations to Licensor under the
Agreement and all associated rules and regulations of Licensor, including the Brand Regulations, (ii) it will not
take any action that would cause Sponsoring Plan or Controlled Affiliate Licensee to violate the Agreement,
and (iii) it will not fail to take any action, either individually or jointly with the Sponsoring Plan or Controlled
Affiliate Licensee, where such failure would cause Sponsoring Plan or Controlled Affiliate Licensee to violate
the Agreement.
3. The Controlled Affiliate Licensee shall only use the Licensed Marks authorized by the Participating Plan in
connection with the Basic Medicare Part D Prescription Drug Plan product offered in the Participating Plan’s
Service Area.
4. The Sponsoring Plan and Controlled Affiliate acknowledge that it has reviewed the Agreement and
understands that Participating Plan has the right to terminate this Agreement: (i) immediately upon the
expiration or termination of the Plan Participation Agreement by and between Participating Plan and Controlled
Affiliate upon written notice to the Sponsoring Plan, Controlled Affiliate Licensee and Licensor, or (ii) without
cause upon 18 months written notice to the Sponsoring Plan, Controlled Affiliate Licensee and Licensor, and
that such right is unfettered and may be exercised by Participating Plan in its sole discretion. In the event that
Participating Plan and Controlled Affiliate fail to execute the Plan Participation Agreement by
____________(Date), Participating Plan may terminate this Agreement immediately upon notice to Sponsoring
Plan, Controlled Affiliate Licensee and Licensor.
5. This Agreement and all of Controlled Affiliate Licensee's rights hereunder shall immediately terminate without
any further action by any party or entity in the event that the Sponsoring Plan or Participating Plan ceases to
be authorized to use the Licensed Marks and Name.
WHEREFORE, by signing below the parties agree to be bound to the terms stated herein.
BLUE CROSS BLUE SHIELD ASSOCIATION
By: ________________________________________
[Controlled Affiliate Licensee]
By: ________________________________________
[Sponsoring Plan]
By: ________________________________________
[Participating Plan]
By: ________________________________________ Amended March 17, 2016
39
EXHIBIT C
ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENT
Controlled Affiliate will pay BCBSA a fee for this license in accordance with the following formula:
FOR RISK PRODUCTS:
For Controlled Affiliates not underwriting the indemnity portion of workers’ compensation insurance:
An amount equal to its pro rata share of Sponsoring Plan's dues payable to BCBSA computed with the addition
of the Controlled Affiliate's members using the Marks on health care plans and related services as reported on
the Quarterly Enrollment Report with BCBSA. The payment by Sponsoring Plan of its dues to BCBSA, including
that portion described in this paragraph, will satisfy the requirement of this paragraph, and no separate payment
will be necessary.
For Controlled Affiliates underwriting the indemnity portion of workers’ compensation insurance:
An amount equal to 0.35 percent of the gross revenue per annum of Controlled Affiliate arising from products
using the marks; plus, an annual fee of $5,000 per license for a Controlled Affiliate subject to Standard 7.
Amended as of September, 19, 2014
-40-
EXHIBIT C (continued)
FOR NONRISK PRODUCTS:
For third-party administrative business, an amount equal to its pro rata share of Sponsoring Plan’s dues payable
to BCBSA computed with the addition of the Controlled Affiliate’s members using the Marks on health care plans
and related services as reported on the Quarterly Enrollment Report with BCBSA. The payment by Sponsoring
Plan of its dues to BCBSA, including that portion described in this paragraph, will satisfy the requirement of this
paragraph, and no separate payment will be necessary.
For non-third party administrative business (e.g., case management, provider networks, etc.), an amount equal
to 0.24 percent of the gross revenue per annum of Controlled Affiliate arising from products using the marks;
plus:
1) An annual fee of $5,000 per license for a Controlled Affiliate subject to
Standard 6 D.
2) An annual fee of $2,000 per license for all other Controlled Affiliates.
The foregoing shall be reduced by one-half where both a BLUE CROSS® and BLUE SHIELD® License are issued to
the same Controlled Affiliate. In the event that any license period is greater or less than one (1) year, any amounts
due shall be prorated. Royalties under this formula will be calculated, billed and paid in arrears.
Amended as of September 19, 2014
-41-
EXHIBIT 1A
CONTROLLED AFFILIATE LICENSE AGREEMENT
APPLICABLE TO LIFE INSURANCE COMPANIES
(Includes revisions adopted by Member Plans through their September 17, 2020 meeting)
This agreement by and among Blue Cross and Blue Shield Association ("BCBSA")
_______________________________("Controlled Affiliate"), a Controlled Affiliate of the Blue Shield Plan(s), known
as _______________________________________("Plan").
WHEREAS, BCBSA is the owner of the BLUE SHIELD and BLUE SHIELD Design service marks;
WHEREAS, the Plan and the Controlled Affiliate desire that the latter be entitled to use the BLUE SHIELD and BLUE
SHIELD Design service marks (collectively the "Licensed Marks") as service marks and be entitled to use the term
BLUE SHIELD in a trade name ("Licensed Name");
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA hereby grants to the Controlled Affiliate the
exclusive right to use the licensed Marks and Names in connection with and only in connection with those life
insurance and related services authorized by applicable state law, other than health care plans and related services
(as defined in the Plan's License Agreements with BCBSA) which services are not separately licensed to Controlled
Affiliate by BCBSA, in the Service Area served by the Plan, except that BCBSA reserves the right to use the
Licensed Marks and Name in said Service Area, and except to the extent that said Service Area may overlap the
area or areas served by one or more other licensed Blue Shield Plans as of the date of this License as to which
overlapping areas the rights hereby granted are non-exclusive as to such other Plan or Plans and their respective
Licensed Controlled Affiliates only. Controlled Affiliate cannot use the Licensed Marks or Name outside the Service
Area or in its legal or trade name; provided, however, that if and only for so long as Controlled Affiliate also holds a
Blue Shield Affiliate License Agreement applicable to health care plans and related services, Controlled Affiliate may
use the Licensed Marks and Name in its legal and trade name according to the terms of such license agreement.
-1-
Amended as of June 12, 2003
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks and Name only in relation to the sale, marketing
and rendering of authorized products and further agrees to be bound by the conditions regarding quality control
shown in Exhibit A as it may be amended by BCBSA from timetotime.
B. Controlled Affiliate agrees that Plan and/or BCBSA may, from timetotime, upon reasonable notice, review and
inspect the manner and method of Controlled Affiliate's rendering of service and use of the Licensed Marks and
Name.
C. Controlled Affiliate agrees that it will provide on an annual basis (or more often if reasonably required by
Plan or by BCBSA) a report to Plan and BCBSA demonstrating Controlled Affiliate's compliance with the
requirements of this Agreement including but not limited to the quality control provisions of Exhibit A.
D. As used herein, a Controlled Affiliate is defined as an entity organized and operated in such a manner that
it is subject to the bona fide control of a Plan or Plans. Absent written approval by BCBSA of an alternative method
of control, bona fide control shall mean the legal authority, directly or indirectly through whollyowned subsidiaries: (a)
to select members of the Controlled Affiliate's governing body having not less than 51% voting control thereof; (b) to
exercise operational control with respect to the governance thereof; and (c) to prevent any change in its articles of
incorporation, bylaws or other governing documents deemed inappropriate. In addition, a Plan or Plans shall own at
least 51% of any forprofit Controlled Affiliate. If the Controlled Affiliate is a mutual company, the Plan or its
designee(s) shall have and maintain, in lieu of the requirements of items (a) and (c) above, proxies representing
51% of the votes at any meeting of the policyholders and shall demonstrate that there is no reason to believe this
such proxies shall be revoked by sufficient policyholders to reduce such percentage below 51%.
3. SERVICE MARK USE
Controlled Affiliate shall at all times make proper service mark use of the Licensed Marks, including but not limited
to use of such symbols or words as BCBSA shall specify to protect the Licensed Marks, and shall comply with such
rules (applicable to all Controlled Affiliates licensed to use the Marks) relative to service mark use, as are issued
from timetotime by BCBSA. If there is any public reference to the affiliation between the Plan and the Controlled
Affiliate, all of the Controlled Affiliate's licensed services in the Service Area of the Plan shall be rendered under the
Licensed Marks. Controlled Affiliate recognizes and agrees that all use of the Licensed Marks by Controlled Affiliate
shall inure to the benefit of BCBSA. -2-
4. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not sublicense, transfer, hypothecate, sell, encumber or mortgage, by operation of law or
otherwise, the rights granted hereunder and any such act shall be voidable at the option of Plan or BCBSA. This
Agreement and all rights and duties hereunder are personal to Controlled Affiliate.
5. INFRINGEMENTS
Controlled Affiliate shall promptly notify Plan and BCBSA of any suspected acts of infringement, unfair competition
or passing off which may occur in relation to the Licensed Marks. Controlled Affiliate shall not be entitled to require
Plan or BCBSA to take any actions or institute any proceedings to prevent infringement, unfair competition or
passing off by third parties. Controlled Affiliate agrees to render to Plan and BCBSA, free of charge, all reasonable
assistance in connection with any matter pertaining to the protection of the Licensed Marks by BCBSA.
6. LIABILITY INDEMNIFICATION
Controlled Affiliate hereby agrees to save, defend, indemnify and hold Plan and BCBSA harmless from and
against all claims, damages, liabilities and costs of every kind, nature and description which may arise as a result of
Controlled Affiliate's rendering of health care services under the Licensed Marks.
7. LICENSE TERM
The license granted by this Agreement shall remain in effect for a period of one (1) year and shall be automatically
extended for additional one (1) year periods upon evidence satisfactory to the Plan and BCBSA that Controlled
Affiliate meets the then applicable quality control standards, unless one of the parties hereto notifies the other party
of the termination hereof at least sixty (60) days prior to expiration of any license period.
This Agreement may be terminated by the Plan or by BCBSA for cause at any time provided that Controlled
Affiliate has been given a reasonable opportunity to cure and shall not effect such a cure within thirty (30) days of
receiving written notice of the intent to terminate (or commence a cure within such thirty day period and continue
diligent efforts to complete the cure if such curing cannot reasonably be completed within such thirty day period). By
way of example and not for purposes of limitation, Controlled Affiliate's failure to abide by the quality control
provisions of Paragraph 2, above, shall be considered a proper ground for cancellation of this Agreement.
-3-
This Agreement and all of Controlled Affiliate’s rights hereunder shall immediately terminate without any further
action by any party or entity in the event that:
A. Controlled Affiliate shall no longer comply with Standard No. 1 (Organization and Governance) of Exhibit A
or, following an opportunity to cure, with the remaining quality control provisions of Exhibit A, as it may be amended
from time-to-time; or
B. Plan ceases to be authorized to use the Licensed Marks; or
C. Appropriate dues for Controlled Affiliate pursuant to item 8 hereof, which are the royalties for this License
Agreement are more than sixty (60) days in arrears to BCBSA.
Upon termination of this Agreement for cause or otherwise, Controlled Affiliate agrees that it shall immediately
discontinue all use of the Licensed Marks including any use in its trade name.
In the event of any disagreement between Plan and BCBSA as to whether grounds exist for termination or as to
any other term or condition hereof, the decision of BCBSA shall control, subject to provisions for mediation or
mandatory dispute resolution in effect between the parties.
Upon termination of this Agreement, Licensed Controlled Affiliate shall immediately notify all of its customers that
it is no longer a licensee of the Blue Cross and Blue Shield Association and provide instruction on how the customer
can contact the Blue Cross and Blue Shield Association or a designated licensee to obtain further information on
securing coverage. The written notification required by this paragraph shall be in writing and in a form approved by
the Association. The Association shall have the right to audit the terminated entity's books and records to verify
compliance with this paragraph.
8. DUES
Controlled Affiliate will pay to BCBSA a fee for this license in accordance with the following formula:
An annual fee of five thousand dollars ($5,000) per license, plus
.05% of gross revenue per year from branded group products, plus
.5% of gross revenue per year from branded individual products plus
.14% of gross revenue per year from branded individual annuity products.
-4-
The foregoing percentages shall be reduced by one-half where both a BLUE
CROSS® and BLUE SHIELD® license are issued to the same entity. In the
event that any License period is greater or less than one (1) year, any
amounts due shall be prorated. Royalties under this formula will be
calculated, billed and paid in arrears.
Plan will promptly and timely transmit to BCBSA all dues owed by Controlled
Affiliate as determined by the above formula and if Plan shall fail to do so,
Controlled Affiliate shall pay such dues directly.
9. JOINT VENTURE
Nothing contained in this Agreement shall be construed as creating a joint venture, partnership, agency or
employment relationship between Plan and Controlled Affiliate or between either and BCBSA.
9A. VOTING
For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean all entities licensed under
the Blue Cross License Agreement and/or the Blue Shield License Agreement, and in all votes of the Plans under
this Agreement the Plans shall vote together. For weighted votes of the Plans, the Plan shall have a number of votes
equal to the number of weighted votes (if any) that it holds as a Blue Cross Plan plus the number of weighted votes
(if any) that it holds as a Blue Shield Plan. For all other votes of the Plans, the Plan shall have one vote. For all
questions requiring an affirmative three-fourths weighted vote of the Plans, the requirement shall be deemed
satisfied with a lesser weighted vote unless the greater of: (i) 6/52 or more of the Plans (rounded to the nearest
whole number, with
0.5 or multiples thereof being rounded to the next higher whole number) fail to cast weighted votes in favor of the
question; or (ii) three (3) of the Plans fail to cast weighted votes in favor of the question. Notwithstanding the
foregoing provision, if there are thirty-six (36) Plans, the requirement of an affirmative three-fourths weighted vote
shall be deemed satisfied with a lesser weighted vote unless four (4) or more Plans fail to cast weighted votes in
favor of the question.
10. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or breach or termination thereof shall be in writing and shall
be addressed in duplicate to the last known address of each other party, marked respectively to the attention of its
President and, if any, its General Counsel.
Amended as of November 20, 1997
-5-
11. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the parties in relation to the subject matter hereof. This
Agreement may only be amended by a writing executed by all parties.
12. SEVERABILITY
If any term of this Agreement is held to be unlawful by a court of competent jurisdiction, such finding shall in no
way effect the remaining obligations of the parties hereunder and the court may substitute a lawful term or condition
for any unlawful term or condition so long as the effect of such substitution is to provide the parties with the benefits
of this Agreement.
13. NONWAIVER
No waiver by BCBSA of any breach or default in performance on the part of the Controlled Affiliate or any other
licensee of any of the terms, covenants or conditions of this Agreement shall constitute a waiver of any subsequent
breach or default in performance of said terms, covenants or conditions.
14. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of
Illinois.
Amended as of June 16, 2005
-6-
IN WITNESS WHEREOF, the parties have caused this License Agreement to be executed, effective as of the date of
last signature written below.
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By: _
Date: _
Controlled Affiliate
By: _
Date: _
Plan
By: _
Date: _
-7-
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
LIFE INSURANCE COMPANIES
Page 1 of 2
PREAMBLE
The standards for licensing Life Insurance Companies (Life and Health Insurance companies, as defined by state
statute) are established by BCBSA and are subject to change from time-to-time upon the affirmative vote of three-
fourths (3/4) of the Plans and three-fourths (3/4) of the total weighted vote of all Plans. Each Licensed Plan is
required to use a standard controlled affiliate license form provided by BCBSA and to cooperate fully in assuring that
the licensed Life Insurance Company maintains compliance with the license standards.
An organization meeting the following standards shall be eligible for a license to use the Licensed Marks within the
service area of its sponsoring Licensed Plan to the extent and the manner authorized under the Controlled Affiliate
License applicable to Life Insurance Companies and the principal license to the Plan.
Standard 1 - Organization and Governance
The LIC shall be organized and operated in such a manner that it is controlled by a licensed Plan or Plans which
have, directly or indirectly: 1) not less than 51% of the voting control of the LIC; and 2) the legal ability to prevent any
change in the articles of incorporation, bylaws or other establishing or governing documents of the LIC with which it
does not concur; and 3) operational control of the LIC.
If the LIC is a mutual company, the Plan or its designee(s) shall have and maintain, in lieu of the requirements of
items 1 and 2 above, proxies representing at least 51% of the votes at any policyholder meeting and shall
demonstrate that there is no reason to believe such proxies shall be revoked by sufficient policyholders to reduce
such percentage below 51%.
Standard 2 - State Licensure
The LIC must maintain unimpaired licensure or certificate of authority to operate under applicable state laws as a life
and health insurance company in each state in which the LIC does business.
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EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
LIFE INSURANCE COMPANIES
Page 2 of 2
Standard 3 - Records and Examination
The LIC and its sponsoring licensed Plan(s) shall maintain and furnish, on a timely and accurate basis, such records
and reports regarding the LIC as may be required in order to establish compliance with the license agreement. The
LIC and its sponsoring licensed Plan(s) shall permit BCBSA to examine the affairs of the LIC and shall agree that
BCBSA's board may submit a written report to the chief executive officer(s) and the board(s) of directors of the
sponsoring Plan(s).
Standard 4 - Mediation
The LIC and its sponsoring Plan(s) shall agree to use the then-current BCBSA mediation and mandatory dispute
resolution processes, in lieu of a legal action between or among another licensed controlled affiliate, a licensed Plan
or BCBSA.
Standard 5 - Financial Responsibility
The LIC shall maintain adequate financial resources to protect its customers and meet its business obligations.
Standard 6 - Cooperation with Affiliate License Performance Response Process Protocol
The LIC and its Sponsoring Plan(s) shall cooperate with BCBSA’s Board of Directors and its Brand
Enhancement & Protection Committee in the administration of the Affiliate License Performance Response
Process Protocol (ALPRPP) and in addressing LIC compliance problems identified thereunder.
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CONTROLLED AFFILIATE
TRADEMARK LICENSE AGREEMENT
FOR LIFE AND DISABILTY INSURANCE PRODUCTS
Exhibit 1A1
This Agreement by and among Blue Cross and Blue Shield Association ("BCBSA") and ___________________,
(“Life and Disability Controlled Affiliate”) which is a company offering life and disability insurance products owned
and controlled by __________________, ____________, _____________ ( individually, “Sponsoring Plan” and
when referred to collectively, “Sponsoring Plans”).
Whereas, BCBSA is the owner of the BLUE CROSS and BLUE SHIELD word and design service marks and any
derivatives thereof (“Licensed Marks”);
Whereas, each Sponsoring Plan is licensed separately by BCBSA to use one or more of the Licensed Marks in a
particular Service Area;
Whereas, the Sponsoring Plans and the Life and Disability Controlled Affiliate desire that the latter be entitled to use
the appropriate Licensed Marks in connection with life and disability insurance products in some or all of such
Sponsoring Plans’ Service Areas and in the Service Areas of other Regular Member Plans, as defined in the BCBSA
By-laws, (“Blue Plans”) consistent with the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. GRANT OF LICENSE
a. Subject to the terms and conditions of this Agreement, BCBSA hereby grants to the Life and Disability
Controlled Affiliate the limited right to use the Licensed Marks in connection with and only in connection with the
following life and disability insurance products authorized by state law: (1) Group: Term Life, Long Term Disability,
Whole Life, Benefit Life, Universal Life; (2) Individual: Term Life, Whole Life, Dependent Life, Spouse Life; (3)
Other: Disability Income, Short Term Disability, Long Term Disability, Income Replacement; and (4) such other life
and disability products approved by BCBSA in writing (“Licensed Products”) in the Service Areas served by the
Sponsoring Plans or in the Service Area or Areas of one or more other licensed Blue Plans, provided that such Blue
Plans have consented to such use as authorized by this Agreement. Life and Disability Controlled Affiliate may not
use the Licensed Marks in its legal or trade name.
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b. Notwithstanding that the license granted to Life and Disability Controlled Affiliate is a license to use all
of the Licensed Marks, Life and Disability Controlled Affiliate may only use those of the Licensed Marks in the
Service Area of a Sponsoring Plan or other consenting Blue Plan as described below that such Plan is authorized to
use as a Blue Plan pursuant to its separate license agreements with BCBSA.
c. Life and Disability Controlled Affiliate may use the Licensed Marks in the Service Areas of Sponsoring
Plans or in the Service Area of a Blue Plan that is not a signatory to this Agreement only after such Sponsoring
Plan(s) or non-signatory Blue Plan consents to such use by executing a written consent in substantially the same
form as the Consent Agreement attached as Exhibit B.
d. The following provisions apply with respect to Consent Agreements once such agreements have been
fully and properly executed:
i.All sales, marketing and advertising materials developed by and proposed for use by Life and Disability
Controlled Affiliate in the Service Area of Sponsoring Plan or consenting Blue Plan (hereinafter, such
consenting Sponsoring Plan or consenting Blue Plan collectively referred to “Consenting Plan(s)”) must clearly
identify the Consenting Plan (for example, a statement on such materials that reads “This product is offered
with the cooperation of Blue Cross and/or Blue Shield of [Geography]”);
ii.To the extent the Consenting Plan has separate divisions or other Affiliates that use the Licensed Marks
in distinct geographic areas within its Service Area, consent obtained under this Agreement may be limited to
one or more of such specific geographic areas as specified by the Consenting Plan in its signed Consent
Agreement. For purposes of this entire Agreement, all references to the Service Area of a Sponsoring Plan,
Blue Plan or Consenting Plan may include the entire Service Area or a distinct geographic area within such
Service Area as specified in this Section 1 D (2);
iii.Where BCBSA has licensed two or more Blue Plans to use the same Licensed Marks in the same
Service Area, in addition to the requirements set forth in Section D (1) above, the sales, marketing and
advertising materials referenced in such section above must be communicated to the Consenting Plan’s
existing and prospective accounts through or with the approval of such Consenting Plan, and the personnel of
such Consenting Plan must actively participate in all sales and marketing activities conducted by Life and
Disability Controlled Affiliate in the same Service Area, including participating in meetings (whether in-person
or via telephone, video or internet conference) with both existing and prospective accounts of the Consenting
Plan;
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iv.Life and Disability Controlled Affiliate shall be entitled to use in a Service Area only those Licensed
Marks that the Consenting Plan has been granted by BCBSA the license to use under its Blue Plan license
agreements (for example, if a Consenting Plan is licensed to use only the Blue Cross Marks in its Service
Area, the materials used by Life and Disability Controlled Affiliate in that Service Area may only contain or
reference the Blue Cross Marks and not the Blue Shield Marks).
v.If a Consent Agreement is terminated, Life and Disability Controlled Affiliate shall, unless BCBSA and
the Consenting Plan agree in their sole discretion to a phase out in writing, immediately (i) cease all use of the
Licensed Marks, including in connection with any and all sales and marketing of the Licensed Products in the
Service Area where consent has been terminated, and (ii) notify its customers that it is no longer a licensee
and provide instruction on how the customer can contact BCBSA or a designated licensee to obtain further
information on securing coverage. The notification required by this paragraph shall be in writing and in form
approved by BCBSA.
2. QUALITY CONTROL
A. Life and Disability Controlled Affiliate agrees to use the
Licensed Marks only in relation to the sale, marketing and administration of the Licensed Products and further
agrees to be bound by the conditions regarding quality control shown in Exhibit A and the Guidelines to Administer
the Standards for Trademark License Agreement for Life and Disability Insurance Products attached thereto.
B. Life and Disability Controlled Affiliate agrees that BCBSA
may, from timetotime, upon reasonable notice, review and inspect the manner and method of Life and Disability
Controlled Affiliate's rendering of service and use of the Licensed Marks.
C. Life and Disability Controlled Affiliate agrees that it will
provide on an annual basis (or more often if reasonably required by BCBSA) a report to BCBSA demonstrating Life
and Disability Controlled Affiliate's compliance with the requirements of this Agreement including but not limited to
the quality control provisions of Exhibit A.
D. As used herein, a Life and Disability Controlled Affiliate is
defined as: An entity organized and operated in such a manner that it is 100% owned and controlled by Sponsoring
Plans. Absent written approval by BCBSA of an alternative method of control, control shall mean the legal authority,
directly or indirectly through wholly-owned subsidiaries: (a) to select members of the Life and Disability Controlled
Affiliate's governing body having not less than 100% voting control thereof; (b) to exercise operational control with
respect to the governance -3-
thereof; and (c) to prevent any change in its articles of incorporation, bylaws or other governing documents deemed
inappropriate. In addition, a Sponsoring Plan or Plans shall own at least 100% of any for profit Life and Disability
Controlled Affiliate.
3. SERVICE MARK USE
Life and Disability Controlled Affiliate shall at all times make proper
service mark use of the Licensed Marks and shall ensure all uses of the Licensed Marks comply with the BCBSA
Brand Regulations, as amended by BCBSA from time to time. Life and Disability Controlled Affiliate recognizes and
agrees that all use of the Licensed Marks by Life and Disability Controlled Affiliate shall inure to the benefit of
BCBSA.
4. SUBLICENSING AND ASSIGNMENT
The license hereby granted to Life and Disability Controlled Affiliate
to use the Licensed Marks is and shall be personal to Life and Disability Controlled Affiliate and shall not be
assignable by any act of the Life and Disability Controlled Affiliate, directly or indirectly, without the written consent of
BCBSA. Said license shall not be assignable by operation of law, nor shall Life and Disability Controlled Affiliate
mortgage or part with possession or control of this license or any right hereunder, and the Life and Disability
Controlled Affiliate shall have no right to grant any sublicense to use the Licensed Marks.
5. INFRINGEMENTS
Life and Disability Controlled Affiliate shall promptly notify BCBSA of
any suspected acts of infringement, unfair competition or passing off which may occur in relation to the Licensed
Marks. Life and Disability Controlled Affiliate shall not be entitled to require BCBSA to take any actions or institute
any proceedings to prevent infringement, unfair competition or passing off by third parties. Life and Disability
Controlled Affiliate agrees to render to BCBSA, free of charge, all reasonable assistance in connection with any
matter pertaining to the protection of the Licensed Marks by BCBSA. BCBSA shall have sole control of the defense
and resolution of any claim of infringement brought or threatened by others.
6. LIABILITY INDEMNIFICATION
Life and Disability Controlled Affiliate hereby agrees to save, defend,
indemnify and hold BCBSA harmless from and against all claims, damages, liabilities and costs of every kind, nature
and description which may arise as a result of Life and Disability Controlled Affiliate's conduct.
-4-
7. LICENSE TERM
A. The license granted by this Agreement shall remain in effect for a
period of one (1) year and shall be automatically extended for additional one (1) year periods, unless either BCBSA
or Life and Disability Controlled Affiliate notifies the other party in writing of the termination hereof at least sixty (60)
days prior to expiration of any license period.
B. This Agreement may be terminated by BCBSA for cause at any
time provided that Life and Disability Controlled Affiliate has been given a reasonable opportunity to cure and shall
not effect such a cure within thirty (30) days of receiving written notice of the intent to terminate (or commence a cure
within such thirty day period and continue diligent efforts to complete the cure if such curing cannot reasonably be
completed within such thirty day period). By way of example and not for purposes of limitation, Life and Disability
Controlled Affiliate's failure to abide by the conditions regarding use of the Licensed Marks set forth in Section 1 of
this Agreement or the quality control provisions of Section 2 (other than with respect to Section 2 D which is subject
to immediate termination as stated in Section 7 C (1) below) shall be considered proper grounds for termination of
this Agreement.
C. This Agreement and all of Life and Disability Controlled Affiliate's
rights hereunder shall immediately terminate without any further action by any party or entity in the event that:
(i)Life and Disability Controlled Affiliate shall no longer
comply with Section 2 D (or Standard No. 1 (Organization and Governance) of Exhibit A); or
(ii)Any Sponsoring Plan ceases to be authorized to use the
Licensed Marks; or
(iii)Appropriate fees for Life and Disability Controlled Affiliate
pursuant to Section 8 of this Agreement are more than sixty (60) days in arrears to BCBSA.
Upon termination of this Agreement for cause or otherwise, Life and Disability Controlled Affiliate agrees that it shall
immediately discontinue all use of the Licensed Marks.
In the event of any disagreement between Life and Disability Controlled Affiliate and BCBSA as to whether grounds
exist for termination or as to any other term or condition hereof, the decision of BCBSA shall control, subject to
provisions for mediation or mandatory dispute resolution in effect between the parties.
-5-
Upon termination of this Agreement, Licensed Life and Disability Controlled Affiliate shall immediately notify all of its
customers that it is no longer a licensee of BCBSA and provide instruction on how the customer can contact BCBSA
or a designated licensee to obtain further information on securing coverage. The notification required by this
paragraph shall be in writing and in a form approved by BCBSA. BCBSA shall have the right to audit the terminated
entity's books and records to verify compliance with this paragraph.
8. ROYALTIES
Life and Disability Controlled Affiliate will pay to BCBSA a fee for this license in accordance with the
following formula:
◦ An annual fee of five thousand dollars ($5,000) per license, plus
◦
◦
.05% of gross revenue per year from group products sold under the Licensed Marks, plus
.5% of gross revenue per year from individual products sold under the Licensed Marks
In the event that any license period is greater or less than one (1) year, any amounts due shall be prorated.
Royalties under this formula will be calculated, billed and paid in arrears.
Life and Disability Controlled Affiliate will promptly and timely transmit to BCBSA all fees owed by Life and Disability
Controlled Affiliate as determined by the above formula.
9. JOINT VENTURE
Nothing contained in this Agreement shall be construed as creating a joint venture, partnership, agency or
employment relationship between any Sponsoring Plan and Life and Disability Controlled Affiliate or between among
them and/or BCBSA.
10. VOTING
For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean all entities licensed
under the Blue Cross License Agreement and/or the Blue Shield License Agreement, and in all votes of the Plans
under this Agreement the Plans shall vote together. For weighted votes of the Plans, the Plan shall have a number of
votes equal to the number of weighted votes (if any) that it holds as a Blue Cross Plan plus the number of weighted
votes (if any) that it holds as a Blue Shield Plan. For all other votes of the Plans, the
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Plan shall have one vote. For all questions requiring an affirmative three-fourths weighted vote of the Plans, the
requirement shall be deemed satisfied with a lesser weighted vote unless the greater of: (i) 6/52 or more of the Plans
(rounded to the nearest whole number, with 0.5 or multiples thereof being rounded to the next higher whole number)
fail to cast weighted votes in favor of the question; or (ii) three (3) of the Plans fail to cast weighted votes in favor of
the question. Notwithstanding the foregoing provision, if there are thirty-six (36) Plans, the requirement of an
affirmative three-fourths weighted vote shall be deemed satisfied with a lesser weighted vote unless four (4) or more
Plans fail to cast weighted votes in favor of the question.
11. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or breach or termination thereof shall be in
writing and shall be addressed in duplicate to the last known address of each other party, marked respectively to the
attention of its President and, if any, its General Counsel.
12. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the parties in relation to the subject matter
hereof. This Agreement may only be amended by: (a) a writing signed by all parties; or (b) a writing approved by the
affirmative vote of three-fourths of the Blue Plans and three-fourths of the total then current weighted vote of all the
Blue Plans as officially recorded by the BCBSA Corporate Secretary. Upon such adoption by the Blue Plans, this
Agreement and all other Trademark License Agreements for Life and Disability Insurance Products then in effect
shall simultaneously be amended.
13. SEVERABILITY
If any term of this Agreement is held to be unlawful by a court of competent jurisdiction, such finding
shall in no way affect the remaining obligations of the parties hereunder and the court may substitute a lawful term or
condition for any unlawful term or condition so long as the effect of such substitution is to provide the parties with the
benefits of this Agreement.
14. NONWAIVER
No waiver by BCBSA of any breach or default in performance on the part of the Life and Disability
Controlled Affiliate or any other licensee of any of the terms, covenants or conditions of this Agreement shall
constitute a waiver of any subsequent breach or default in performance of said terms, covenants or conditions.
15. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the
State of Illinois.
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IN WITNESS WHEREOF, the parties have caused this License Agreement to be executed, effective as of the date of
last signature written below.
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By: _
Date: _
Life and Disability Controlled Affiliate:
By: _
Date: _
Sponsoring Plan:
By: __ _
Date: _
Name:________________________________________
Sponsoring Plan:
By: __ _
Date: _
Name:________________________________________
[Add other Sponsoring Plans as necessary]
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EXHIBIT A
LICENSE STANDARDS APPLICABLE TO TRADEMARK LICENSE
AGREEMENT FOR LIFE AND DISABILITY INSURANCE PRODUCTS
Page 1 of 2
Standard 1 - Organization and Governance
Any Life and Disability Controlled Affiliate licensed under the Trademark License Agreement for Life and Disability
Insurance Products (“licensee”) shall be organized and operated in such a manner that it is an entity organized and
operated in such a manner that it is 100% owned and controlled by Sponsoring Plans. Absent written approval by
BCBSA of an alternative method of control, control shall mean the legal authority, directly or indirectly through
wholly-owned subsidiaries: (a) to select members of the Life and Disability Controlled Affiliate's governing body
having not less than 100% voting control thereof; (b) to exercise operational control with respect to the governance
thereof; and (c) to prevent any change in its articles of incorporation, bylaws or other governing documents deemed
inappropriate. In addition, a Sponsoring Plan or Plans shall own at least 100% of any for profit Life and Disability
Controlled Affiliate.
Standard 2 - State Licensure
The licensee must maintain unimpaired licensure or certificate of authority to operate under applicable state laws as
a life company in each state in which the licensee does business.
Standard 3 - Records and Examination
The licensee shall maintain and furnish, on a timely and accurate basis, such records and reports regarding the
licensee as may be required in order to establish compliance with the Agreement. The licensee shall permit BCBSA
to examine the affairs of the licensee and shall agree that BCBSA's board may submit a written report to the chief
executive officer(s) and the board(s) of directors of the Sponsoring Plan(s).
Standard 4 - Mediation
The licensee, its Sponsoring Plan(s) and all consenting Blue Plans shall agree to use the then-current BCBSA
mediation and mandatory dispute resolution processes, in lieu of a legal action between or among another licensed
Life and Disability Controlled Affiliate, a Sponsoring Plan and or consenting Blue Plan or BCBSA.
-1-
EXHIBIT A
LICENSE STANDARDS APPLICABLE TO TRADEMARK LICENSE
AGREEMENT FOR LIFE AND DISABILITY INSURANCE PRODUCTS
Page 2 of 2
Standard 5 - Financial Responsibility
The licensee shall maintain adequate financial resources to protect its customers and meet its business obligations.
Standard 6 - Cooperation with BCBSA Governance
The licensee shall cooperate with BCBSA’s Board of Directors and its Brand Enhancement & Protection
Committee in the administration of and in addressing licensee compliance problems that may be identified in
connection with the operation or administration of the Trademark License Agreement for Life and Disability
Insurance Products.
-2-
EXHIBIT B
CONSENT AGREEMENT
This Consent Agreement is made and entered into by and among the undersigned Blue Plan, and
____________________ (“Life and Disability Controlled Affiliate”), and the Blue Cross and Blue Shield Association
(“BCBSA”) and shall be deemed effective on ______________________ (“Effective Date”).
Whereas, BCBSA owns the Blue Cross and Blue Shield word and design service marks and any derivative mark
thereof (the “Brands”);
Whereas, the undersigned Blue Plan is licensed to use one or more of the Brands within a specific geographic area
(“Service Area”);
Whereas Life and Disability Controlled Affiliate is licensed by BCBSA to use one or more of the Brands to offer life
and disability insurance products (“Products”) as defined and authorized in the Trademark License Agreement for Life
and Disability Insurance Products (“Life and Disability License Agreement”);
Whereas neither the Blue Plan nor its affiliates offer the Products under any of the Brands in such Blue Plan’s Service
Area or portion thereof where Blue Plan has consented to sale of the Products by Life and Disability Controlled
Affiliate; and
Whereas BCBSA and the undersigned Blue Plan desire to consent to Life and Disability Controlled Affiliate’s use of
the Brands in Blue Plan’s Service Area consistent with the terms of the Life and Disability License Agreement and
this Consent Agreement.
Now, therefore, in consideration of the obligations and conditions stated in this Agreement, Blue Plan, Life and
Disability Controlled Affiliate and BCBSA agree as follows:
1.
2.
Life and Disability Controlled Affiliate may market, sell, administer and underwrite the Products in Blue
Plan’s Service Area under the Brands licensed to Blue Plan in such Service Area subject to the terms of
this Consent Agreement, the Life and Disability License Agreement and Blue Plan’s license agreement(s)
with BCBSA. Life and Disability Controlled Affiliate’s rights under the Brands to offer the Products under the
Brands are limited to offering the Products only under the Brand(s) licensed to the consenting Blue Plan.
Life and Disability Controlled Affiliate shall work with the undersigned Blue Plan to develop a written sales
and marketing agreement that
identifies the relationship between it and Blue Plan for the sales, marketing and customer service for the
Products. The term of the sales and marketing agreement shall be the same as the term of this Consent
Agreement.
1
3.
All sales, marketing and advertising materials developed by and proposed for use by Life and Disability
Controlled Affiliate in a consenting Blue Plan’s Service Area must clearly identify the consenting Blue
Plan (for example, a statement on such materials that reads “This product is offered with the
cooperation of Blue Cross and/or Blue Shield of [Geography]”);
4.
Life and Disability Controlled Affiliate may use the Brands to sell the Products in the following Service
Area or portion thereof as designated by Blue Plan:
___________________________________________________
5.
6.
7.
If two or more Blue Plans to use the same Licensed Marks in the same Service Area, Life and Disability
Controlled Affiliate shall work with the consenting Blue Plan in the following manner: (a) the sales,
marketing and advertising materials must be communicated to the consenting Blue Plan’s existing and
prospective accounts through or with the approval of such Blue Plan, and (b) the personnel of such Blue
Plan must actively participate in all sales and marketing activities conducted by Life and Disability
Controlled Affiliate in the same Service Area, including participating in meetings (whether in-person or
via telephone, video or internet conference) with both existing and prospective accounts of the
consenting Blue Plan;
Life and Disability Controlled Affiliate shall be entitled to use in a Service Area only those Licensed
Marks that the consenting Blue Plan has been granted by BCBSA the license to use under its license
agreement (for example, if a consenting Blue Plan is licensed to use only the Blue Cross Marks in its
Service Area, the materials used by Life and Disability Controlled Affiliate in that Service Area may only
contain or reference the Blue Cross Marks and not the Blue Shield Marks).
If this Consent Agreement is terminated, Life and Disability Controlled Affiliate shall, unless each
BCBSA and the Blue Plan agree in their sole discretion to a phase out in writing, immediately (i) cease
all use of the Licensed Marks, including in connection with any and all sales and marketing of the
Licensed Products in the Service Area where consent has been terminated, and (ii) notify its customers
that it is no longer a licensee of BCBSA and provide instruction on how the customer can contact
BCBSA or a designated licensee to obtain further information on securing coverage. The notification
required by this paragraph shall be in writing and in form approved by BCBSA.
2
8.
The term of this Consent Agreement shall be one year from the Effective Date. Unless either Blue Plan
or Life and Disability Controlled Affiliate provides the other party with written notice of its desire not to
renew this Consent Agreement at least 60 days prior to expiration of the term or any extended term or
unless terminated as provided in Paragraph 9 below, this Consent Agreement shall automatically
renew for subsequent one year periods.
9.
This Consent Agreement may be terminated as follows:
a.
Upon mutual written consent of Life and Disability Controlled Affiliate and Blue Plan;
By Blue Plan or Life and Disability Controlled Affiliate upon 60 days advance written notice to the
b.
non-terminating party and BCBSA; or
By Blue Plan immediately if Life and Disability Controlled Affiliate does not comply with this
c.
Consent Agreement or the sales protocol agreement.
10.
This Consent Agreement shall automatically terminate if Blue Plan’s primary licensee agreement
terminates for any reason or if the Life and Disability License Agreement terminates for any reason.
Agreed and Accepted by:
[Blue Plan]:
By:_____________________
Title:____________________
BLUE CROSS AND BLUE SHIELD ASSOCIATION:
By:________________________
Title:________________________
LIFE AND DISABILITY CONTROLLED AFFILIATE:
By:_______________________
Title:_____________________
3
Exhibit 1B
BLUE SHIELD
CONTROLLED AFFILIATE LICENSE AGREEMENT
APPLICABLE TO REGIONAL MEDICARE ADVANTAGE PPO PRODUCTS
(Adopted by Member Plans at their September 17, 2020)
This Agreement by and among Blue Cross and Blue Shield Association ("BCBSA") and _______ (“Controlled
Affiliate"), a Controlled Affiliate of the Blue Cross Plan(s), known as _________ ("Controlling Plans"), each of which is
also a Party signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE SHIELD and BLUE SHIELD Design service marks;
WHEREAS, under the Medicare Modernization Act, companies may apply to and be awarded a contract by the
Centers for Medicare and Medicaid Services (“CMS”) to offer Medicare Advantage PPO products in geographic
regions designated by CMS (hereafter “regional MAPPO products”).
WHEREAS, some of the CMS-designated regions include the Service Areas, or portions thereof, of more than one
Plan.
WHEREAS, the Controlling Plans and Controlled Affiliate desire that the latter be entitled to use the BLUE SHIELD
and BLUE SHIELD Design service marks (collectively the "Licensed Marks") as service marks and be entitled to use
the term BLUE SHIELD in a trade name ("Licensed Name") to offer regional MAPPO products in a region that
includes the Service Areas, or portions thereof, of more than one Controlling Plan;
NOW THEREFORE, in consideration of the foregoing and the mutual agreements hereinafter set forth and for
other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
hereby agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA hereby grants to Controlled Affiliate the right to use
the Licensed Marks and Name in connection with, and only in connection with the sale, marketing and administration
of regional MAPPO products and related services.
This grant of rights is non-exclusive and is limited to the following states: _________________ (the “Region”).
Controlled Affiliate may use the Licensed
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Marks and Name in its legal name on the following conditions: (i) the legal name must be approved in advance, in
writing, by BCBSA; (ii) Controlled Affiliate shall not do business outside the Region under any name or mark except
business conducted in the Service Area of a Controlling Plan provided that Controlled Affiliate is separately licensed
by BCBSA to use the Licensed Marks and Name in connection with health care plans and related services in the
Service Area of such Controlling Plan; and (iii) Controlled Affiliate shall not use the Licensed Marks and Name, or any
derivative thereof, as part of any name or symbol used to identify itself in any securities market. Controlled Affiliate
may use the Licensed Marks and Name in its Trade Name only with the prior, written, consent of BCBSA.
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks and Name only in connection with the licensed services
and further agrees to be bound by the conditions regarding quality control shown in attached Exhibit A as they may
be amended by BCBSA from time-to-time.
B. Controlled Affiliate agrees to comply with all applicable federal, state and local laws.
C. Controlled Affiliate agrees that it will provide on an annual basis (or more often if reasonably required by the
Controlling Plans or by BCBSA) a report or reports to the Controlling Plans and BCBSA demonstrating Controlled
Affiliate's compliance with the requirements of this Agreement including but not limited to the quality control provisions
of this paragraph and the attached Exhibit A.
D. Controlled Affiliate agrees that the Controlling Plans and/or BCBSA may, from time-to-time, upon reasonable
notice, review and inspect the manner and method of Controlled Affiliate's rendering of service and use of the
Licensed Marks and Name.
E. As used herein, a Controlled Affiliate is defined as an entity organized and operated in such a manner, that it
meets the following requirements:
(1) Controlled Affiliate is owned or controlled by two or more Controlling Plans;
(2) Each Controlling Plan is authorized pursuant to a separate Blue Shield License Agreement to use the
Licensed Marks in a geographic area in the Region and every geographic area in the Region is so licensed to at least
one of the Controlling Plans; and
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(3) The Controlling Plans must have the legal authority directly or indirectly through wholly-owned
subsidiaries:
(a) to select members of the Controlled Affiliate’s governing body having not less than 100% voting control
thereof;
(b) to prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of
the Controlled Affiliate with which the Controlling Plans do not concur;
(c) to exercise control over the policy and operations of the Controlled Affiliate; and
Notwithstanding anything to the contrary in (a) through (c) hereof, the Controlled Affiliate’s establishing or governing
documents must also require written approval by each of the Controlling Plans before the Controlled Affiliate can:
(i)change its legal and/or trade names;
(ii) change the geographic area in which it operates (except such approval shall not be required with
respect to business of the Controlled Affiliate conducted under the Licensed Marks within the
Service Area of one of the Controlling Plans pursuant to a separate controlled affiliate license
agreement with BCBSA sponsored by such Controlling Plan);
(iii) change any of the type(s) of businesses in which it engages (except such approval shall not be
required with respect to business of the Controlled Affiliate conducted under the Licensed Marks
within the Service Area of one of the Controlling Plans pursuant to a separate controlled affiliate
license agreement with BCBSA sponsored by such Controlling Plan);
(iv) take any action that any Controlling Plan or BCBSA reasonably believes will adversely affect the
Licensed Marks and Name.
In addition, the Controlling Plans directly or indirectly through wholly owned subsidiaries shall own 100% of any for-
profit Controlled Affiliate.
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3. SERVICE MARK USE
A. Controlled Affiliate recognizes the importance of a comprehensive national network of independent BCBSA
licensees which are committed to strengthening the Licensed Marks and Name. The Controlled Affiliate further
recognizes that its actions within the Region may affect the value of the Licensed Marks and Name nationwide.
B. Controlled Affiliate shall at all times make proper service mark use of the Licensed Marks and Name, including
but not limited to use of such symbols or words as BCBSA shall specify to protect the Licensed Marks and Name and
shall comply with such rules (generally applicable to Controlled Affiliates licensed to use the Licensed Marks and
Name) relative to service mark use, as are issued from time-to-time by BCBSA. Controlled Affiliate recognizes and
agrees that all use of the Licensed Marks and Name by Controlled Affiliate shall inure to the benefit of BCBSA.
C. Controlled Affiliate may not directly or indirectly use the Licensed Marks and Name in a manner that transfers
or is intended to transfer in the Region the goodwill associated therewith to another mark or name, nor may
Controlled Affiliate engage in activity that may dilute or tarnish the unique value of the Licensed Marks and Name.
D. Controlled Affiliate shall use its best efforts to promote and build the value of the Licensed Marks and Name in
connection with the sale, marketing and administration of regional MAPPO products and related services.
4. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not, directly or indirectly, sublicense, transfer, hypothecate, sell, encumber or mortgage, by
operation of law or otherwise, the rights granted hereunder and any such act shall be voidable at the sole option of
any Controlling Plan or BCBSA. This Agreement and all rights and duties hereunder are personal to Controlled
Affiliate.
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5. INFRINGEMENT
Controlled Affiliate shall promptly notify the Controlling Plans and the Controlling Plans shall promptly notify
BCBSA of any suspected acts of infringement, unfair competition or passing off that may occur in relation to the
Licensed Marks and Name. Controlled Affiliate shall not be entitled to require the Controlling Plans or BCBSA to take
any actions or institute any proceedings to prevent infringement, unfair competition or passing off by third parties.
Controlled Affiliate agrees to render to the Controlling Plans and BCBSA, without charge, all reasonable assistance in
connection with any matter pertaining to the protection of the Licensed Marks and Name by BCBSA.
6. LIABILITY INDEMNIFICATION
Controlled Affiliate and the Controlling Plans hereby agree to save, defend, indemnify and hold BCBSA harmless
from and against all claims, damages, liabilities and costs of every kind, nature and description (except those arising
solely as a result of BCBSA's negligence) that may arise as a result of or related to Controlled Affiliate's rendering of
services under the Licensed Marks and Name.
7. LICENSE TERM
A. Except as otherwise provided herein, the license granted by this Agreement shall remain in effect for a period
of one (1) year and shall be automatically extended for additional one (1) year periods unless terminated pursuant to
the provisions herein.
B. This Agreement and all of Controlled Affiliate's rights hereunder shall immediately terminate without any
further action by any party or entity in the event that: (i) any one of the Controlling Plans ceases to be authorized to
use the Licensed Marks and Name; or (ii) pursuant to Paragraph 15(a)(x) of the Blue Shield License Agreement any
one of the Controlling Plans ceases to be authorized to use the Licensed Names and Marks in the Region.
C. Notwithstanding any other provision of this Agreement, this license to use the Licensed Marks and Name may
be forthwith terminated by the Controlling Plans or the affirmative vote of the majority of the Board of Directors of
BCBSA present and voting at a special meeting expressly called by BCBSA for the purpose on ten (10) days written
notice to the Controlling Plans advising of the specific matters at issue and granting the Controlling Plans an
opportunity to be heard and to present their response to the Board for: (1) failure to comply with any applicable
minimum capital or liquidity requirement under the quality control standards of this
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Agreement; or (2) failure to comply with the "Organization and Governance" quality control standard of this
Agreement; or (3) impending financial insolvency; or (4) failure to comply with any of the applicable requirements of
Standards 2, 3, 4, or 5 of attached Exhibit A; or (5) the pendency of any action instituted against the Controlled
Affiliate seeking its dissolution or liquidation of its assets or seeking
appointment of a trustee, interim trustee, receiver or other custodian for any of its property or business or seeking the
declaration or establishment of a trust for any of its property or business, unless this Controlled Affiliate License
Agreement has been earlier terminated under paragraph 7(E); or (6) such other reason as is determined in good faith
immediately and irreparably to threaten the integrity and reputation of BCBSA, the Plans (including the Controlling
Plans), any other licensee including Controlled Affiliate and/or the Licensed Marks and Name.
D. Except as otherwise provided in Paragraphs 7(B), 7(C) or 7(E) herein, should Controlled Affiliate fail to comply
with the provisions of this Agreement and not cure such failure within thirty (30) days of receiving written notice
thereof (or commence a cure within such thirty day period and continue diligent efforts to
complete the cure if such curing cannot reasonably be completed within such thirty day period) BCBSA or the
Controlling Plans shall have the right to issue a notice that the Controlled Affiliate is in a state of noncompliance. If a
state of noncompliance as aforesaid is undisputed by the Controlled Affiliate or is found to exist by a mandatory
dispute resolution panel and is uncured as provided above, BCBSA shall have the right to seek judicial enforcement
of the Agreement or to issue a notice of termination thereof. Notwithstanding any other provisions of this Agreement,
any disputes as to the termination of this License pursuant to Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall
not be subject to mediation and mandatory dispute resolution. All other disputes between or among BCBSA, any of
the Controlling Plans and/or Controlled Affiliate shall be submitted promptly to mediation and mandatory dispute
resolution. The mandatory dispute resolution panel shall have authority to issue orders for specific performance and
assess monetary penalties. Except, however, as provided in Paragraphs 7(B) and 7(E) of this Agreement, this license
to use the Licensed Marks and Name may not be finally terminated for any reason without the affirmative vote of a
majority of the present and voting members of the Board of Directors of BCBSA.
E. This Agreement and all of Controlled Affiliate's rights hereunder shall immediately terminate without any
further action by any party or entity in the event that:
(1) Controlled Affiliate shall no longer comply with item 2(E) above;
(2) Appropriate dues, royalties and other payments for Controlled Affiliate pursuant to paragraph 9 hereof,
which are the royalties for this License Agreement, are more than sixty (60) days in arrears to BCBSA; or
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(3) Any of the following events occur: (i) a voluntary petition shall be filed by Controlled Affiliate seeking
bankruptcy, reorganization, arrangement with creditors or other relief under the bankruptcy laws of the United States
or any other law governing insolvency or debtor relief, or (ii) an involuntary petition or proceeding shall be filed
against Controlled Affiliate seeking bankruptcy, reorganization, arrangement with creditors or other relief under the
bankruptcy laws of the United States or any other law governing insolvency or debtor relief and such petition or
proceeding is consented to or acquiesced in by Controlled Affiliate or is not dismissed within sixty (60) days of the
date upon which the petition or other document commencing the proceeding is served upon the Controlled Affiliate, or
(iii) an order for relief is entered against Controlled Affiliate in any case under the bankruptcy laws of the United
States, or Controlled Affiliate is adjudged bankrupt or insolvent as those terms are defined in the Uniform Commercial
Code as enacted in the State of Illinois by any court of competent jurisdiction, or (iv) Controlled Affiliate makes a
general assignment of its assets for the benefit of creditors, or (v) any government or any government official, office,
agency, branch, or unit assumes control of Controlled Affiliate or delinquency proceedings (voluntary or involuntary)
are instituted, or (vi) an action is brought by Controlled Affiliate seeking its
dissolution or liquidation of its assets or seeking the appointment of a trustee, interim trustee, receiver or other
custodian for any of its property or business, or (vii) an action is instituted by any governmental entity or officer
against Controlled Affiliate seeking its dissolution or liquidation of its assets or seeking the appointment of a trustee,
interim trustee, receiver or other custodian for any of its property or business and such action is consented to or
acquiesced in by Controlled Affiliate or is not dismissed within one hundred thirty (130) days of the date upon which
the pleading or other document commencing the action is served upon the Controlled Affiliate, provided that if the
action is stayed or its prosecution is enjoined, the one hundred thirty (130) day period is tolled for the duration of the
stay or injunction, and provided further, that the Association’s Board of Directors may toll or extend the 130 day
period at any time prior to its expiration, or (viii) a trustee, interim trustee, receiver or other custodian for any of
Controlled Affiliate's property or business is appointed or the Controlled Affiliate is ordered dissolved or liquidated.
Notwithstanding any other provision of this Agreement, a declaration or a request for declaration of the existence of a
trust over any of the Controlled Affiliate’s property or business shall not in itself be deemed to constitute or seek
appointment of a trustee, interim trustee, receiver or other custodian for purposes of subparagraphs 7(E)(3)(vii) and
(viii) of this Agreement.
F. Upon termination of this Agreement for cause or otherwise, Controlled Affiliate agrees that it shall immediately
discontinue all use of the Licensed Marks and Name, including any use in its trade name, except to the extent that it
continues to be authorized to use the Licensed Marks within the Service Area of one of the Controlling Plans
pursuant to a separate controlled affiliate license agreement with BCBSA sponsored by such Controlling Plan.
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G. Upon termination of this Agreement, Controlled Affiliate shall immediately notify all of its customers to
whom it provides products or services under the Licensed Marks pursuant to this Agreement that it is no longer a
licensee of BCBSA and, if directed by the Association’s Board of Directors, shall provide instruction on how the
customer can contact BCBSA or a designated licensee to obtain further information on securing coverage. The
notification required by this
paragraph shall be in writing and in a form approved by BCBSA. The BCBSA shall
have the right to audit the terminated entity's books and records to verify compliance with this paragraph.
H. In the event this Agreement terminates pursuant to 7(B) hereof, upon termination of this Agreement the
provisions of Paragraph 7(G) shall not apply and the following provisions shall apply, except that, in the event that
Controlled Affiliate is separately licensed by BCBSA to use the Licensed Marks in the Service Area of a Controlling
Plan and termination of this Agreement is due to a partial termination of such Controlling Plan’s license pursuant to
Paragraph 15(a)(x)(ii) of the Blue Shield License Agreement, the notices, national account listing, payment, and audit
right listed below shall be applicable solely with respect to the Region and the geographic area for which the
Controlling Plan’s license to use the Licensed Names and Marks is terminated:
(1) The Controlled Affiliate shall send a notice through the U.S. mails, with first class postage affixed, to all
individual and group customers, providers, brokers and agents of products or services sold, marketed, underwritten
or administered by the Controlled Affiliate under the Licensed Marks and Name. The form and content of the notice
shall be specified by BCBSA and shall, at a minimum, notify the recipient of the termination of the license, the
consequences thereof, and instructions for obtaining alternate products or services licensed by BCBSA. This notice
shall be mailed within 15 days after termination.
(2) The Controlled Affiliate shall deliver to BCBSA within five days of a request by BCBSA a listing of national
accounts in which the Controlled Affiliate is involved (in a control, participating or servicing capacity), identifying the
national account and the Controlled Affiliate’s role therein.
(3) Unless the cause of termination is an event respecting BCBSA stated in paragraph 15(a) or (b) of the Plan’s
license agreement with BCBSA to use the Licensed Marks and Name, the Controlled Affiliate, the Controlling Plans,
and any other Licensed Controlled Affiliates of the Controlling Plans shall be jointly liable for payment to BCBSA of an
amount equal to $25 multiplied by the number of Licensed Enrollees of the Controlled Affiliate; provided that if any
Plan other than a Controlling Plan is permitted by BCBSA to use marks or names licensed by BCBSA in a geographic
area in the Region, the payment for Licensed Enrollees in such geographic area shall be multiplied by a fraction, the
numerator of which is the number of Licensed Enrollees of the Controlled Affiliate, the Controlling Plans, and
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any other Licensed Controlled Affiliates of the Controlling Plans in such geographic area and the denominator of
which is the total number of Licensed Enrollees in such geographic area. Licensed Enrollee means each and every
person and covered dependent who is enrolled as an individual or member of a group receiving products or services
sold, marketed or administered under marks or names licensed by BCBSA as determined at the earlier of (i) the end
of the last fiscal year of the terminated entity which ended prior to termination or (ii) the fiscal year which ended
before any transactions causing the termination began. Notwithstanding the
foregoing, the amount payable pursuant to this subparagraph H. (3) shall be due only to the extent that, in BCBSA’s
opinion, it does not cause the net worth of the Controlled Affiliate, the Controlling Plans or any other Licensed
Controlled Affiliates of the Controlling Plans to fall below 100% of the Health Risk-Based Capital formula, or its
equivalent under any successor formula, as set forth in the applicable financial responsibility standards established
by BCBSA (provided such equivalent is approved for purposes of this subparagraph by the affirmative vote of three-
fourths of the Plans and three-fourths of the total then current weighted vote of all the Plans); measured as of the
date of termination, and adjusted for the value of any transactions not made in the ordinary course of business. This
payment shall not be due in connection with transactions exclusively by or among Plans (including the Controlling
Plans) or their affiliates, including reorganizations, combinations or mergers, where the BCBSA Board of Directors
determines that the license
termination does not result in a material diminution in the number of Licensed Enrollees or the extent of their
coverage. In the event that the Controlled Affiliate’s license is reinstated by BCBSA or is deemed to have remained in
effect without interruption by a court of competent jurisdiction, BCBSA shall reimburse the Controlled Affiliate (and/or
the Controlling Plans or their other Licensed Controlled Affiliates, as the case may be) for payments made under this
subparagraph 7.H.(3) only to the extent that such payments exceed the amounts due to BCBSA pursuant to
paragraph 7.K. and any costs associated with reestablishing the terminated Controlling Plan’s Service Area or the
Region, including any payments made by BCBSA to a Plan or Plans (including the other Controlling Plans), or their
Licensed Controlled Affiliates, for purposes of replacing the Controlled Affiliate.
(4) BCBSA shall have the right to audit the books and records of the Controlled Affiliate, the Controlling Plans,
and any other Licensed Controlled Affiliates of the Controlling Plans to verify compliance with this paragraph 7.H.
(5) As to a breach of 7.H.(1), (2), (3) or (4), the parties agree that the obligations are immediately enforceable in a
court of competent jurisdiction. As to a breach of 7.H.(1), (2) or (4) by the Controlled Affiliate, the parties agree there
is no adequate remedy at law and BCBSA is entitled to obtain specific performance.
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I. BCBSA shall be entitled to enjoin the Controlled Affiliate or any related party in a court of competent
jurisdiction from entry into any transaction which would result in a termination of this Agreement unless a Controlling
Plan’s license from BCBSA to use the Licensed Marks and Names has been terminated pursuant to 10(d) of such
Controlling Plan’s license agreement upon the required 6 month written notice.
J. BCBSA acknowledges that it is not the owner of assets of the Controlled Affiliate.
K. In the event this Agreement terminates and is subsequently reinstated by BCBSA or is deemed to have
remained in effect without interruption by a court of competent jurisdiction, the Controlled Affiliate, the Controlling
Plans, and any other
Licensed Controlled Affiliates of the Controlling Plans shall be jointly liable for reimbursing BCBSA the reasonable
costs incurred by BCBSA in connection with the termination and the reinstatement or court action, and any
associated legal proceedings, including but not limited to: outside legal fees, consulting fees, public relations fees,
advertising costs, and costs incurred to develop, lease or establish an interim provider network. Any amount due to
BCBSA under this subparagraph may be waived in whole or in part by the BCBSA Board of Directors in its sole
discretion.
8. DISPUTE RESOLUTION
The parties agree that any disputes between or among them or between or among any of them and one or more
Plans or Controlled Affiliates of Plans that use in any manner the Blue Shield and Blue Shield Marks and Name are
subject to the
Mediation and Mandatory Dispute Resolution process attached to and made a part of each Controlling Plan’s License
from BCBSA to use the Licensed Marks and Name as Exhibit 5 as amended from time-to-time, which documents are
incorporated herein by reference as though fully set forth herein.
9. LICENSE FEE
Controlled Affiliate will pay to BCBSA a fee for this License determined pursuant to the formula(s) set forth in
Exhibit B.
10. JOINT VENTURE
Nothing contained in this Agreement shall be construed as creating a joint venture, partnership, agency or
employment relationship between the Controlling Plans and Controlled Affiliate or between either and BCBSA.
11. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or breach or termination thereof shall be in writing and shall
be addressed in duplicate to the last
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known address of each other party, marked respectively to the attention of its President and, if any, its General
Counsel.
12. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the parties in relation to the subject matter hereof. This
Agreement may only be amended by the affirmative vote of three-fourths of the Plans and three-fourths of the total
then current weighted vote of all the Plans as officially recorded by the BCBSA Corporate Secretary.
13. SEVERABILITY
If any term of this Agreement is held to be unlawful by a court of competent jurisdiction, such findings shall in no
way affect the remaining obligations of the parties hereunder and the court may substitute a lawful term or condition
for any unlawful term or condition so long as the effect of such substitution is to provide the parties with the benefits
of this Agreement.
14. NONWAIVER
No waiver by BCBSA of any breach or default in performance on the part of Controlled Affiliate or any other
licensee of any of the terms, covenants or conditions of this Agreement shall constitute a waiver of any subsequent
breach or default in performance of said terms, covenants or conditions.
14A. VOTING
For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean all entities licensed under the
Blue Cross License Agreement and/or the Blue Shield License Agreement, and in all votes of the Plans under this
Agreement the Plans shall vote together. For weighted votes of the Plans, the Plan shall have a number of votes
equal to the number of weighted votes (if any) that it holds as a Blue Cross Plan plus the number of weighted votes
(if any) that it holds as a Blue Shield Plan. For all other votes of the Plans, the Plan shall have one vote. For all
questions requiring an affirmative three-fourths weighted vote of the Plans, the requirement shall be deemed
satisfied with a lesser weighted vote unless the greater of: (i) 6/52 or more of the Plans (rounded to the nearest
whole number, with
0.5 or multiples thereof being rounded to the next higher whole number) fail to cast weighted votes in favor of the
question; or (ii) three (3) of the Plans fail to cast weighted votes in favor of the question. Notwithstanding the
foregoing provision, if there are thirty-six (36) Plans, the requirement of an affirmative three-fourths weighted vote
shall be deemed satisfied with a lesser weighted vote unless four (4) or more Plans fail to cast weighted votes in
favor of the question.
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15. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of
Illinois.
16. HEADINGS
The headings inserted in this agreement are for convenience only and shall have no bearing on the interpretation
hereof.
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IN WITNESS WHEREOF, the parties have caused this License Agreement to be executed and effective as of the
date of last signature written below.
Controlled Affiliate:
By:________________________________________
Date:______________________________________
Controlling Plan:
By: ________________________________________
Date:_______________________________________
Controlling Plan:
By: ________________________________________
Date:_______________________________________
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By:________________________________________
Date:______________________________________
13
EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
APPLICABLE TO REGIONAL MEDICARE
ADVANTAGE PPO PRODUCTS
September 2020
PREAMBLE
The standards for licensing Controlled Affiliates for Medicare Advantage PPO Products are established by BCBSA
and are subject to change from time-to-time upon the affirmative vote of three-fourths (3/4) of the Plans and three-
fourths (3/4) of the total weighted vote. Each Controlling Plan is required to use a standard Controlled Affiliate license
form provided by BCBSA and to cooperate fully in assuring that the licensed Controlled Affiliate maintains compliance
with the license standards.
Standard 1 - Organization and Governance
A Controlled Affiliate is defined as an entity organized and operated in such a manner, that it meets the following
requirements:
(1) Controlled Affiliate is owned or controlled by two or more Controlling Plans;
(2) Each Controlling Plan is authorized pursuant to a separate Blue Shield License Agreement to use the
Licensed Marks in a geographic area in the Region and every geographic area in the Region is so licensed to at least
one of the Controlling Plans; and
(3) The Controlling Plans must have the legal authority directly or indirectly through wholly-owned subsidiaries:
(a) to select members of the Controlled Affiliate’s governing body having not less than 100% voting control
thereof;
(b) prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of
the Controlled Affiliate with which the Controlling Plans do not concur;
(c) exercise control over the policy and operations of the Controlled Affiliate; and
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EXHIBIT A (continued)
Notwithstanding anything to the contrary in (a) through (c) hereof, the Controlled Affiliate’s establishing or governing
documents must also require written approval by each of the Controlling Plans before the Controlled Affiliate can:
(i) change its legal and/or trade names;
(ii) change the geographic area in which it operates (except
such approval shall not be required with respect to
business of the Controlled Affiliate conducted under the Licensed Marks within the Service
Area of one of the Controlling Plans pursuant to a separate controlled affiliate license
agreement with BCBSA sponsored by such Controlling Plan);
(iii) change any of the type(s) of businesses in which it
engages (except such approval shall not be required with respect to business of the
Controlled Affiliate conducted under the Licensed Marks within the Service Area of one of
the Controlling Plans pursuant to a separate controlled affiliate license agreement with
BCBSA sponsored by such Controlling Plan);
(iv) take any action that any Controlling Plan or BCBSA
reasonably believes will adversely affect the Licensed Marks and Name.
In addition, the Controlling Plans directly or indirectly through wholly-owned subsidiaries shall own 100% of any for-
profit Controlled Affiliate.
Standard 2 - Financial Responsibility
A Controlled Affiliate shall be operated in a manner that provides reasonable financial assurance that it can fulfill all of
its contractual obligations to its customers.
Standard 3 - State Licensure/Certification
A Controlled Affiliate shall maintain appropriate and unimpaired licensure and certifications.
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EXHIBIT A (continued)
Standard 4 - Certain Disclosures
A Controlled Affiliate shall make adequate disclosure in contracting with third parties and in disseminating public
statements of:
a.
b.
the structure of the Blue Cross and Blue Shield System; and
the independent nature of every licensee.
Standard 5 - Reports and Records for Controlled Affiliates
A Controlled Affiliate and/or its Controlling Plans shall furnish, on a timely and accurate basis, reports and records
relating to these Standards and the License Agreements between BCBSA and Controlled Affiliate.
Standard 6 - Best Efforts
During each year, a Controlled Affiliate shall use its best efforts to promote and build the value of the Blue Shield
Marks.
Standard 7 - Participation in Certain National Programs
A Controlled Affiliate shall effectively and efficiently participate in certain national programs from time to time as may
be adopted by Member Plans for the purposes of providing ease of claims processing for customers receiving
benefits outside of the Controlled Affiliate’s service area.
National program requirements include:
a.
b.
Inter-Plan Teleprocessing System (ITS); and
Inter-Plan Medicare Advantage Program.
Standard 8 - Participation in Master Business Associate Agreement
Controlled Affiliates shall comply with the terms of the Business Associate Agreement for Blue Cross and Blue Shield
Licensees to the extent they perform the functions of a business associate or subcontractor to a business associate,
as defined by the Business Associate Agreement.
Amended as of November 15, 2007
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EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENTS
APPLICABLE TO REGIONAL MEDICARE ADVANTAGE PPO PRODUCTS
Controlled Affiliate will pay BCBSA a fee for this license in accordance with the following formula:
An amount equal to its pro rata share of each Controlling Plan dues payable to BCBSA computed with the
addition of the Controlled Affiliate's members using the Marks on regional MAPPO products and related services
as reported on the Quarterly Enrollment Report with BCBSA. The payment by each Controlling Plan of its dues
to BCBSA, including that portion described in this paragraph, will satisfy the requirement of this paragraph, and
no separate payment will be necessary.
Amended as of June 14, 2007
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Exhibit 1C
BLUE SHIELD
CONTROLLED AFFILIATE LICENSE AGREEMENT
APPLICABLE TO REGIONAL MEDICARE PART D PRESCRIPTION DRUG PLAN PRODUCTS
(Adopted by Member Plans at their September 17, 2020 meeting)
This Agreement by and among Blue Cross and Blue Shield Association ("BCBSA") and _______ (“Controlled
Affiliate"), a Controlled Affiliate of the Blue Cross Plan(s), known as _________ ("Controlling Plans"), each of which is
also a Party signatory hereto.
WHEREAS, BCBSA is the owner of the BLUE SHIELD and BLUE SHIELD Design service marks;
WHEREAS, under the Medicare Modernization Act, companies may apply to and be awarded a contract by the
Centers for Medicare and Medicaid Services (“CMS”) to offer Medicare Part D Prescription Drug Plan products in
geographic regions designated by CMS (hereafter “regional PDP products”).
WHEREAS, some of the CMS-designated regions include the Service Areas, or portions thereof, of more than one
Plan.
WHEREAS, the Controlling Plans and Controlled Affiliate desire that the latter be entitled to use the BLUE SHIELD
and BLUE SHIELD Design service marks (collectively the "Licensed Marks") as service marks and be entitled to use
the term BLUE SHIELD in a trade name ("Licensed Name") to offer regional PDP products in a region that includes
the Service Areas, or portions thereof, of more than one Controlling Plan;
NOW THEREFORE, in consideration of the foregoing and the mutual agreements hereinafter set forth and for
other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
hereby agree as follows:
1. GRANT OF LICENSE
Subject to the terms and conditions of this Agreement, BCBSA hereby grants to Controlled Affiliate the right to use
the Licensed Marks and Name in connection with, and only in connection with the sale, marketing and administration
of regional PDP products and related services.
This grant of rights is non-exclusive and is limited to the following states: _________________ (the “Region”).
Controlled Affiliate may use the Licensed
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Marks and Name in its legal name on the following conditions: (i) the legal name must be approved in advance, in
writing, by BCBSA; (ii) Controlled Affiliate shall not do business outside the Region under any name or mark except
business conducted in the Service Area of a Controlling Plan provided that Controlled Affiliate is separately licensed
by BCBSA to use the Licensed Marks and Name in connection with health care plans and related services in the
Service Area of such Controlling Plan; and (iii) Controlled Affiliate shall not use the Licensed Marks and Name, or any
derivative thereof, as part of any name or symbol used to identify itself in any securities market. Controlled Affiliate
may use the Licensed Marks and Name in its Trade Name only with the prior, written, consent of BCBSA.
2. QUALITY CONTROL
A. Controlled Affiliate agrees to use the Licensed Marks and Name only in connection with the licensed services
and further agrees to be bound by the conditions regarding quality control shown in attached Exhibit A as they may
be amended by BCBSA from time-to-time.
B. Controlled Affiliate agrees to comply with all applicable federal, state and local laws.
C. Controlled Affiliate agrees that it will provide on an annual basis (or more often if reasonably required by the
Controlling Plans or by BCBSA) a report or reports to the Controlling Plans and BCBSA demonstrating Controlled
Affiliate's compliance with the requirements of this Agreement including but not limited to the quality control provisions
of this paragraph and the attached Exhibit A.
D. Controlled Affiliate agrees that the Controlling Plans and/or BCBSA may, from time-to-time, upon reasonable
notice, review and inspect the manner and method of Controlled Affiliate's rendering of service and use of the
Licensed Marks and Name.
E. As used herein, a Controlled Affiliate is defined as an entity organized and operated in such a manner, that it
meets the following requirements:
(1) Controlled Affiliate is owned or controlled by two or more Controlling Plans;
(2) Each Controlling Plan is authorized pursuant to a separate Blue Shield License Agreement to use the
Licensed Marks in a geographic area in the Region and every geographic area in the Region is so licensed to at least
one of the Controlling Plans; and
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(3) The Controlling Plans must have the legal authority directly or
indirectly through wholly-owned subsidiaries:
(a) to select members of the Controlled Affiliate’s governing body having not less than 100% voting control
thereof;
(b) to prevent any change in the articles of incorporation, bylaws or other establishing or governing documents
of the Controlled Affiliate with which the Controlling Plans do not concur;
(c) to exercise control over the policy and operations of the
Controlled Affiliate; and
Notwithstanding anything to the contrary in (a) through (c) hereof, the Controlled Affiliate’s establishing or governing
documents must also require written approval by each of the Controlling Plans before the Controlled Affiliate can:
(i) change its legal and/or trade names;
(ii) change the geographic area in which it operates (except such approval shall not be required
with respect to business of the Controlled Affiliate conducted under the Licensed Marks
within the Service Area of one of the Controlling Plans pursuant to a separate controlled
affiliate license agreement with BCBSA sponsored by such Controlling Plan);
(iii) change any of the type(s) of businesses in which it
engages (except such approval shall not be required with respect to business of the
Controlled Affiliate conducted under the Licensed Marks within the Service Area of one of
the Controlling Plans pursuant to a separate controlled affiliate license agreement with
BCBSA sponsored by such Controlling Plan);
(iv) take any action that any Controlling Plan or BCBSA reasonably believes will adversely
affect the Licensed Marks and Name.
In addition, the Controlling Plans directly or indirectly through wholly owned subsidiaries shall own 100% of any for-
profit Controlled Affiliate.
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3. SERVICE MARK USE
A. Controlled Affiliate recognizes the importance of a comprehensive national network of independent BCBSA
licensees which are committed to strengthening the Licensed Marks and Name. The Controlled Affiliate further
recognizes that its actions within the Region may affect the value of the Licensed Marks and Name nationwide.
B. Controlled Affiliate shall at all times make proper service mark use of the Licensed Marks and Name, including
but not limited to use of such symbols or words as BCBSA shall specify to protect the Licensed Marks and Name and
shall comply with such rules (generally applicable to Controlled Affiliates licensed to use the Licensed Marks and
Name) relative to service mark use, as are issued from time-to-time by BCBSA. Controlled Affiliate recognizes and
agrees that all use of the Licensed Marks and Name by Controlled Affiliate shall inure to the benefit of BCBSA.
C. Controlled Affiliate may not directly or indirectly use the Licensed Marks and Name in a manner that transfers
or is intended to transfer in the Region the goodwill associated therewith to another mark or name, nor may
Controlled Affiliate engage in activity that may dilute or tarnish the unique value of the Licensed Marks and Name.
D. Controlled Affiliate shall use its best efforts to promote and build the value of the Licensed Marks and Name in
connection with the sale, marketing and administration of regional PDP products and related services.
4. SUBLICENSING AND ASSIGNMENT
Controlled Affiliate shall not, directly or indirectly, sublicense, transfer, hypothecate, sell, encumber or mortgage, by
operation of law or otherwise, the rights granted hereunder and any such act shall be voidable at the sole option of
any Controlling Plan or BCBSA. This Agreement and all rights and duties hereunder are personal to Controlled
Affiliate.
5. INFRINGEMENT
Controlled Affiliate shall promptly notify the Controlling Plans and the Controlling Plans shall promptly notify
BCBSA of any suspected acts of infringement, unfair competition or passing off that may occur in relation to the
Licensed Marks and Name. Controlled Affiliate shall not be entitled to require the Controlling Plans or BCBSA to take
any actions or institute any proceedings to prevent infringement, unfair competition or passing off by third parties.
Controlled Affiliate agrees to render to the Controlling Plans and BCBSA, without charge, all reasonable assistance in
connection with any matter pertaining to the protection of the Licensed Marks and Name by BCBSA.
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6. LIABILITY INDEMNIFICATION
Controlled Affiliate and the Controlling Plans hereby agree to save, defend, indemnify and hold BCBSA harmless
from and against all claims, damages, liabilities and costs of every kind, nature and description (except those arising
solely as a result of BCBSA's negligence) that may arise as a result of or related to Controlled Affiliate's rendering of
services under the Licensed Marks and Name.
7. LICENSE TERM
A. Except as otherwise provided herein, the license granted by this Agreement shall remain in effect for a period
of one (1) year and shall be automatically extended for additional one (1) year periods unless terminated pursuant to
the provisions herein.
B. This Agreement and all of Controlled Affiliate's rights hereunder shall immediately terminate without any
further action by any party or entity in the event that: (i) any one of the Controlling Plans ceases to be authorized to
use the Licensed Marks and Name; or (ii) pursuant to Paragraph 15(a)(x) of the Blue Shield License Agreement any
one of the Controlling Plans ceases to be authorized to use the Licensed Names and Marks in the Region.
C. Notwithstanding any other provision of this Agreement, this license to use the Licensed Marks and Name may
be forthwith terminated by the Controlling Plans or the affirmative vote of the majority of the Board of Directors of
BCBSA present and voting at a special meeting expressly called by BCBSA for the purpose on ten (10) days written
notice to the Controlling Plans advising of the specific matters at issue and granting the Controlling Plans an
opportunity to be heard and to present their response to the Board for: (1) failure to comply with any applicable
minimum capital or liquidity requirement under the quality control standards of this
Agreement; or (2) failure to comply with the "Organization and Governance" quality control standard of this
Agreement; or (3) impending financial insolvency; or (4) failure to comply with any of the applicable requirements of
Standards 2, 3, 4, or 5 of attached Exhibit A; or (5) the pendency of any action instituted against the Controlled
Affiliate seeking its dissolution or liquidation of its assets or seeking appointment of a trustee, interim trustee, receiver
or other custodian for any of its property or business or seeking the declaration or establishment of a trust for any of
its property or business, unless this Controlled Affiliate License Agreement has been earlier terminated under
paragraph 7(E); or (6) such other reason as is determined in good faith immediately and irreparably to threaten the
integrity and reputation of BCBSA, the Plans (including the Controlling Plans), any other licensee including Controlled
Affiliate and/or the Licensed Marks and Name.
D. Except as otherwise provided in Paragraphs 7(B), 7(C) or 7(E) herein, should Controlled Affiliate fail to comply
with the provisions of this Agreement and not cure such failure within thirty (30) days of receiving written notice
thereof (or commence a cure within such thirty day period and continue diligent efforts to
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complete the cure if such curing cannot reasonably be completed within such thirty day period) BCBSA or the
Controlling Plans shall have the right to issue a notice that the Controlled Affiliate is in a state of noncompliance. If a
state of noncompliance as aforesaid is undisputed by the Controlled Affiliate or is found to exist by a mandatory
dispute resolution panel and is uncured as provided above, BCBSA shall have the right to seek judicial enforcement
of the Agreement or to issue a notice of termination thereof. Notwithstanding any other provisions of this Agreement,
any disputes as to the termination of this License pursuant to Paragraphs 7(B), 7(C) or 7(E) of this Agreement shall
not be subject to mediation and mandatory dispute resolution. All other disputes between or among BCBSA, any of
the Controlling Plans and/or Controlled Affiliate shall be submitted promptly to mediation and mandatory dispute
resolution. The mandatory dispute resolution panel shall have authority to issue orders for specific performance and
assess monetary penalties. Except, however, as provided in Paragraphs 7(B) and 7(E) of this Agreement, this license
to use the Licensed Marks and Name may not be finally terminated for any reason without the affirmative vote of a
majority of the present and voting members of the Board of Directors of BCBSA.
E. This Agreement and all of Controlled Affiliate's rights hereunder shall immediately terminate without any
further action by any party or entity in the event that:
(1) Controlled Affiliate shall no longer comply with item 2(E) above;
(2) Appropriate dues, royalties and other payments for Controlled Affiliate pursuant to paragraph 9 hereof, which
are the royalties for this License Agreement, are more than sixty (60) days in arrears to BCBSA; or
(3) Any of the following events occur: (i) a voluntary petition shall be filed by Controlled Affiliate seeking
bankruptcy, reorganization, arrangement with creditors or other relief under the bankruptcy laws of the United States
or any other law governing insolvency or debtor relief, or (ii) an involuntary petition or proceeding shall be filed
against Controlled Affiliate seeking bankruptcy, reorganization, arrangement with creditors or other relief under the
bankruptcy laws of the United States or any other law governing insolvency or debtor relief and such petition or
proceeding is consented to or acquiesced in by Controlled Affiliate or is not dismissed within sixty (60) days of the
date upon which the petition or other document commencing the proceeding is served upon the Controlled Affiliate, or
(iii) an order for relief is entered against Controlled Affiliate in any case under the bankruptcy laws of the United
States, or Controlled Affiliate is adjudged bankrupt or insolvent as those terms are defined in the Uniform Commercial
Code as enacted in the State of Illinois by any court of competent jurisdiction, or (iv) Controlled Affiliate makes a
general assignment of its assets for the benefit of creditors, or (v) any government or any government official, office,
agency, branch, or unit assumes control of Controlled Affiliate or delinquency proceedings (voluntary or involuntary)
are instituted, or (vi) an action is brought by Controlled Affiliate seeking its dissolution or liquidation of its assets or
seeking the appointment of a trustee, interim
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trustee, receiver or other custodian for any of its property or business, or (vii) an action is instituted by any
governmental entity or officer against Controlled Affiliate seeking its dissolution or liquidation of its assets or seeking
the appointment of a trustee, interim trustee, receiver or other custodian for any of its property or business and such
action is consented to or acquiesced in by Controlled Affiliate or is not dismissed within one hundred thirty (130) days
of the date upon which the pleading or other document commencing the action is served upon the Controlled Affiliate,
provided that if the action is stayed or its prosecution is enjoined, the one hundred thirty (130) day period is tolled for
the duration of the stay or injunction, and provided further, that the Association’s Board of Directors may toll or extend
the 130 day period at any time prior to its expiration, or (viii) a trustee, interim trustee, receiver or other custodian for
any of Controlled Affiliate's property or business is appointed or the Controlled Affiliate is ordered dissolved or
liquidated. Notwithstanding any other provision of this Agreement, a declaration or a request for declaration of the
existence of a trust over any of the Controlled Affiliate’s property or business shall not in itself be deemed to
constitute or seek appointment of a trustee, interim trustee, receiver or other custodian for purposes of
subparagraphs 7(E)(3)(vii) and (viii) of this Agreement.
F. Upon termination of this Agreement for cause or otherwise, Controlled Affiliate agrees that it shall immediately
discontinue all use of the Licensed Marks and Name, including any use in its trade name, except to the extent that it
continues to be authorized to use the Licensed Marks within the Service Area of one of the Controlling Plans
pursuant to a separate controlled affiliate license agreement with BCBSA sponsored by such Controlling Plan.
G. Upon termination of this Agreement, Controlled Affiliate shall immediately notify all of its customers to
whom it provides products or services under the Licensed Marks pursuant to this Agreement that it is no longer a
licensee of BCBSA and, if directed by the Association’s Board of Directors, shall provide instruction on how the
customer can contact BCBSA or a designated licensee to obtain further information on securing coverage. The
notification required by this paragraph shall be in writing and in a form approved by BCBSA. The BCBSA shall
have the right to audit the terminated entity's books and records to verify compliance with this paragraph.
H. In the event this Agreement terminates pursuant to 7(B) hereof, upon termination of this Agreement the
provisions of Paragraph 7(G) shall not apply and the following provisions shall apply, except that, in the event that
Controlled Affiliate is separately licensed by BCBSA to use the Licensed Marks in the Service Area of a Controlling
Plan and termination of this Agreement is due to a partial termination of such Controlling Plan’s license pursuant to
Paragraph 15(a)(x)(ii) of the Blue Shield License Agreement, the notices, national account listing, payment, and audit
right listed below shall be applicable solely with respect to the Region and the geographic area for which the
Controlling Plan’s license to use the Licensed Names and Marks is terminated:
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(1) The Controlled Affiliate shall send a notice through the U.S. mails, with first class postage affixed, to all
individual and group customers, providers, brokers and agents of products or services sold, marketed, underwritten
or administered by the Controlled Affiliate under the Licensed Marks and Name. The form and content of the notice
shall be specified by BCBSA and shall, at a minimum, notify the recipient of the termination of the license, the
consequences thereof, and instructions for obtaining alternate products or services licensed by BCBSA. This notice
shall be mailed within 15 days after termination.
(2) The Controlled Affiliate shall deliver to BCBSA within five days of a request by BCBSA a listing of national
accounts in which the Controlled Affiliate is involved (in a control, participating or servicing capacity), identifying the
national account and the Controlled Affiliate’s role therein.
(3) Unless the cause of termination is an event respecting BCBSA stated in paragraph 15(a) or (b) of the Plan’s
license agreement with BCBSA to use the Licensed Marks and Name, the Controlled Affiliate, the Controlling Plans,
and any other Licensed Controlled Affiliates of the Controlling Plans shall be jointly liable for payment to BCBSA of an
amount equal to $25 multiplied by the number of Licensed Enrollees of the Controlled Affiliate; provided that if any
Plan other than a Controlling Plan is permitted by BCBSA to use marks or names licensed by BCBSA in a geographic
area in the Region, the payment for Licensed Enrollees in such geographic area shall be multiplied by a fraction, the
numerator of which is the number of Licensed Enrollees of the Controlled Affiliate, the Controlling Plans, and any
other Licensed Controlled Affiliates of the Controlling Plans in such geographic area and the denominator of which is
the total number of Licensed Enrollees in such geographic area. Licensed Enrollee means each and every person
and covered dependent who is enrolled as an individual or member of a group receiving products or services sold,
marketed or administered under marks or names licensed by BCBSA as determined at the earlier of (i) the end of the
last fiscal year of the terminated entity which ended prior to termination or (ii) the fiscal year which ended before any
transactions causing the termination began. Notwithstanding the foregoing, the amount payable pursuant to this
subparagraph H. (3) shall be due only to the extent that, in BCBSA’s opinion, it does not cause the net worth of the
Controlled Affiliate, the Controlling Plans or any other Licensed Controlled Affiliates of the Controlling Plans to fall
below 100% of the Health Risk-Based Capital formula, or its equivalent under any successor formula, as set forth in
the applicable financial responsibility standards established by BCBSA (provided such equivalent is approved for
purposes of this subparagraph by the affirmative vote of three-fourths of the Plans and three-fourths of the total then
current weighted vote of all the Plans); measured as of the date of termination, and adjusted for the value of any
transactions not made in the ordinary course of business. This payment shall not be due in connection with
transactions exclusively by or among Plans (including the Controlling Plans) or their affiliates, including
reorganizations, combinations or mergers, where the BCBSA Board of Directors determines that the license
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termination does not result in a material diminution in the number of Licensed Enrollees or the extent of their
coverage. In the event that the Controlled Affiliate’s
license is reinstated by BCBSA or is deemed to have remained in effect without interruption by a court of competent
jurisdiction, BCBSA shall reimburse the Controlled Affiliate (and/or the Controlling Plans or their other Licensed
Controlled Affiliates, as the case may be) for payments made under this subparagraph 7.H.(3) only to the extent that
such payments exceed the amounts due to BCBSA pursuant to paragraph 7.K. and any costs associated with
reestablishing the terminated Controlling Plan’s Service Area or the Region, including any payments made by BCBSA
to a Plan or Plans (including the other Controlling Plans), or their Licensed Controlled Affiliates, for purposes of
replacing the Controlled Affiliate.
(4) BCBSA shall have the right to audit the books and records of the Controlled Affiliate, the Controlling Plans,
and any other Licensed Controlled Affiliates of the Controlling Plans to verify compliance with this paragraph 7.H.
(5) As to a breach of 7.H.(1), (2), (3) or (4), the parties agree that the obligations are immediately enforceable in a
court of competent jurisdiction. As to a breach of 7.H.(1), (2) or (4) by the Controlled Affiliate, the parties agree there
is no adequate remedy at law and BCBSA is entitled to obtain specific performance.
I. BCBSA shall be entitled to enjoin the Controlled Affiliate or any related party in a court of competent
jurisdiction from entry into any transaction which would result in a termination of this Agreement unless a Controlling
Plan’s license from BCBSA to use the Licensed Marks and Names has been terminated pursuant to 10(d) of such
Controlling Plan’s license agreement upon the required 6 month written notice.
J. BCBSA acknowledges that it is not the owner of assets of the Controlled Affiliate.
K. In the event this Agreement terminates and is subsequently reinstated by BCBSA or is deemed to have
remained in effect without interruption by a court of competent jurisdiction, the Controlled Affiliate, the Controlling
Plans, and any other Licensed Controlled Affiliates of the Controlling Plans shall be jointly liable for reimbursing
BCBSA the reasonable costs incurred by BCBSA in connection with the termination and the reinstatement or court
action, and any associated legal proceedings, including but not limited to: outside legal fees, consulting fees, public
relations fees, advertising costs, and costs incurred to develop, lease or establish an interim provider network. Any
amount due to BCBSA under this subparagraph may be waived in whole or in part by the BCBSA Board of Directors
in its sole discretion.
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8. DISPUTE RESOLUTION
The parties agree that any disputes between or among them or between or among any of them and one or more
Plans or Controlled Affiliates of Plans that use in any manner the Blue Shield and Blue Shield Marks and Name are
subject to the Mediation and Mandatory Dispute Resolution process attached to and made a part of each Controlling
Plan’s License from BCBSA to use the Licensed Marks and Name as Exhibit 5 as amended from time-to-time, which
documents are incorporated herein by reference as though fully set forth herein.
9. LICENSE FEE
Controlled Affiliate will pay to BCBSA a fee for this License determined pursuant to the formula(s) set forth in
Exhibit B.
10. JOINT VENTURE
Nothing contained in this Agreement shall be construed as creating a joint venture, partnership, agency or
employment relationship between the Controlling Plans and Controlled Affiliate or between either and BCBSA.
11. NOTICES AND CORRESPONDENCE
Notices regarding the subject matter of this Agreement or breach or termination thereof shall be in writing and shall
be addressed in duplicate to the last known address of each other party, marked respectively to the attention of its
President and, if any, its General Counsel.
12. COMPLETE AGREEMENT
This Agreement contains the complete understandings of the parties in relation to the subject matter hereof. This
Agreement may only be amended by the affirmative vote of three-fourths of the Plans and three-fourths of the total
then current weighted vote of all the Plans as officially recorded by the BCBSA Corporate Secretary.
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13. SEVERABILITY
If any term of this Agreement is held to be unlawful by a court of competent jurisdiction, such findings shall in no
way affect the remaining obligations of the parties hereunder and the court may substitute a lawful term or condition
for any unlawful term or condition so long as the effect of such substitution is to provide the parties with the benefits
of this Agreement.
14. NONWAIVER
No waiver by BCBSA of any breach or default in performance on the part of Controlled Affiliate or any other
licensee of any of the terms, covenants or conditions of this Agreement shall constitute a waiver of any subsequent
breach or default in performance of said terms, covenants or conditions.
14A. VOTING
For all provisions of this Agreement referring to voting, the term ‘Plans’ shall mean all entities licensed under the
Blue Cross License Agreement and/or the Blue Shield License Agreement, and in all votes of the Plans under this
Agreement the Plans shall vote together. For weighted votes of the Plans, the Plan shall have a number of votes
equal to the number of weighted votes (if any) that it holds as a Blue Cross Plan plus the number of weighted votes
(if any) that it holds as a Blue Shield Plan. For all other votes of the Plans, the Plan shall have one vote. For all
questions requiring an affirmative three-fourths weighted vote of the Plans, the
requirement shall be deemed satisfied with a lesser weighted vote unless the greater of: (i) 6/52 or more of the Plans
(rounded to the nearest whole number, with
0.5 or multiples thereof being rounded to the next higher whole number) fail to cast weighted votes in favor of the
question; or (ii) three (3) of the Plans fail to cast weighted votes in favor of the question. Notwithstanding the
foregoing provision, if there are thirty-six (36) Plans, the requirement of an affirmative three-fourths weighted vote
shall be deemed satisfied with a lesser weighted vote unless four (4) or more Plans fail to cast weighted votes in
favor of the question.
15. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of
Illinois.
16. HEADINGS
The headings inserted in this agreement are for convenience only and shall have no bearing on the interpretation
hereof.
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IN WITNESS WHEREOF, the parties have caused this License Agreement to be executed and effective as of the
date of last signature written below.
Controlled Affiliate:
By:________________________________________
Date:______________________________________
Controlling Plan:
By: ________________________________________
Date:_______________________________________
Controlling Plan:
By: ________________________________________
Date:_______________________________________
BLUE CROSS AND BLUE SHIELD ASSOCIATION
By:________________________________________
Date:______________________________________
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EXHIBIT A
CONTROLLED AFFILIATE LICENSE STANDARDS
APPLICABLE TO REGIONAL MEDICARE
PART D PRESCRIPTION DRUG PLAN PRODUCTS
September 2020
PREAMBLE
The standards for licensing Controlled Affiliates for Medicare Part D Prescription Drug Plan Products are established
by BCBSA and are subject to change from time-to-time upon the affirmative vote of three-fourths (3/4) of the Plans
and three-fourths (3/4) of the total weighted vote. Each Controlling Plan is required to use a standard Controlled
Affiliate license form provided by BCBSA and to cooperate fully in assuring that the licensed Controlled Affiliate
maintains compliance with the license standards.
Standard 1 - Organization and Governance
A Controlled Affiliate is defined as an entity organized and operated in such a manner, that it meets the following
requirements:
(1) Controlled Affiliate is owned or controlled by two or more Controlling Plans;
(2) Each Controlling Plan is authorized pursuant to a separate Blue Shield License Agreement to use the
Licensed Marks in a geographic area in the Region and every geographic area in the Region is so licensed to at least
one of the Controlling Plans; and
(3) The Controlling Plans must have the legal authority directly or indirectly through wholly-owned subsidiaries:
(a) to select members of the Controlled Affiliate’s governing body having not less than 100% voting control
thereof;
(b) prevent any change in the articles of incorporation, bylaws or other establishing or governing documents of
the Controlled Affiliate with which the Controlling Plans do not concur;
(c) exercise control over the policy and operations of the Controlled Affiliate; and
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EXHIBIT A (continued)
Notwithstanding anything to the contrary in (a) through (c) hereof, the Controlled Affiliate’s establishing or governing
documents must also require written approval by each of the Controlling Plans before the Controlled Affiliate can:
(i) change its legal and/or trade names;
(ii) change the geographic area in which it operates (except
such approval shall not be required with respect to business of the Controlled Affiliate
conducted under the Licensed Marks within the Service Area of one of the Controlling
Plans pursuant to a separate controlled affiliate license agreement with BCBSA sponsored
by such Controlling Plan);
(iii) change any of the type(s) of businesses in which it
engages (except such approval shall not be required with respect to business of the
Controlled Affiliate conducted under the Licensed Marks within the Service Area of one of
the Controlling Plans pursuant to a separate controlled affiliate license agreement with
BCBSA sponsored by such Controlling Plan);
(iv) take any action that any Controlling Plan or BCBSA
reasonably believes will adversely affect the Licensed Marks and Name.
In addition, the Controlling Plans directly or indirectly through wholly-owned subsidiaries shall own 100% of any for-
profit Controlled Affiliate.
Standard 2 - Financial Responsibility
A Controlled Affiliate shall be operated in a manner that provides reasonable financial assurance that it can fulfill all of
its contractual obligations to its customers.
Standard 3 - State Licensure/Certification
A Controlled Affiliate shall maintain appropriate and unimpaired licensure and certifications.
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EXHIBIT A (continued)
Standard 4 - Certain Disclosures
A Controlled Affiliate shall make adequate disclosure in contracting with third parties and in disseminating public
statements of:
a.
b.
the structure of the Blue Cross and Blue Shield System; and
the independent nature of every licensee.
Standard 5 - Reports and Records for Controlled Affiliates
A Controlled Affiliate and/or its Controlling Plans shall furnish, on a timely and accurate basis, reports and records
relating to these Standards and the License Agreements between BCBSA and Controlled Affiliate.
Standard 6 - Best Efforts
During each year, a Controlled Affiliate shall use its best efforts to promote and build the value of the Blue Shield
Marks.
Standard 7 - Participation in Master Business Associate Agreement
Controlled Affiliates shall comply with the terms of the Business Associate Agreement for Blue Cross and Blue Shield
Licensees to the extent they perform the functions of a business associate or subcontractor to a business associate,
as defined by the Business Associate Agreement.
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EXHIBIT B
ROYALTY FORMULA FOR SECTION 9 OF THE
CONTROLLED AFFILIATE LICENSE AGREEMENTS
APPLICABLE TO REGIONAL MEDICARE PART D PRESCRIPTION DRUG PLAN PRODUCTS
Controlled Affiliate will pay BCBSA a fee for this license in accordance with the following formula:
An amount equal to its pro rata share of each Controlling Plan dues payable to BCBSA computed with the
addition of the Controlled Affiliate's members using the Marks on regional PDP products and related services as
reported on the Quarterly Enrollment Report with BCBSA. The payment by each Controlling Plan of its dues to
BCBSA, including that portion described in this paragraph, will satisfy the requirement of this paragraph, and no
separate payment will be necessary.
Amended as of June 14, 2007
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EXHIBIT 2
Membership Standards
Page 1 of 5
Preamble
The Membership Standards apply to all organizations seeking to become or to continue as Regular Members of the
Blue Cross and Blue Shield Association. Any organization seeking to become a Regular Member must be found to
be in substantial compliance with all Membership Standards at the time membership is granted and the organization
must be found to be in substantial compliance with all Membership Standards for a period of two (2) years preceding
the date of its application. If Membership is sought by an entity which controls or is controlled by one or more Plans,
such compliance shall be determined on the basis of compliance by such Plan or Plans.
The Regular Member Plans shall have authority to interpret these Standards.
A Regular Member Plan that operates as a “Shell Holding Company” is defined as an entity that assumes no
underwriting risk and has less than 1% of the consolidated enterprise assets (excludes investments in subsidiaries)
and less than 5% of the consolidated enterprise net general and administrative expenses.
A Regular Member Plan that operates as a “Hybrid Holding Company” is defined as an entity that assumes no
underwriting risk and has either more than 1% of the consolidated enterprise assets (excludes investments in
subsidiaries) or more than 5% of the consolidated enterprise net general and administrative expenses.
Standard 1: A Plan shall maintain a governing Board, which shall control the Plan and ensure that the Plan
follows appropriate practices of corporate governance. A Plan's Board shall not be controlled by
any special interest group, shall make an annual determination that a majority of its directors are
independent, and shall act in the best interest of its Corporation and its customers. The Board
shall be composed of a majority of persons other than providers of health care services, who shall
be known as public members. A public member shall not be an employee of or have a financial
interest in a health care provider, nor be a member of a profession which provides health care
services.
Amended as of March 15, 2007
EXHIBIT 2
Membership Standards
Page 2 of 5
Standard 2: A Plan shall furnish to the Association on a timely and accurate basis reports and records relating to
compliance with these Standards and the License Agreements between the Association and the
Plans. Such reports and records are the following:
A. BCBSA Membership Information Request;
B. Triennial trade name and service mark usage material, including disclosure material under Standard 7;
C. Changes in the governance of the Plan, including changes in a Plan's Charter, Articles of
Incorporation, or Bylaws, changes in a Plan's Board composition, or changes in the identity
of the Plan's Principal Officers;
D. Quarterly Financial Report, Semi-annual “Health Risk-Based Capital (HRBC) Report” as defined by the
NAIC, Annual Budget, Annual Certified Audit Report, Insurance Department Examination
Report, Annual Statement filed with State Insurance Department (with all attachments), Plan,
Subsidiary and Affiliate Report; and
• Plans that are a Shell Holding Company as defined in the Preamble hereto are required to
furnish only a calendar year-end “Health Risk-Based Capital (HRBC) Report” as defined
by the NAIC.
Amended as of November 17,2011
EXHIBIT 2
Membership Standards
Page 3 of 5
E. Quarterly Enrollment Report, Quarterly Member Touchpoint Measures Index (MTM) through
12/31/2011, and Semi-annual MTM Index starting 1/1/2012 and thereafter.
• For purposes of MTM reporting only, a Plan shall file a separate MTM report for each
Geographic Market.
Standard 3: A Plan shall be operated in a manner that provides reasonable financial assurance that it can fulfill its
contractual obligations to its customers.
Standard 4: A Plan shall be operated in a manner responsive to customer needs and requirements.
Standard 5: A Plan shall effectively and efficiently participate in each national program as from time to time may be
adopted by the Member Plans for the purposes of providing portability of membership between
the Plans and ease of claims processing for customers receiving benefits outside of the Plan's
Service Area.
Such programs are applicable to Blue Cross and Blue Shield Plans, and include:
A. Inter-Plan Teleprocessing System (ITS);
B. BlueCard Program;
C. National Account Programs;
D. Business Associate Agreement for Blue Cross and Blue Shield Licensees, effective April 14, 2003; and
E. Inter-Plan Medicare Advantage Program.
Amended as of November 21, 2014
EXHIBIT 2
Membership Standards
Page 4 of 5
Standard 6: In addition to requirements under the national programs listed in Standard 5: Participation in National
Programs, a Plan shall take such action as required to ensure its financial performance in
programs and contracts of an inter-Plan nature or where the Association is a party.
Standard 7: A Plan shall make adequate disclosure in contracting with third parties and in disseminating public
statements of (i) the structure of the Blue Cross and Blue Shield System, (ii) the independent
nature of every Plan, and (iii) the Plan's financial condition.
Standard 8: A Plan shall cooperate with the Association's Board of Directors and its Brand Enhancement &
Protection Committee in the administration of the Plan Performance Response Process and in
addressing Plan performance problems identified thereunder.
Standard 9: A Plan shall obtain a rating of its financial strength from an independent rating agency approved by the
Association's Board of Directors for such purpose.
Standard 10: Notwithstanding any other provision in this License Agreement, during each year, a Plan and its
Controlled Affiliate(s) engaged in providing licensable services (excluding Life Insurance and
Charitable Foundation Services) shall use their best efforts to promote and build the value of
the Blue Shield Marks.
Standard 11: Neither a Plan nor any Larger Controlled Affiliate shall cause or permit an entity other than a Plan or
a Licensed Controlled Affiliate thereof to obtain control of the Plan or Larger Controlled Affiliate
or to acquire a substantial portion of its assets related to licensable services.
Amended as of June 16, 2005
EXHIBIT 2
Membership Standards
Page 5 of 5
Standard 12: No provider network, or portion thereof, shall be rented or otherwise made available to a National
Competitor if the Licensed Marks or Names are used in any way with such network.
A provider network may be rented or otherwise made available, provided there is no use of the Licensed
Marks or Names with respect to the network being rented.
Standard 13: Each Plan shall operate in a manner to reasonably: 1) protect the security and confidentiality of
Personally Identifiable Information (PII) and Protected Health Information (PHI); 2) protect the
Brands from reputational damage; and 3) cooperate with BCBSA and other Plans if a data
security incident or data breach occurs.
Amended as of June 18, 2015
EXHIBIT 3
GUIDELINES WITH RESPECT TO USE OF
LICENSED NAME AND MARKS IN CONNECTION WITH NATIONAL ACCOUNTS
Page 1 of 3
1. The strength of the Blue Cross/Blue Shield National Accounts mechanism, and the continued provision of cost
effective, quality health care benefits to National Accounts, are predicated on locally managed provider networks
coordinated on a national scale in a manner consistent with effective service to National Account customers and
consistent with the preservation of the integrity of the Blue Cross/Blue Shield system and the Licensed Marks. These
guidelines shall be interpreted in keeping with such ends.
2. A National Account is an entity with employee and/or retiree locations in more than one Plan's Service Area.
Unless otherwise agreed, a National Account is deemed located in the Service Area in which the corporate
headquarters of the National Account is located. A local plant, office or division headquarters of an entity may be
deemed a separate National Account when that local plant, office or division headquarters 1) has employee locations
in more than one Service Area, and 2) has independent health benefit decision-making authority for the employees
working at such local plant, office or division headquarters and for employees working at other locations outside the
Service Area. In such a case, the local plant, office or division headquarters is a National Account that is deemed
located in the Service Area in which such local plant, office or division headquarters is located. The Control Plan of a
National Account is the Plan in whose Service Area the National Account is located. A participating ("Par") Plan is a
Plan in whose Service Area the National Account has employee and/or retiree locations, but in which the National
Account is not located. In the event that a National Account parent company consolidates health benefit-decision
making for itself and its wholly-owned subsidiary companies, the parent company and the subsidiary companies
shall be considered one National Account. The Control Plan for such a National Account shall be the Plan in whose
Service Area the parent company headquarters is located.
3. The National Account Guidelines enunciated herein below shall be applicable only with respect to the business
of new National Accounts acquired after January 1, 1991.
4. Control Plans shall utilize National Account identification cards complying with then currently effective BCBSA
graphic standards in connection with all National Accounts business to facilitate administration thereof, to minimize
subscriber and provider confusion, and to reflect a commitment to cooperation among Plans.
Amended as of June 12, 2003
Exhibit 3
Page 2 of 3
5. Disputes among Plans and/or BCBSA as to the interpretation or implementation of these Guidelines or as to
other National Accounts issues shall be submitted to mediation and mandatory dispute resolution as provided in the
License Agreement. For two years from the effective date of the License Agreement, however, such disputes shall
be subject to mediation only, with the results of such mediation to be collected and reported in order to establish
more definitive operating parameters for National Accounts business and to serve as ground rules for future binding
dispute resolution.
6. The Control Plan may use the BlueCard Program (as defined by IPPC) to deliver benefits to employees and
non-Medicare eligible retirees in a Participating Plan’s service area if an alternative arrangement with the
Participating Plan cannot be negotiated. The Participating Plan’s minimum servicing requirement for those
employees and non-Medicare retirees in its service area is to deliver benefits using the BlueCard Program. Account
delivery is subject to the policies, provisions and procedures of the BlueCard Program.
7. For provider payments in a Participating Plan’s area (on non-BlueCard claims), payment to the provider may be
made by the Participating Plan or the Control Plan at the Participating Plan's option. If the Participating Plan elects to
pay the provider, it may not withhold payment of a claim verified by the Control Plan or its designated processor, and
payment must be in conformity with service criteria established by the Board of Directors of BCBSA (or an
authorized committee thereof) to assure prompt payment, good service and minimum confusion with providers and
subscribers. The Control Plan, at the Participating Plan's request, will also assure that measures are taken to protect
the confidentiality of the data pertaining to provider reimbursement levels and profiles.
Amended as of June 14, 1996
Exhibit 3
Page 3 of 3
8. The Control Plan, in its financial agreements with a National Account, is expected to reasonably reflect the
aggregate amount of differentials passed along to the Control Plan by all Participating Plans in a National Account.
9. Other than in contracting with health care providers or soliciting such contracts in areas contiguous to a Plan's
Service Area in order to serve its subscribers or those of its licensed Controlled Affiliate residing or working in its
Service Area, a Control Plan may not use the Licensed Marks and/or Name, as a tag line or otherwise, to negotiate
directly with providers outside its Service Area.
Amended as of March 13, 2003
Exhibit 4
GOVERNMENT PROGRAMS AND CERTAIN OTHER USES
Page 1 of 14
1. A Plan and its licensed Controlled Affiliate may use the Licensed Marks and Name in bidding on and executing a
contract to serve a Government Program, and in thereafter communicating with the Government concerning the
Program. With respect, however, to such contracts entered into after the 1st day of January, 1991, the Licensed
Marks and Name will not be used in communications or transactions with beneficiaries or providers in the
Government Program located outside a Plan's Service Area, unless the Plan can demonstrate to the satisfaction of
BCBSA's governing body that such a restriction on use of the Licensed Marks and Name will jeopardize its ability to
procure the contract for the Government Program. As to both existing and future contracts for Government
Programs, Plans will discontinue use of the Licensed Marks and Name as to beneficiaries and Providers outside
their Service Area as expeditiously as circumstances reasonably permit. Effective January 1, 1995, except as
provided in the first sentence above, all use by a Plan of the Licensed Marks and Name in Government Programs
outside of the Plan's Service Area shall be discontinued. Incidental communications outside a Plan's Service Area
with resident or former resident beneficiaries of the Plan, and other categories of necessary incidental
communications approved by BCBSA, are not prohibited. For purposes of this Paragraph 1, the term “Government
Programs” shall mean Medicare Part A, Medicare Part B and other non-risk government programs.
2. In connection with activity otherwise in furtherance of the License Agreement, a Plan and its Controlled Affiliates
that are licensed to use the Licensed Marks and Name in its Service Area pursuant to the Controlled Affiliate
License Agreements authorized in clauses a) through c) of Paragraph 2 of the Plan’s License Agreement with
BCBSA may use the Licensed Marks and Name outside the Plan’s Service Area in the following
circumstances which are deemed legitimate and necessary and not likely to cause consumer confusion:
2.1 Common Business Communications
a. sending letterhead, envelopes, and similar items solely for administrative purposes (e.g., not for purposes of
marketing, advertising, promoting, selling or soliciting the sale of health care plans and related
services);
b. distributing business cards other than in marketing and selling;
c. advertising in publications or electronic media solely to persons for employment;
Amended as of June 19, 2014
EXHIBIT 4
Page 2 of 14
2.2 Marketing Spillover
a. advertising in print, electronic or other media which serve, as a substantial market, the Service Area of the
Plan or licensed Controlled Affiliate, provided that no Plan or Controlled Affiliate may advertise outside
its Service Area on the national broadcast and cable networks and that advertisements in national print
media are limited to the smallest regional edition encompassing the Service Area;
b. advertising by direct mail where the addressee's zip code plus 4 includes, at least in part, the Plan's Service
Area or that of a licensed Controlled Affiliate;
2.3 Provider Contracting
a. contracting with health care providers or soliciting such contracts in areas contiguous to the Plan's Service
Area in order to serve its subscribers or those of such licensed Controlled Affiliates residing or working
in its service area;
b. issuing a small sign containing the legal name or trade name of the Plan or such licensed Controlled Affiliates
for display by a provider to identify the latter as a participating provider of the Plan or Controlled
Affiliate;
c. negotiating case-specific reimbursement rates with a provider that does not have a contract applicable to a
specific member’s services rendered or to be rendered with the Licensee (or any of the Licensees in
the case of overlapping Service Areas) in whose Service Area the health care provider is located, so
long as
(1) the Licensee engaging in the negotiations complies with all applicable Inter-Plan Programs Policies and
Provisions and Brand Regulations related to case-specific rate negotiations, and
(2) the Licensee (or all Licensees in the case of overlapping Service Areas) in whose Service Area the health
care provider is located provides consent before negotiations commence.
Amended as of January 22, 2019
EXHIBIT 4
Page 3 of 14
d.
contracting with a pharmacy management organization (“Pharmacy Intermediary”) to gain access to a
national or regional pharmacy network to provide self-administered prescription drugs to deliver a
pharmacy benefit for all of the Plan’s or licensed Controlled Affiliate’s members nationwide, provided,
however, that the Pharmacy Intermediary may not use the Licensed Marks or Name in contracting with
the pharmacy providers in such network;
Amended as of January 22, 2019
EXHIBIT 4
Page 4 of 14
e.
f.
g.
h.
i.
j.
k.
contracting with the corporate owner of a national or regional retail pharmacy chain to gain access to
the pharmacies in the chain to provide self-administered prescription drugs to deliver a pharmacy
benefit for all of the Plan’s or licensed Controlled Affiliate’s members nationwide, provided that (1) the
Plan and the Controlled Affiliate may
not contract directly with pharmacists or pharmacy stores outside the Plan’s Service Area, and (2)
neither the Plan’s or the Controlled Affiliate’s name nor the Licensed Marks or Name may be posted or
otherwise displayed at or by any pharmacy store outside the Plan’s Service Area;
contracting with a dental management organization (“Dental Intermediary”) to gain access to a national
or regional dental network to deliver a routine dental benefit for all of the Plan’s or licensed Controlled
Affiliate’s members nationwide, provided, however, that the Dental Intermediary may not use the
Licensed Marks or Name in contracting with the dental providers in such network;
contracting with a vision management organization (“Vision Intermediary”) to gain access to a national
or regional vision network to deliver a routine vision benefit for all of the Plan’s or licensed Controlled
Affiliate’s members nationwide, provided, however, that the Vision Intermediary may not use the
Licensed Marks or Name in contracting with the vision providers in such network;
contracting with an independent clinical laboratory for analysis and clinical assessment of specimens
that are collected within the Plan’s Service Area;
contracting with a durable medical equipment or home medical equipment company for durable
medical equipment and supplies and home medical equipment and supplies that are shipped to a
location within the Plan’s Service Area;
contracting with a specialty pharmaceutical company for non-routine biological therapeutics that are
ordered by a health care professional located within the Plan’s Service Area;
contracting with a company that operates provider sites in the Plan’s Service Area, provided that the
contract is solely for services rendered at a site (e.g., hospital, mobile van) that is within the Plan’s
Service Area;
EXHIBIT 4
Page 5 of 14
l.
m.
contracting with a company that makes health care professionals available in the Plan’s Service Area
(e.g., traveling home health nurse), provided that the contract is solely for services rendered by health
care professionals who are located within the Plan’s Service Area.
Permitting Control/Home Plans’ ability to resolve members’ service issues requiring outreach to out-of-
area providers as set forth in the Inter-Plan Programs and Inter-Plan Medicare Advantage Program
Policies.
2.4 Services to National Accounts
a. in conjunction with contracting with a National Account as Control Licensee or Alternate Control Licensee
(as those terms are defined in the Inter-Plan Programs Policies and Provisions (“IP Policies”)) to offer
Blue-branded Health Coverage to the National Account, offering Blue-branded Health and Wellness
Programs to all members of the National Account, including members who have not enrolled in the
Blue-branded Health Coverage (“non-Blue Health Coverage members”), provided that:
(i) the Plan and/or Licensed Controlled Affiliate has no contact or interaction with providers outside of
the Plan’s Service Area, except as specifically provided in the IP Policies and in 2.4(b); and
(ii) if in accordance with IP Policies another Licensee is soliciting or servicing under the Brands a local
plant, office or division of the account that is outside of the Plan’s Service Area, the Plan and/or
licensed Controlled Affiliate may not offer Blue-branded Health and Wellness Programs to any
employees working at such local plant, office or division without the consent of such other
Licensee; and
(iii) if the Plan and/or licensed Controlled Affiliate provides an information card to the non-Blue Health
Coverage members, the card may not display the Symbols in the masthead, must contain a
prominent disclosure conveying that it is not a health insurance card, and otherwise must be
designed so that it is dissimilar to a Blue member identification card.
Amended as of September 17, 2020
EXHIBIT 4
Page 6 of 14
2.4 Services to National Accounts (continued)
For purposes of this subparagraph a, the following definitions apply:
“Health and Wellness Program” shall mean a program that includes at least one of the following
elements or a related element:
– Health Risk Assessment and/or Preventive Screenings
– Exercise and Fitness Programs
– Health and Wellness Events (e.g., attendance at a health fair, a 5K walk)
– Nutrition and Weight Management
– Health Education (e.g., smoking cessation classes)
– Prenatal and Parenting Education
– Disease or Chronic Condition Management
The above listing is intended to represent examples of the types of programs that may be offered, and
other programs, including those offered through different media such as the internet or telephonically,
may also be deemed Health and Wellness programs.
“Health Coverage” shall mean providing or administering medical, surgical, hospital, major medical, or
catastrophic coverage, or any HMO, PPO, POS or other managed care plan for the foregoing services.
b. as part of a Health and Wellness Program that is otherwise compliant with Brand Regulation 4.11.4(a),
contracting with a health and wellness organization to gain access to providers to deliver a discrete
health and wellness event (“Event”) held at a National Account’s worksite outside of the Licensee’s
Service Area, provided that:
(i) the services delivered at the Event are limited to fingerstick screenings for cholesterol and glucose,
seasonal flu immunizations, blood pressure measurements, body mass index measurements, and other
routine screenings, immunizations and measurements; and
(ii) neither such services nor their costs are applied as claims against any benefit plan; and
(iii) the Event is presented during one or more limited periods during a benefit year and is available to all
employees at the worksite.
Amended as of March 26, 2015
EXHIBIT 4
Page 7 of 14
c. in conjunction with contracting with a National Account as Control Licensee or Alternate Control Licensee
to offer Blue-branded Health Coverage to the National Account, performing the Eligibility and Enrollment
functions of HR administration for all benefit plans offered by the National Account to its members,
including benefit plans that are not underwritten or administered by the Plan, provided that:
(i) in performing such functions, the Plan and/or licensed Controlled Affiliate does not use the Brands
in any communications with health care providers outside of the Plan’s Service Area, and
otherwise limits its use of the Brands outside of the Service Area to communications with the
account’s members, the other benefit plan providers with which the account has contracted and
other reasonably necessary communications to perform such functions; and
(ii) if in accordance with IP Policies another Licensee is soliciting or servicing under the Brands a local
plant, office or division of the account that is outside of the Plan’s Service Area, the Plan and/or
licensed Controlled Affiliate may not perform Eligibility and Enrollment functions for employees
working at such local plant, office or division without the consent of such other Licensee;
d. in conjunction with contracting with a National Account as Control Licensee or Alternate Control Licensee
to perform or investigate fraud, waste and abuse investigation activities for a non-participating provider
in a Par/Host Plan’s service area, as long as the Control/Home Plan is given permission to do so by the
Par/Host Plan and specific conditions are met in accordance with Inter-Plan Programs and Inter-Plan
Medicare Advantage Program policies.
For purposes of this subparagraph b, the following definitions apply:
“Health Coverage” has the meaning set forth in subparagraph 2.4.a.
Amended as of September 27, 2018
EXHIBIT 4
Page 8 of 14
“Eligibility” means services that manage the account’s eligibility data and determine or process
determinations relating to eligibility for benefit plans offered by the account to its employees, including
such services as:
•
•
•
•
•
monitoring and auditing data to ensure that only entitled individuals are enrolled in each
such benefit plan;
review of eligibility documentation (e.g. marriage licenses, birth certificates, student status
verification letters, employment records);
identification of key member segments such as over-age dependents, part-time
employees, employees reaching certain milestones (e.g. Medicare-eligible, retirees);
termination of coverage for those individuals found to be ineligible for coverage under a
benefit plan, and, if applicable, generation of a COBRA event; and
management of “hour-banking” for union environments in which union members can bank
hours to remain eligible for benefits.
“Enrollment” means services that enroll eligible individuals and their spouses/dependents or terminate
or change their enrollment in the account’s benefit plans on an ongoing basis and during open
enrollment periods, including such services as:
•
•
•
•
•
•
the coordination of each step in open enrollment process from project planning and
system set-up to the generation of confirmation statements;
ongoing enrollment support for new hires and changes due to life events and work status
adjustments;
evidence of insurability (EOI) administration for life and disability coverage;
transmission of eligibility/enrollment information to the account’s benefit plan providers;
review and reconciliation of error reports received from the account’s benefit plan
providers; and
transmission of information to the account’s payroll
system (e.g., benefit deductions, employee demographic data).
Amended as of March 26, 2015
EXHIBIT 4
Page 9 of 14
2.5 Knowledge Sharing
a. submitting scholarly articles authored or co-authored by the Plan or Controlled Affiliate or its respective
employees for publication in peer-reviewed journals;
b. permitting an internal representative of the Licensee (e.g., officer, employee) to speak or present at a
conference or symposium outside of the Licensee’s Service Area regarding either (i) healthcare
financing, administration, delivery or policy, or (ii) topics within the representative’s functional discipline
or expertise at the Licensee, for which the event sponsor will issue communications to promote,
administer, and/or recap the event that will identify the Licensee’s representative as a participant. The
communications outside of the Licensee’s Service Area that mention the Licensee’s representative
shall be limited to materials and digital media provided to attendees, on-site signage, advertising in
relevant trade publications, direct mail and email to attendees and prospective attendees, and the
sponsor’s website, Participation in any conference or symposium outside of the Licensee’s Service
Area may not be for the purpose of marketing or selling products or services.
If the Licensee’s representative wishes to use the Brands in any manner, including use in his/her title, when
participating as a speaker or presenter outside of the Licensee’s Service Area about a topic that is not
related to healthcare financing, administration, delivery, or policy, or to topics within the representative’s
functional discipline or expertise at the Licensee, the Licensee must notify BCBSA and receive prior
approval from BCBSA before participating.
Amended as of March 26, 2015
EXHIBIT 4
Page 10 of 14
2.6 Other Uses
a. entering into a license agreement between and among BCBSA, the Plan and a debit card issuer located
outside the Plan’s Service Area, and entering into a corresponding operating agreement or agreements,
in order to offer a debit card bearing the Licensed Marks and Name to eligible persons as defined by the
aforementioned license agreement;
b. appearing in communications issued by an independent third party to recognize outstanding performance
of the Plan or Controlled Affiliate or a member of the Plan’s or Controlled Affiliate’s senior management
as part of an established program of the third party for which the Plan has provided information to be
considered for the recognition, provided that such use complies with regulations of general application
specifically prescribed by BCBSA from time to time;
c. to identify itself as being a joint sponsor of an event, program or activity along with other Plans or such
Plans’ licensed Controlled Affiliates, provided that such use complies with regulations of general
application specifically prescribed by BCBSA from time to time;
d. hosting meetings or events (collectively, “events”) in Washington, D.C. or a Plan’s State Capitol related to
policy and business issues in the Licensee’s Service Area, or hosting events in conjunction with the
assemblies or conventions of national political parties. Such events may not involve marketing or selling
products or services. Use of the Brands outside the Licensee’s Service Area in connection with such
events shall be limited to materials and digital media provided to attendees and prospective attendees
and onsite signage. For any such events in Washington, D.C. that are open to attendees other than
government officials or their staffs, or are briefings open to all Congressional staff, or are otherwise
likely to receive media coverage, the Licensee is required to provide advance notice to BCBSA. For
events hosted outside of Washington, D.C. in conjunction with the assemblies or conventions of national
political parties, the Licensee is required to provide advance notice to BCGSA and to the local Plan(s);
Amended as of March 26, 2015
EXHIBIT 4
Page 11 of 14
e. permitting an affiliate that is not licensed to use the Licensed Marks to identify its corporate relationship
with the Plan, provided that such use complies with regulations of general application specifically
prescribed by BCBSA from time to time.
3. In connection with activity otherwise in furtherance of the License Agreement, a Controlled Affiliate that is
licensed to use the Licensed Marks and Name pursuant to a Controlled Affiliate License Agreement authorized in
clauses d) or e) of Paragraph 2 of the Plan’s License Agreement with BCBSA may use the Licensed Marks and
Name outside the Region (as that term is defined in such respective Controlled Affiliate License Agreements) in the
following circumstances which are deemed legitimate and necessary and not likely to cause consumer confusion:
a. sending letterhead, envelopes, and similar items solely for administrative purposes (e.g., not for purposes of
marketing, advertising, promoting, selling or soliciting the sale of health care plans and related
services);
b. distributing business cards other than in marketing and selling;
c. contracting with health care providers or soliciting such contracts in areas contiguous to the Region in order to
serve its subscribers residing in the Region, provided that the Controlled Affiliate may not use the
names of any of its Controlling Plans in connection with such contracting unless the provider is located
in a geographic area that is also contiguous to such Controlling Plan’s Service Area;
d. issuing a small sign containing the legal name or trade name of the Controlled Affiliate for display by a
provider to identify the latter as a participating provider of the Controlled Affiliate, provided that the
Controlled Affiliate may not use the names of any of its Controlling Plans on such signs unless the
provider is located in a geographic area that is also contiguous to such Controlling Plan’s Service Area;
advertising in publications or electronic media solely to persons for employment;
Amended as of March 26, 2015
EXHIBIT 4
Page 12 of 14
f. advertising in print, electronic or other media which serve, as a substantial market, the Region, provided
that the Controlled Affiliate may not advertise outside its Region on the national broadcast and cable
networks and that advertisements in national print media are limited to the smallest regional edition
encompassing the Region, and provided further that any such advertising by the Controlled Affiliate
may not reference the name of any of its Controlling Plans unless the respective Controlling Plan is
authorized under paragraph 2 of this Exhibit 4 to advertise in such media;
g. advertising by direct mail where the addressee's zip code plus 4 includes, at least in part, the Region,
provided that such advertising by the Controlled Affiliate may not reference the name of any of its
Controlling Plans unless the respective Controlling Plan is authorized under paragraph 2 of this Exhibit
4 to send direct mail to such zip code plus 4.
h. [Intentionally left blank, pending review by the Inter-Plan Programs Committee of the applicability of the case
management rule to such Controlled Affiliates.]
i. contracting with a pharmacy management organization (“Pharmacy Intermediary”) to gain access to a national
or regional pharmacy network to provide self-administered prescription drugs to deliver a pharmacy
benefit for the Controlled Affiliate’s regional Medicare Advantage PPO or regional Medicare Part D
Prescription Drug members enrolled under the Licensed Marks pursuant to such respective Controlled
Affiliate License Agreements, provided, however, that the Pharmacy Intermediary may not use the
Licensed Marks or Name in contracting with the pharmacy providers in such network;
j. contracting with the corporate owner of a national or regional retail pharmacy chain to gain access to the
pharmacies in the chain to provide self-administered prescription drugs to deliver a pharmacy benefit to
the Controlled Affiliate’s regional Medicare Advantage PPO
or regional Medicare Part D Prescription Drug members enrolled under the Licensed Marks pursuant to such
respective
EXHIBIT 4
Page 13 of 14
Controlled Affiliate License Agreements, provided that (1) the Controlled Affiliate may not contract
directly with pharmacists or pharmacy stores outside the Region, and (2) neither the Controlled
Affiliate’s name nor the Licensed Marks or Name may be posted or otherwise displayed at or by any
pharmacy store outside the Region;
k. contracting with a dental management organization (“Dental Intermediary”) to gain access to a national or
regional dental network to deliver a routine dental benefit for the Controlled Affiliate’s regional Medicare
Advantage PPO members enrolled under the Licensed Marks pursuant to such Controlled Affiliate
License Agreement, provided, however, that the Dental Intermediary may not use the Licensed Marks
or Name in contracting with the dental providers in such network;
l. contracting with a vision management organization (“Vision Intermediary”) to gain access to a national or
regional vision network to deliver a routine vision benefit for the Controlled Affiliate’s regional Medicare
Advantage members enrolled under the Licensed Marks pursuant to such Controlled Affiliate License
Agreement, provided, however, that the Vision Intermediary may not use the Licensed Marks or Name
in contracting with the vision providers in such network;
m. contracting with an independent clinical laboratory for analysis and clinical assessment of specimens that are
collected within the Controlled Affiliate’s Region;
n. contracting with a durable medical equipment or home medical equipment company for durable medical
equipment and supplies and home medical equipment and supplies that are shipped to a location
within the Controlled Affiliate’s Region;
o. contracting with a specialty pharmaceutical company for non-routine biological therapeutics that are ordered
by a health care professional located within the Region;
p. contracting with a company that operates provider sites in the Region, provided that the contract is solely
for services rendered at a site (e.g., hospital, mobile van) that is within the Region;
EXHIBIT 4
Page 14 of 14
q. contracting with a company that makes health care professionals available in the Region (e.g., traveling home
health nurse), provided that the contract is solely for services rendered by health care professionals
who are located within the Region.
4. BCBSA shall retain the right to use the Licensed Marks in conjunction with the Federal Employee Program
and with any other national offering made to federal employees pursuant to the Federal Employees Health
Benefits Program (FEHBP), including the right to license such use to its vendors, but only in the following
manner.
a.
the Licensed Marks may only be used by BCBSA with the term “Federal Employee Program”,
“Federal”, “FEP”, or similar language identifying the program as a benefit program for federal
employees;
b.
the Licensed Marks may not be used by BCBSA with the name(s) of a specific Plan or Plans and;
c. any use by BCBSA in conjunction with a new national FEHBP program proposed after the enactment
of this amendment will require the approval of the BCBSA Board of Directors.
5. Where required by applicable state or local law or regulation, a Plan or its licensed Controlled Affiliate may
submit documents that contain the Brands to, and file forms that contain the Brands with, state or local regulators in a
state not included in its Service Area, provided that it gives reasonable advance notice to the local Plan of its intent to
submit such documents or file such forms. Notwithstanding, in no event may a Plan or its licensed Controlled Affiliate
use the Brands to register, or to obtain or maintain a license, a certificate of authority, or an equivalent document
authorizing it to act as a risk-bearing entity or third party administrator in a state not included in its Service Area. If
the local Plan advises BCBSA that it believes its License Agreement has been or would be violated by any
submission or filing, BCBSA shall determine whether such submission or filing is required by state or local law or
regulation and violates the License Agreement, subject to the Plan’s or licensed Controlled Affiliate’s rights to obtain
an independent review of such determination under Paragraph 9(a) and Exhibit 5 of its License Agreement or
Paragraph 8 of the Controlled Affiliate License. For purposes of this paragraph, “local Plan” is defined as each Plan
whose Service Area includes all or part of the state in which the foregoing applicable state or local law or regulation
has been enacted.
Amended as of March 26, 2015
EXHIBIT 5
Page 1 of 23
MEDIATION AND MANDATORY DISPUTE RESOLUTION (MMDR) RULES
The Blue Cross and Blue Shield Plans ("Plans") and the Blue Cross Blue Shield Association ("BCBSA") recognize
and acknowledge that the Blue Cross and Blue Shield system is a unique nonprofit and for-profit system offering cost
effective health care financing and services. The Plans and BCBSA desire to utilize Mediation and Mandatory Dispute
Resolution (“MMDR”) to avoid expensive and time-consuming litigation that may otherwise occur in the federal and
state judicial systems. Even MMDR should be viewed, however, as methods of last resort, all other procedures for
dispute resolution having failed. Except as otherwise provided in the License Agreements, the Plans, their Controlled
Affiliates and BCBSA agree to submit all disputes to MMDR pursuant to these Rules and in lieu of litigation.
1. Initiation of Proceedings
A. Pre-MMDR Efforts
Before filing a Complaint to invoke the MMDR process, the CEO of a complaining party, or his/her designated
representative, shall undertake good faith efforts with the other side(s) to try to resolve any dispute.
B. Complaint
To commence a proceeding, the complaining party (or parties) shall provide by certified mail, return receipt
requested, a written Complaint to the BCBSA Corporate Secretary (which shall also constitute service on BCBSA if it
is a respondent) and to any Plan(s) and/or Controlled Affiliate(s) named therein. The Complaint shall contain:
i.
identification of the complaining party (or parties) requesting the proceeding;
ii.
identification of the respondent(s);
iii. identification of any other persons or entities who are interested in a resolution of the dispute;
iv. a full statement describing the nature of the dispute;
v.
identification of all of the issues that are being submitted for resolution;
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vi. the remedy sought;
vii. a statement as to whether the complaining party (or parties) elect(s) first to pursue Mediation;
viii.any request, if applicable, that the matter be handled on an expedited basis and the reasons
therefor; and
ix. a statement signed by the CEO of the complaining party affirming that the CEO has undertaken
efforts, or has directed efforts to be undertaken, to resolve the dispute before resorting to the MMDR
process.
The complaining party (or parties) shall file and serve with the Complaint copies of all documents which the party (or
parties) intend(s) to offer at the Arbitration Hearing and a statement identifying the witnesses the party (or parties)
intend(s) to present at the Hearing, along with a summary of each witness' expected testimony.
C. Answer
Within twenty (20) days after receipt of the Complaint, each respondent shall serve on BCBSA and on the
complaining party (or parties):
i. a full Answer to the aforesaid Complaint;
ii. a statement of any Counterclaims against the complaining party (or parties), providing with respect
thereto the information specified in Paragraph 1.B., above;
iii. a statement as to whether the respondent elects to first pursue Mediation; and
iv. any request, if applicable, that the matter be handled on an expedited basis and the reasons
therefor.
The respondent(s) shall file and serve with the Answer or by the date of the Initial Conference set forth in Paragraph
3.C., below, copies of all documents which the respondent(s) intend(s) to offer at the Arbitration Hearing and a
statement identifying the witnesses the party (or parties) intend(s) to present at the Hearing, along with a summary of
each witness' expected testimony.
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D. Reply To Counterclaim
Within ten (10) days after receipt of any Counterclaim, the complaining party (or parties) shall serve on BCBSA and
on the responding party (or parties) a Reply to the Counterclaim. Such Reply must provide the same information
required by Paragraph 1.C., above.
2. Mediation
To facilitate the mediation of disputes between or among BCBSA, the Plans and/or their Controlled Affiliates, the
BCBSA Board has provided for Mediation under these Rules. Mediation may be pursued in lieu of or in an effort to
obviate the Mandatory Dispute Resolution process, and all parties are strongly urged, but not required, to exhaust the
mediation procedure provided for herein. In the event any party refuses to proceed with Mediation, the parties shall
proceed immediately to Mandatory Dispute Resolution, as provided in Section 3.
A. Selection of Mediators
If all parties agree to pursue Mediation, they shall promptly attempt to agree upon: (i) the number of mediators
desired, not to exceed three mediators; and (ii) the selection of experienced mediator(s) from an independent entity to
mediate all disputes set forth in the Complaint and Answer (and Counterclaim and Reply, if any). In the event the
parties are unable to agree upon the selection or number of mediators, both within five (5) days of the service of the
Answer or Reply to Counterclaim, whichever is later, the BCBSA Corporate Secretary shall immediately refer the
matter to a nationally recognized professional ADR organization (such as CPR or JAMS) for mediation by a single
mediator to be selected by the ADR organization.
B. Binding Decision
Before the Mediation Hearing described below, the BCBSA Corporate Secretary shall contact the parties to
determine whether they wish to be bound by any recommendation of the selected mediator(s) for resolution of the
disputes. If all wish to be bound, the Corporate Secretary will send appropriate documentation to them for their
signatures before the Mediation Hearing begins.
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C. Mediation Procedure
The Mediator(s) shall apply the mediation procedures and processes provided for herein (not the rules of the ADR
organization with which they are affiliated) and shall promptly advise the parties of a scheduled Mediation Hearing
date. Unless a party requests an expedited procedure, or unless all parties to the proceeding agree to one or more
extensions of time, the Mediation Hearing set forth below shall be completed within forty (40) days of BCBSA's
receipt of the Complaint. The selected mediator(s), unless the parties otherwise agree, shall adhere to the following
procedure:
i. Each party must be represented by its CEO or other representative who has been delegated full
authority to resolve the dispute. However, parties may send additional representatives as they see
fit.
ii. Each party will be given one-half hour to present its case, beginning with the complaining party (or
parties), followed by the other party or parties. The parties are free to structure their presentations as
they see fit, using oral statements or direct examination of witnesses. However, neither cross-
examination nor questioning of opposing representatives will be permitted. At the close of each
presentation, the selected mediator(s) will be given an opportunity to ask questions of the presenters
and witnesses. All parties must be present throughout the Mediation Hearing. The selected
mediator(s) may extend the time allowed for each party's presentation at the Mediation Hearing. The
selected mediator(s) may meet in executive session, outside the presence of the parties, or may
meet with the parties separately, to discuss the controversy.
iii. After the close of the presentations, the parties will attempt to negotiate a settlement of the dispute.
If the parties desire, the selected mediators, or any one or more of the selected mediator(s), will sit
in on the negotiations.
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iv. After the close of the presentations, the selected mediator(s) may meet privately to agree upon a
recommendation for resolution of the dispute which would be submitted to the parties for their
consideration and approval. If the parties have previously agreed to be bound by the results of this
procedure, this recommendation shall be binding upon the parties.
v. The purpose of the Mediation Hearing is to assist the parties to settle their grievances short of
mandatory dispute resolution. As a result, the Mediation Hearing has been designed to be as
informal as possible. Rules of evidence shall not apply. There will be no transcript of the
proceedings, and no party may make a tape recording of the Mediation Hearing.
vi. In order to facilitate a free and open discussion, the Mediation proceeding shall remain confidential.
A "Stipulation to Confidentiality" which prohibits future use of settlement offers, all position papers or
other statements furnished to the selected mediator(s), and decisions or recommendations in any
Mediation proceeding shall be executed by each party.
vii. Upon request of the selected mediator(s), or one of the parties, BCBSA staff may also submit
documentation at any time during the proceedings.
D. Notice of Termination of Mediation
If the Mediation cannot be completed within the prescribed or agreed time period due to the lack of cooperation of
any party, as determined by the selected mediator(s), or if the Mediation does not result in a final resolution of all
disputes at the Mediation Hearing or within ten (10) days after the Mediation Hearing, any party or any one of the
selected mediator(s) shall so notify the BCBSA Corporate Secretary, who shall promptly issue a Notice of Termination
of Mediation to all parties, to the selected mediator(s), and to the MDR Administrator. Such notice shall serve to bring
the Mediation to an end and to initiate Mandatory Dispute Resolution. Upon agreement of all parties and the
mediator(s), the Mediation process may continue at the same time the MDR process is invoked. In such case, the
Notice of Termination of Mediation described above serves to initiate the MDR proceeding, but does not terminate
mediation proceedings, which may proceed simultaneous with the MDR proceeding.
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3. Mandatory Dispute Resolution (MDR)
If any party elects not to first pursue Mediation, or if a Notice of Termination of Mediation is issued as set forth in
Paragraph 2.D., above, then the unresolved disputes set forth in any Complaint and Answer (and Counterclaim and
Reply, if any) shall be subject to mandatory binding arbitration (herein referred to as “MDR”).
A. MDR Administrator
The Administrator for purposes of Mandatory Arbitration shall be an independent nationally recognized entity such
as CPR or JAMS, specializing in alternative dispute resolution. In the event the parties pursued Mediation with CPR,
JAMS or a similar organization, that organization also shall serve as the MDR Administrator, unless all parties notify
the BCBSA Corporate Secretary in writing within two (2) days of receiving the Notice of Termination of Mediation that
they wish to pursue MDR with another nationally recognized organization serving as MDR Administrator.
In the event the parties (i) did not pursue Mediation, (ii) pursued mediation with a Mediator not affiliated with an
ADR organization that offers a panel of arbitrators, or (iii) all parties that pursued Mediation notified the BCBSA
Corporate Secretary that they wish to have an MDR Administrator that is different from the organization with which
their mediator was affiliated, they shall promptly attempt to agree on a nationally recognized ADR entity that supplies
a panel of arbitrators. If they reach such agreement within five (5) days of the Notice of Termination of Mediation or
receipt of the Answer or Reply to Counterclaim (whichever is later), the parties shall promptly inform the BCBSA
Corporate Secretary of their agreed upon ADR organization. In the event the parties are unable to reach agreement
on an MDR Administrator within that timeframe, the BCBSA Corporate Secretary shall immediately refer the matter to
CPR, JAMS or a similar organization for MDR.
Any person who served as a Mediator shall not serve as an arbitrator for the same or similar dispute for purposes
of MDR.
B. Rules for MDR
The rules controlling all aspects of MDR shall be exclusively those provided for herein. The rules promulgated
or otherwise used by the MDR Administrator organization shall not apply.
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C. Initial Conference
Within seven (7) days after a Notice of Termination has issued, or the matter has otherwise been referred to an
MDR Administrator, or within five (5) days after the time for filing and serving the Answer or Reply to any
Counterclaim (whichever is later) if the parties elect first not to mediate, the parties shall confer with the Administrator
to discuss selecting a dispute resolution panel ("the Panel"). This conference (the “Initial Conference”) may be by
telephone. The parties are encouraged to agree to the composition of the Panel and to present that agreement to the
Administrator at the Initial Conference. If the parties do not agree on the composition of the Panel by the time of the
Initial Conference, or by any extension thereof agreed to by all parties and the Administrator, then the Panel Selection
Process set forth in subparagraph D, below, shall be followed.
D. Panel Selection Process
The Administrator shall designate, prior to the Initial Conference, at least seven potential arbitrators. Each party
shall be permitted to strike any designee for cause and the Administrator shall determine the sufficiency thereof in its
sole discretion. The Administrator will designate a replacement for any designee so stricken. Each party shall then be
permitted one peremptory strike from the list of designees. The Administrator shall set the dates for exercising all
strikes, which shall be set to encourage the prompt selection of arbitrators.
After the parties exercise any designee strikes for cause and their peremptory strike against any designee of their
choice, the parties shall each rank the remaining panel members in order of preference and provide the
Administrator, without serving on any other party, their ranked list. The Administrator shall not disclose any party’s
ranked list to members of the panel or to other parties.
From the remaining designees, and after considering opportunities to maximize, so far as possible, the collectively
stated arbitrator preferences provided by the parties on their ranked lists, the Administrator shall select a three
member Panel. The Panel Selection Process shall be completed no later than ten (10) days after the Initial
Conference.
Each Arbitrator shall be compensated at his or her normal hourly rate or, in the absence of an established rate,
at a reasonable hourly rate to be promptly fixed by the Administrator for all time spent in connection with the
proceedings and shall be reimbursed for any travel and other reasonable expenses.
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E. Duties Of The Arbitrators
The Panel shall promptly designate a Presiding Arbitrator for the purposes reflected below, but shall retain the
power to review and modify any ruling or other action of said Presiding Arbitrator. Each Arbitrator shall be an
independent Arbitrator, shall be governed by the Code of Ethics for Arbitrators in Commercial Disputes, and shall at
or prior to the commencement of any Arbitration Hearing take an oath to that effect. Each Arbitrator shall promptly
disclose in writing to the Panel and to the parties any circumstances, whenever arising, that might cause doubt as to
such Arbitrator's compliance, or ability to comply, with said Code of Ethics, and, absent resignation by such Arbitrator,
the remaining Arbitrators shall determine in their sole discretion whether the circumstances so disclosed constitute
grounds for disqualification and for replacement. With respect to such circumstances arising or coming to the
attention of a party after an Arbitrator's selection, a party may likewise request the Arbitrator's resignation or a
determination as to disqualification by the remaining Arbitrators. With respect to a sole Arbitrator, the determination
as to disqualification shall be made by the Administrator.
There shall be no ex parte communication between the parties or their counsel and any member of the Panel.
F. Panel's Jurisdiction And Authority
The Panel's jurisdiction and authority shall extend to all disputes between or among the Plans, their Controlled
Affiliates, and/or BCBSA, except for those disputes excepted from these MMDR procedures as set forth in the
License Agreements.
With the exception of punitive or treble damages, the Panel shall have full authority to award the relief it deems
appropriate to resolve the parties' disputes, including monetary awards and injunctions, mandatory or prohibitory. The
Panel has no authority to award punitive or treble damages except that the Panel may allocate or assess
responsibility for punitive or treble damages assessed by another tribunal. Subject to the above limitations, the Panel
may, by way of example, but not of limitation:
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i.
interpret or construe the meaning of any terms, phrase or provision in any license between BCBSA
and a Plan or a Controlled Affiliate relating to the use of the BLUE CROSS® or BLUE SHIELD®
service marks.
ii. determine whether BCBSA, a Plan or a Controlled Affiliate has violated the terms or conditions of
any license between the BCBSA and a Plan or a Controlled Affiliate relating to the use of the BLUE
CROSS® or BLUE SHIELD® service marks.
iii. decide challenges as to its own jurisdiction.
iv. issue such orders for interim relief as it deems appropriate pending Hearing and Award in any
Arbitration.
It is understood that the Panel is expected to resolve issues based on governing principles of law, preserving to the
maximum extent legally possible the continued integrity of the Licensed Marks and the BLUE CROSS/BLUE SHIELD
system. The Panel shall apply federal law to all issues which, if asserted in the United States District Court, would
give rise to federal question jurisdiction, 28 U.S.C. § 1331. The Panel shall apply Illinois law to all issues involving
interpretation, performance or construction of any License Agreement or Controlled Affiliate License Agreement
unless the agreement otherwise provides. As to other issues, the Panel shall choose the applicable law based on
conflicts of law principles of the State of Illinois.
G. Administrative Conference
Within five (5) days of the Panel being selected, the Presiding Arbitrator shall confer with the parties and the other
members of the Panel and shall schedule, in writing, a conference in which the parties and the Panel shall participate
(the “Administrative Conference”). The Administrative Conference shall take place no later than fifteen (15) days after
the Panel is selected. At the Administrative Conference the parties and the Panel shall discuss the scheduling of the
Arbitration Hearing and any other matter appropriate to be considered, including but not limited to: any written
discovery in the form of requests for production of documents or requests to admit facts; the identity of any witness
whose deposition a party may desire and a showing of exceptional good cause for the taking
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of any such deposition; the desirability of bifurcation or other separation of the issues; the need for and the type of
record of conferences and hearings, including the need for transcripts; the need for expert witnesses and how expert
testimony should be presented; the appropriateness of motions to dismiss and/or for full or partial summary judgment;
consideration of stipulations; the desirability of presenting any direct testimony in writing; and the necessity for any
on-site inspection by the Panel. If the parties agree, the Administrative Conference may be by telephone.
H. Discovery
i. Requests for Production of Documents: All requests for the production of documents must be
served no later than five (5) days after the date of the Initial Conference. Within twenty (20) days
after receipt of a request for production of documents, a party shall (a) serve responses and
objections to the request, (b) produce all responsive, non-privileged documents to the requesting
party, and (c) to the extent any responsive documents are withheld on the grounds of attorney-client
privilege or work product, produce a log identifying such documents in the manner specified in Fed.
R. Civ. P. 26(b)(5). If, after reviewing a privilege log, the requesting party believes attorney-client
privilege or work product protection was improperly claimed by the producing party with respect to
any document, the requesting party may ask the Presiding Arbitrator to conduct an in-camera
inspection of the same. With respect to documentary and other discovery produced in any MDR
proceeding by BCBSA, the fact that a party’s CEO or other senior officers may serve on the BCBSA
Board of Directors, BCBSA Board Committees or other BCBSA work groups, task forces and the
like, shall not be a basis for defeating an otherwise valid claim of attorney-client privilege or work
product protection over such documentary or other discovery materials by BCBSA.
ii. Requests for Admissions: Requests for Admissions may be served up to twenty-one (21) days
prior to the discovery cut-off set by the Presiding Arbitrator. A party served with Requests For
Admissions must respond within twenty (20) days of receipt of said request. The good faith use of
and response to Requests for Admissions is encouraged, and the Panel shall have full discretion,
with reference to the Federal Rules of Civil Procedure, in awarding appropriate sanctions with
respect to abuse of the procedure.
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iii. Depositions: As a general rule, the parties will not be permitted to take party or non-party
deposition testimony for discovery purposes. The Presiding Arbitrator, in his or her sole discretion,
shall have the authority to permit a party to take such deposition testimony upon a showing of
exceptional good cause. The parties will be permitted to take de bene esse deposition testimony to
the fullest extent permitted by law of any witness who cannot be compelled to testify at the
Arbitration Hearing. No deposition, for discovery purposes or otherwise, shall exceed three (3)
hours, excluding objections and colloquy of counsel. Depositions may be recorded in any manner
recognized by the Federal Rules of Civil Procedure and the parties shall specify in each notice of
deposition or request for permission to take deposition testimony the manner in which such
deposition shall be recorded.
1
iv. Expert witness(es): If a party intends to present the testimony of an expert witness during the oral
hearing, it shall provide all other parties with a written statement setting forth the information
required to be provided by Fed. R. Civ. P. 26(a)(2)(B) ten (10) days prior to the discovery cut-off set
by the Presiding Arbitrator. If a party intends to present the testimony of a rebuttal expert witness
during the Arbitration Hearing, it shall provide all other parties with a written statement setting forth
the information required to be provided by Fed. R. Civ. P. 26(a)(2)(B) within twenty (20) days after
the date on which the written statement of the expert witness whose testimony is to be rebutted was
produced.
v. Discovery cut-off: The Presiding Arbitrator shall determine the date on which the discovery period
will end, but the discovery period shall not exceed thirty (30) days from the date of the Administrative
Conference without the agreement of all parties.
Amended as of September 20, 2007
1
As used in these Rules, "de bene esse deposition" means a deposition that is not taken for discovery purposes, but is taken for the purpose
of reading part or all of the deposition transcript into the record at the Arbitration Hearing, to the extent permitted by the Panel, because the
witness cannot be compelled to testify at the Arbitration Hearing or has exercised a right provided under these Rules to provide deposition
testimony in lieu of testimony at the Arbitration Hearing.
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vi. Additional discovery: Any additional discovery will be at the discretion of the Presiding Arbitrator.
vii. Discovery Disputes: Any discovery disputes shall be raised by motion to the Presiding Arbitrator,
who is authorized to resolve all such disputes, and whose resolution will be binding on the parties
unless modified by the Arbitration Panel. Prior to raising any discovery dispute with the Presiding
Arbitrator, the parties shall meet and confer, telephonically or in person, in an attempt to resolve or
narrow the dispute. If a party refuses to comply with a decision resolving a discovery dispute, the
Panel, in keeping with Fed. R. Civ. P. 37, may refuse to allow that party to support or oppose
designated claims or defenses, prohibit that party from introducing designated matters into evidence
or, in extreme cases, decide an issue submitted for resolution adversely to that party.
viii.Extensions: The time for responding to discovery requests may be extended by the Presiding
Arbitrator for good and sufficient cause shown. Any request for such an extension shall be made in
writing.
I. Panel Suggested Settlement/Mediation
At any point during the proceedings, the Panel at the request of any party or on its own initiative, may suggest that
the parties explore settlement and that they do so at or before the conclusion of the Arbitration Hearing, and the
Panel shall give such assistance in settlement negotiations as the parties may request and the Panel may deem
appropriate. Alternatively, the Panel may direct the parties to endeavor to mediate their disputes as provided above,
or to explore a mini-trial proceeding, or to have an independent party render a neutral evaluation of the parties’
respective positions. The Panel shall enter such sanctions as it deems appropriate with respect to any party failing to
pursue in good faith such Mediation or other alternate dispute resolution methods.
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J. Subpoenas on Third Parties
Pursuant to, and consistent with, the Federal Arbitration Act, 9 U.S.C. § 9 et seq., and subject to Paragraph 3.G(iii)
above, a party may request the issuance of a subpoena on any third party, including but not limited to any third party
Blue Plan or any officer, employee or director of a third party Blue Plan, to compel deposition testimony or the
production of documents, and, if good and sufficient cause is shown, the Panel shall issue such a subpoena.
K. Arbitration Hearing
An Arbitration Hearing will be held within thirty (30) days after the Administrative Conference if no discovery is
taken, or within thirty (30) days after the close of discovery, unless all parties and the Panel agree to extend the
Arbitration Hearing date, or unless the parties agree in writing to waive the Arbitration Hearing. The parties may
mutually agree on the location of the Arbitration Hearing. If the parties fail to agree, the Arbitration Hearing shall be
held in Chicago, Illinois, or at such other location determined by the Presiding Arbitrator to be most convenient to the
participants. The Panel will determine the date(s) and time(s) of the Arbitration Hearing(s) after consultation with all
parties and shall provide reasonable notice thereof to all parties or their representatives.
L. Arbitration Hearing Memoranda
Twenty (20) days prior to the Arbitration Hearing, each party shall submit to the other party (or parties) and to the
Panel an Arbitration Hearing Memorandum which sets forth the applicable law and any argument as to any relevant
issue. The Arbitration Hearing Memorandum will supplement, and not repeat, the allegations, information and
documents contained in or with the Complaint, Answer, Counterclaim and Reply, if any. Ten (10) days prior to the
Arbitration Hearing, each party shall submit to each other party a list of all expert and fact witnesses (but not including
rebuttal fact witness) that such party intends to have testify at the Arbitration Hearing and a brief summary of the
testimony each such witness is expected to give. In addition, no later than five (5) days prior to the Arbitration, each
party may submit to each other party and to the Panel a Response Arbitration Hearing Memorandum which sets forth
any response to another party's Arbitration Hearing Memorandum.
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M. Notice For Testimony
Ten (10) days prior to the Arbitration Hearing, any party may serve a Notice on any other party (or parties)
requesting the attendance at the Arbitration Hearing of any officer, employee or director of the other party (or parties)
for the purpose of providing noncumulative testimony. If a party fails to produce one of its officers, employees or
directors whose noncumulative testimony during the Arbitration Hearing is reasonably requested by an adverse party,
the Panel may refuse to allow that party to support or oppose designated claims or defenses, prohibit that party from
introducing designated matters into evidence or, in extreme cases, decide an issue submitted for mandatory dispute
resolution adversely to that party; provided, however, that a party may refuse to produce a director to testify if, within
two (2) days of receiving a notice requesting the attendance of such director at the Arbitration Hearing, the party
agrees to make the director available for a de bene esse deposition at a mutually convenient time at any location
within fifty (50) miles of the director’s primary residence chosen by the party requesting the director’s testimony. This
Rule may not be used for the purpose of burdening or harassing any party, and the Presiding Arbitrator may impose
such orders as are appropriate so as to prevent or remedy any such burden or harassment.
Pursuant to, and consistent with, the Federal Arbitration Act, 9 U.S.C. § 9 et seq., twenty (20) days or more
prior to the Arbitration Hearing, a party may request the issuance of a subpoena on any third party, including but not
limited to any third party Blue Plan, BCBSA or any officer, employee or director of a third party Blue Plan or BCBSA
for the purpose of providing noncumulative testimony at the Arbitration Hearing, and, if good and sufficient cause is
shown, the Panel shall issue such a subpoena; provided however, that a director of a third party Blue Plan or BCBSA
may refuse to testify if, within two (2) days of receiving a subpoena requesting the attendance of such director at the
Arbitration Hearing, the director agrees to make him/herself available for a de bene esse deposition at a mutually
convenient time at any location within fifty (50) miles of the director’s primary residence chosen by the party
requesting the director’s testimony. Each Blue Plan agrees to waive, on its own behalf and on behalf of its directors
and officers, any objection it otherwise might have to any such subpoena based on service, venue or
extraterritoriality.
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N. Arbitration Hearing Procedures
i. Attendance at Arbitration Hearing: Any person having a direct interest in the proceeding is entitled
to attend the Arbitration Hearing. The Presiding Arbitrator shall otherwise have the power to require
the exclusion of any witness, other than a party or other essential person, during the testimony of
any other witness. It shall be discretionary with the Presiding Arbitrator to determine the propriety of
the attendance of any other person.
ii. Confidentiality: The Panel and all parties shall maintain the privacy of the Arbitration Proceeding.
The parties and the Panel shall treat the Arbitration Hearing and any discovery or other proceedings
or events related thereto, including any award resulting therefrom, as confidential except as
otherwise necessary in connection with a judicial challenge to or enforcement of an award or unless
otherwise required by law.
iii. Stenographic Record: Any party, or if the parties do not object, the Panel, may request that a
stenographic or other record be made of any Arbitration Hearing or portion thereof. The costs of the
recording and/or of preparing the transcript shall be borne by the requesting party and by any party
who receives a copy thereof. If the Panel requests a recording and/or a transcript, the costs thereof
shall be borne equally by the parties.
iv. Oaths: The Panel may require witnesses to testify under oath or affirmation administered by any
duly qualified person and, if requested by any party, shall do so.
v. Order of Arbitration Hearing: An Arbitration Hearing shall be opened by the recording of the date,
time, and place of the Arbitration Hearing, and the presence of the Panel, the parties, and their
representatives, if any. The Panel may, at the beginning of the Arbitration Hearing, ask for
statements clarifying the issues involved.
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Unless otherwise agreed, the complaining party (or parties) shall then present evidence to support
their claim(s). The respondent(s) shall then present evidence supporting their defenses and
Counterclaims, if any. The complaining party (or parties) shall then present evidence supporting
defenses to the Counterclaims, if any, and rebuttal.
Witnesses for each party shall submit to questions by adverse parties and/or the Panel.
The Panel has the discretion to vary these procedures, but shall afford a full and equal opportunity to
all parties for the presentation of any material and relevant evidence.
vi. Evidence: The parties may offer such evidence as is relevant and material to the dispute and shall
produce such evidence as the Panel may deem necessary to an understanding and resolution of the
dispute. Unless good cause is shown, as determined by the Panel or agreed to by all other parties,
no party shall be permitted to offer evidence at the Arbitration Hearing which was not disclosed prior
to the Arbitration Hearing by that party. The Panel may receive and consider the evidence of
witnesses by affidavit upon such terms as the Panel deems appropriate.
The Panel shall be the judge of the relevance and materiality of the evidence offered, and conformity
to legal rules of evidence, other than enforcement of the attorney-client privilege and the work
product protection, shall not be necessary. The Federal Rules of Evidence shall be considered by
the Panel in conducting the Arbitration Hearing but those rules shall not be controlling. All evidence
shall be taken in the presence of the Panel and all of the parties, except where any party is in default
or has waived the right to be present.
Settlement offers by any party in connection with Mediation or MDR proceedings, decisions or
recommendations of the selected mediators, and a party's position papers or statements furnished
to the selected mediators shall not be admissible evidence or considered by the Panel without the
consent of all parties.
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vii. Closing of Arbitration Hearing: The Presiding Arbitrator shall specifically inquire of all parties
whether they have any further proofs to offer or witnesses to be heard. Upon receiving negative
replies or if he or she is satisfied that the record is complete, the Presiding Arbitrator shall declare
the Arbitration Hearing closed with an appropriate notation made on the record. Subject to being
reopened as provided below, the time within which the Panel is required to make the award shall
commence to run, in the absence of contrary agreement by the parties, upon the closing of the
Arbitration Hearing.
With respect to complex disputes, the Panel may, in its sole discretion, defer the closing of the
Arbitration Hearing for a period of up to thirty (30) days after the presentation of proofs in order to
permit the parties to submit post-hearing briefs and argument, as the Panel deems appropriate, prior
to making an award.
For good cause, the Arbitration Hearing may be reopened for up to thirty (30) days on the Panel's
initiative, or upon application of a party, at any time before the award is made
O. Awards
An Award must be in writing and shall be made promptly by the Panel and, unless otherwise agreed by the parties
or specified by law, no later than thirty (30) days from the date of closing the Arbitration Hearing. If all parties so
request, the Award shall contain findings of fact and conclusions of law. The Award, and all other rulings and
determinations by the Panel, may be by a majority vote.
Parties shall accept as legal delivery of the Award the placing of the Award or a true copy thereof in the mail
addressed to a party or its representative at its last known address or personal service of the Award on a party or its
representative.
Awards are binding only on the parties to the Arbitration and are not binding on any non-parties to the Arbitration
and may not be used or cited as precedent in any other proceeding.
Amended as of September 20, 2007
EXHIBIT 5
Page 18 of 23
After the expiration of twenty (20) days from initial delivery, the Award (with corrections, if any) shall be final and
binding on the parties, and the parties shall undertake to carry out the Award without delay.
Proceedings to confirm, modify or vacate an Award shall be conducted in conformity with and controlled by the
Federal Arbitration Act. 9 U.S.C. § 1, et seq.
P. Return of Documents
Within sixty (60) days after the Award and the conclusion of any judicial proceedings with respect thereto, each
party and the Panel shall return any documents produced by any other party, including all copies thereof. If a party
receives a discovery request in any other proceeding which would require it to produce any documents produced to it
by any other party in a proceeding hereunder, it shall not produce such documents without first notifying the
producing party and giving said party reasonable time to respond, if appropriate, to the discovery request.
4. Miscellaneous
A. Expedited Procedures
Any party to a Mediation may direct a request for an expedited Mediation Hearing to the Chairman of the Mediation
Committee, to the selected Mediators, and to all other parties at any time. The Chairman of the Mediation Committee,
or at his or her direction, the then selected Mediators, shall grant any request which is supported by good and
sufficient reasons. If such a request is granted, the Mediation shall be completed within as short a period as
practicable, as determined by the Chairman of the Mediation Committee or, at his or her direction, the then selected
Mediators.
Any party to an Arbitration may direct a request for expedited proceedings to the Administrator, to the Panel, and to
all other parties at any time. The Administrator, or the Presiding Arbitrator if the Panel has been selected, shall grant
any such request which is supported by good and sufficient reasons. If such a request is granted, the Arbitration shall
be completed within as short a time as practicable, as determined by the Administrator and/or the Presiding
Arbitrator.
Amended as of September 20, 2007
EXHIBIT 5
Page 19 of 23
B. Temporary or Preliminary Injunctive Relief
Any party may seek temporary or preliminary injunctive relief with the filing of a Complaint or at any time thereafter.
If such relief is sought prior to the time that an Arbitration Panel has been selected, then the Administrator shall select
a single Arbitrator who is a lawyer who has no interest in the subject matter of the dispute, and no connection to any
of the parties, to hear and determine the request for temporary or preliminary injunction. If such relief is sought after
the time that an Arbitration Panel has been selected, then the Arbitration Panel will hear and determine the request.
The request for temporary or preliminary injunctive relief will be determined with reference to the temporary or
preliminary injunction standards set forth in Fed. R. Civ. P. 65.
C. Defaults and Proceedings in the Absence of a Party
Whenever a party fails to comply with the MDR Rules in a manner deemed material by the Panel, the Panel shall
fix a reasonable time for compliance and, if the party does not comply within said period, the Panel may enter an
Order of default or afford such other relief as it deems appropriate. Arbitration may proceed in the event of a default
or in the absence of any party who, after due notice, fails to be present or fails to obtain an extension. An Award shall
not be made solely on the default or absence of a party, but the Panel shall require the party who is present to submit
such evidence as the Panel may require for the making of findings, determinations, conclusions, and Awards.
D. Notice
Each party shall be deemed to have consented that any papers, notices, or process necessary or proper for the
initiation or continuation of a proceeding under these rules or for any court action in connection therewith may be
served on a party by mail addressed to the party or its representative at its last known address or by personal
service, in or outside the state where the MDR proceeding is to be held.
The Corporate Secretary and the parties may also use facsimile transmission, telex, telegram, or other written
forms of electronic communication to give the notices required by these rules.
EXHIBIT 5
Page 20 of 23
E. Expenses
The expenses of witnesses shall be paid by the party causing or requesting the appearance of such witnesses. All
expenses of the MDR proceeding, including compensation, required travel and other reasonable expenses of the
Panel, and the cost of any proof produced at the direct request of the Panel, shall be borne equally by the parties and
shall be paid periodically on a timely basis, unless they agree otherwise or unless the Panel in the Award assesses
such expenses, or any part thereof against any party (or parties). In exceptional cases, the Panel may award
reasonable attorneys' fees as an item of expense, and the Panel shall promptly determine the amount of such fees
based on affidavits or such other proofs as the Panel deems sufficient.
F. Disqualification or Disability of A Panel Member
In the event that any Arbitrator of a Panel with more than one Arbitrator should become disqualified, resign, die, or
refuse or be unable to perform or discharge his or her duties after the commencement of MDR but prior to the
rendition of an Award, and the parties are unable to agree upon a replacement, the remaining Panel member(s):
i. shall designate a replacement, subject to the right of any party to challenge such replacement for
cause.
ii. shall decide the extent to which previously held hearings shall be repeated.
If the remaining Panel members consider the proceedings to have progressed to a stage as to make replacement
impracticable, the parties may agree, as an alternative to the recommencement of the Mandatory Dispute Resolution
process, to resolution of the dispute by the remaining Panel members.
In the event that a single Arbitrator should become disqualified, resign, die, or refuse or be unable to perform or
discharge his or her duties after the commencement of MDR but prior to the rendition of an Award, and the parties
are unable to agree upon a replacement, the Administrator shall appoint a successor, subject to the right of any party
to challenge such successor for cause, and the successor shall decide the extent to which previously held
proceedings shall be repeated.
EXHIBIT 5
Page 21 of 23
G. Extensions of Time
Subject to the provisions of Paragraph 3.H.(viii), any time limit set forth in these Rules may be extended upon
agreement of the parties and approval of: (1) the Mediator if the proceeding is then in Mediation; (2) the Administrator
if the proceeding is in Arbitration, but no Arbitration Panel has been selected; or (3) the Arbitration Panel, if the
proceeding is in Arbitration and the Arbitration Panel has been selected.
H. Intervention
The Plans, their Controlled Affiliates, and BCBSA, to the extent subject to MMDR pursuant to their License
Agreements, shall have the right to move to intervene in any pending Arbitration. A written motion for intervention
shall be made to: (1) the Administrator, if the proceeding is in Arbitration, but no Arbitration Panel has been selected;
or (2) the Arbitration Panel, if the proceeding is in Arbitration and the Arbitration Panel has been selected. The written
motion for intervention shall be delivered to the BCBSA Corporate Secretary (which shall also constitute service on
the BCBSA if it is a respondent) and to any Plan(s) and/or Controlled Affiliate(s) which are parties to the proceeding.
Any party to the proceeding can submit written objections to the motion to intervene. The motion for intervention shall
be granted upon good cause shown. Intervention also may be allowed by stipulation of the parties to the Arbitration
proceeding. Intervention shall be allowed upon such terms as the Arbitration Panel decides.
I. BCBSA Assistance In Resolution of Disputes
The resources and personnel of the BCBSA may be requested by any member Plan at any time to try to resolve
disputes with another Plan.
J. Neutral Evaluation
The parties can voluntarily agree at any time to have an independent party render a neutral evaluation of the
parties’ respective positions.
Amended as of September 20, 2007
EXHIBIT 5
Page 22 of 23
K. Recovery of Attorney Fees and Expenses
i. Motions to Compel
Nothwithstanding any other provisions of these Rules, any Party subject to the License Agreements (for
purposes of this Section K and all of its sub-sections only hereinafter referred to collectively and individually as
a “Party”) that initiates a court action or administrative proceeding solely to compel adherence to these Rules
shall not be determined to have violated these Rules by initiating such action or proceeding.
ii Recovery of Fees, Expenses and Costs
The Arbitration Panel may, in its sole discretion, award a Party its reasonable attorneys’ fees, expenses and
costs associated with a filing to compel adherence to these Rules and/or reasonable attorneys’ fees, expenses
and costs incurred in responding to an action filed in violation of these Rules; provided, however, that neither
fees, expenses, nor costs shall be awarded by the Arbitration Panel if the Party from which the award is sought
can demonstrate to the Arbitration panel, in its sole discretion, that it did not violate these Rules or that it had
reasonable grounds for believing that its action did not violate these Rules.
iii Requests for Reimbursement
For purposes of this Section K, any Party may request reimbursement of fees, expenses and/or costs by
submitting said request in writing to the Arbitration Panel at any time before an award is delivered pursuant to
Paragraph 3.O above, with a copy to the Party from which reimbursement is sought, explaining why it is
entitled to such reimbursement. The Party from which reimbursement is sought shall have twenty (20) days to
submit a response to such request to the Arbitration Panel with a copy to the Party seeking reimbursement.
Amended as of September 20, 2007
EXHIBIT 5
Page 23 of 23
L. Calculation of Time and Deadlines
In computing any period of time prescribed or allowed under these rules, the day of the act or event from which
the designated period of time begins to run shall not be included. The last day of the period so computed shall be
included, unless it is a Saturday, a Sunday, or a legal holiday, in which event the period runs until the end of the next
day which is not one of the aforementioned days. When the period of time prescribed is less than six (6) days,
intermediate Saturdays, Sundays and legal holidays shall be excluded in the computation. As used in this rule, “legal
holiday” includes New Year’s Day, Martin Luther King, Jr. Day, Washington’s Birthday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day and any other day appointed as a
holiday by the President or the Congress of the United States.
Amended as of September 20, 2007
SUBSIDIARIES OF THE COMPANY
Legal Name
Alliance Care Management, LLC
American Imaging Management, Inc.
America's 1st Choice of South Carolina, Inc.
America's Health Management Services, Inc.
AMERIGROUP Community Care of New Mexico, Inc.
AMERIGROUP Corporation
Amerigroup Delaware, Inc.
Amerigroup District of Columbia, Inc.
Amerigroup Insurance Company
Amerigroup Iowa, Inc.
Amerigroup IPA of New York, LLC
Amerigroup Kansas, Inc.
AMERIGROUP Maryland, Inc.
Amerigroup Mississippi, Inc.
AMERIGROUP New Jersey, Inc.
AMERIGROUP Ohio, Inc.
Amerigroup Oklahoma Inc.
Amerigroup Partnership Plan, LLC
Amerigroup Pennsylvania, Inc.
AMERIGROUP Tennessee, Inc.
AMERIGROUP Texas, Inc.
AMERIGROUP Washington, Inc.
AMGP Georgia Managed Care Company, Inc.
AMH Health Plans of Maine, Inc.
AMH Health, LLC
Anthem Blue Cross Life and Health Insurance Company
Anthem Financial, Inc.
Anthem Health Plans of Kentucky, Inc.
Anthem Health Plans of Maine, Inc.
Anthem Health Plans of New Hampshire, Inc.
Anthem Health Plans of Virginia, Inc.
Anthem Health Plans, Inc.
Anthem Holding Corp.
Anthem Innovation Israel, Ltd.
Anthem Insurance Companies, Inc.
Anthem Kentucky Managed Care Plan, Inc.
Anthem Life & Disability Insurance Company
Anthem Life Insurance Company
Anthem Partnership Holding Company, LLC
Exhibit 21
Doing Business As
AIM Specialty Health
AMERIGROUP CORPORATION; AGP
Corporation; AMGP; AMGP Corporation; AMGP
Missouri
AMERIGROUP Community Care
AMERIGROUP Community Care
AMERIGROUP Community Care
AMERIGROUP Community Care
AMERIGROUP Community Care
AMERIGROUP; AMERIGROUP Community
Care; AMERIGROUP Georgia; AMGP Georgia
Anthem Blue Cross and Blue Shield
Anthem Blue Cross and Blue Shield; Associated
Hospital Service
Anthem Blue Cross and Blue Shield
Anthem Blue Cross and Blue Shield
Anthem Blue Cross and Blue Shield
Anthem Properties, Inc.
Anthem Blue Cross and Blue Shield; Blue Cross and
Blue Shield of Indiana; Empire Blue Cross-Retiree
Solutions; Empire Blue Cross Blue Shield-Retiree
Solutions; Anthem BC Health Insurance Company;
Anthem Blue Cross and Blue Shield Medicaid
Domestic Jurisdiction
Delaware
Illinois
South Carolina
South Carolina
New Mexico
Delaware
Delaware
District of Columbia
Texas
Iowa
New York
Kansas
Maryland
Mississippi
New Jersey
Ohio
Oklahoma
Illinois
Pennsylvania
Tennessee
Texas
Washington
Georgia
Maine
Maine
California
Delaware
Kentucky
Maine
New Hampshire
Virginia
Connecticut
Indiana
Israel
Indiana
Kentucky
New York
Indiana
Indiana
Anthem Services Company, LLC
Anthem Southeast, Inc.
Anthem UM Services, Inc.
Anthem Workers' Compensation, LLC
Applied Pathways LLC
Arcus Enterprises, Inc.
Aspire Health, Inc.
Associated Group, Inc.
ATH Holding Company, LLC
Beacon CBHM LLC
Beacon Health Financing LLC
Beacon Health Holdings LLC
Beacon Health Options Care Services, Inc.
Beacon Health Options Holdco, Inc.
Beacon Health Options of California, Inc.
Beacon Health Options of Ohio, Inc.
Beacon Health Options of Pennsylvania, Inc.
Beacon Health Options, Inc.
Beacon Health Strategies LLC
Beacon Health Vista Parent, Inc.
Beacon Plan Funding, LLC
BHS IPA, LLC
Blue Cross Blue Shield Healthcare Plan of Georgia, Inc.
Blue Cross Blue Shield of Wisconsin
Blue Cross of California
Blue Cross of California Partnership Plan, Inc.
BVO Holdings, LLC
CareMarket, Inc.
CareMore Health Plan
CareMore Health Plan of Arizona, Inc.
CareMore Health Plan of Nevada
CareMore Health Plan of Texas, Inc.
CareMore Health System
CareMore, LLC
CCHA, LLC
Cerulean Companies, Inc.
CHCS IPA, Inc.
Claim Management Services, Inc.
Community Care Health Plan of Louisiana, Inc.
Community Care Health Plan of Nebraska, Inc.
Community Care Health Plan of Nevada, Inc.
Community Insurance Company
Compcare Health Services Insurance Corporation
Crossroads Acquisition Corp.
DBG Holdings, Inc.
DeCare Analytics, LLC
DeCare Dental Health International, LLC
DeCare Dental Insurance Ireland, Ltd.
Indiana
Indiana
Indiana
Indiana
Illinois
Delaware
Delaware
Indiana
Indiana
Delaware
Delaware
Delaware
Delaware
Delaware
California
Ohio
Pennsylvania
Virginia
Massachusetts
Delaware
Delaware
New York
Georgia
Wisconsin
California
California
Delaware
Indiana
California
Arizona
Nevada
Texas
California
Indiana
Colorado
Georgia
New York
Wisconsin
Louisiana
Nebraska
Nevada
Ohio
Wisconsin
Delaware
Indiana
Minnesota
Minnesota
Ireland
Exhibit 21
Anthem Blue Cross and Blue Shield
Anthem Blue Cross and Blue Shield
Anthem Blue Cross
Anthem Blue Cross Partnership Plan
Sydney Care
Colorado Community Health Alliance
Anthem Blue Cross and Blue Shield
Healthy Blue
WellCare of Nebraska; Healthy Blue
Anthem Blue Cross and Blue Shield Healthcare
Solutions; AMERIGROUP Community Care
Anthem Blue Cross and Blue Shield;
Anthem Blue Cross and Blue Shield;
DeCare Dental Networks, LLC
DeCare Dental, LLC
DeCare Operations Ireland, Limited
Delivery Network, LLC
Designated Agent Company, Inc.
EasyScripts Cutler Bay, LLC
EasyScripts Hialeah, LLC
EasyScripts Westchester, LLC
EasyScripts, LLC
EHC Benefits Agency, Inc.
Empire HealthChoice Assurance, Inc.
Empire HealthChoice HMO, Inc.
Federal Government Solutions, LLC
FHC Health Systems, Inc.
Florida Health Partners, Inc.
Freedom Health, Inc.
Golden West Health Plan, Inc.
GR Health Solutions, LLC
Greater Georgia Life Insurance Company
Group Retiree Health Solutions, Inc.
Health Core, Inc.
Health Management Corporation
Health Ventures Partner, L.L.C.
HealthKeepers, Inc.
HealthLink HMO, Inc.
HealthLink Insurance Company
HealthLink, Inc.
HealthPlus HP, LLC
HealthSun Health Plans, Inc.
HealthSun Physicians Network I, LLC
HealthSun Physicians Network, LLC
Healthy Alliance Life Insurance Company
HEP AP Holdings, Inc.
Highland Acquisition Holdings, LLC
Highland Intermediate Holdings, LLC
Highland Investor Holdings, LLC
HMO Colorado, Inc.
HMO Missouri, Inc.
IEC Group Holdings, Inc.
IEC Group, Inc.
Imaging Management Holdings, LLC
IngenioRx, Inc.
Legato Health Technologies, LLP
Legato Health Technologies Philippines, Inc.
Legato Holdings I, Inc.
Legato Holdings II, LLC
Exhibit 21
Empire Blue Cross; Empire Blue Cross Blue Shield
Empire Blue Cross HMO; Empire Blue Cross Blue
Shield HMO
Anthem Life
LiveHealth Online; HMC of Virginia; Health
Management of Virginia, Inc.
HealthLink HMO
Empire BlueCross BlueShield HealthPlus; Empire
BlueCross HealthPlus
Anthem Blue Cross and Blue Shield
HMO Colorado; HMO Nevada
Amerigroup Missouri; Anthem Blue Cross and Blue
Shield
AmeriBen
Ingenio, Inc.; IngenioRx Administrators
Legato Health Technologies
Minnesota
Minnesota
Ireland
Florida
Kentucky
Florida
Florida
Florida
Florida
New York
New York
New York
Wisconsin
Virginia
Florida
Florida
California
Pennsylvania
Georgia
Pennsylvania
Delaware
Virginia
Illinois
Virginia
Missouri
Illinois
Illinois
New York
Florida
Florida
Florida
Missouri
Delaware
Delaware
Delaware
Delaware
Colorado
Missouri
Idaho
Idaho
Delaware
Indiana
India
Philippines
Indiana
Indiana
Living Complete Technologies, Inc.
Massachusetts Behavioral Health Partnership, LLP
Matthew Thornton Health Plan, Inc.
Meridian Resource Company, LLC
Missouri Care, Incorporated
Momentum Health Partners, LLC
Nash Holding Company, LLC
National Government Services, Inc.
New England Research Institutes, Inc.
NGS Federal, LLC
North Florida Behavioral Health Partners, Inc.
Optimum Healthcare, Inc.
OPTIONS Health Care, Inc.
Park Square Holdings, Inc.
Park Square I, Inc.
Park Square II, Inc.
Pasteur Medical Bird Road, LLC
Pasteur Medical Center, LLC
Pasteur Medical Cutler Bay, LLC
Pasteur Medical Group, LLC
Pasteur Medical Hialeah Gardens, LLC
Pasteur Medical Kendall, LLC
Pasteur Medical Management, LLC
Pasteur Medical Miami Gardens, LLC
Pasteur Medical North Miami Beach, LLC
Pasteur Medical Partners, LLC
Resolution Health, Inc.
RightCHOICE Managed Care, Inc.
Rocky Mountain Hospital and Medical Service, Inc.
SellCore, Inc.
Simply Healthcare Plans, Inc.
Southeast Services, Inc.
State Sponsored Services, Inc.
The Anthem Companies of California, Inc.
The Anthem Companies, Inc.
TrustSolutions, LLC
UNICARE Health Plan of West Virginia, Inc.
UNICARE Illinois Services, Inc.
UniCare Life & Health Insurance Company
UNICARE National Services, Inc.
UniCare Specialty Services, Inc.
Value Health Reinsurance, Inc.
ValueOptions Federal Services, Inc.
ValueOptions of Kansas, Inc.
Maryland
Massachusetts
New Hampshire
Wisconsin
Missouri
North Carolina
Delaware
Indiana
Massachusetts
Indiana
Florida
Florida
Delaware
California
California
California
Florida
Delaware
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Florida
Delaware
Delaware
Colorado
Delaware
Florida
Virginia
Indiana
California
Indiana
Wisconsin
West Virginia
Illinois
Indiana
Delaware
Delaware
Arizona
Virginia
Kansas
Exhibit 21
TAI Software, Inc.
Healthy Blue; Missouri Care; Missouri Care Health
Plan
NGS of Indiana
Summit Community Care
Delaware Resolution Health, Inc.
RightCHOICE Benefit Administrators; Anthem
Blue Cross and Blue Shield;
Anthem Blue Cross and Blue Shield; Anthem Blue
Cross Blue Shield
SellCore Insurance Services, Inc.
Clear Health Alliance; Better Health; Amerigroup
Florida
Amerigroup GBD Disease Management Program;
Anthem GBD Disease Management Program;
Amerigroup GBD Behavioral Health; Anthem GBD
Behavioral Health
UNICARE Adjuster
Exhibit 21
DBG, Inc.
ValueOptions of New Jersey, Inc.
ValueOptions of Texas, Inc.
Valus, Inc.
Wellmax Health Medical Centers, LLC
Wellmax Health Physicians Network, LLC
WellPoint Acquisition, LLC
WellPoint California Services, Inc.
WellPoint Dental Services, Inc.
WellPoint Health Solutions, Inc.
WellPoint Holding Corp.
WellPoint Information Technology Services, Inc.
WellPoint Insurance Services, Inc.
WellPoint Military Care Corporation
Wisconsin Collaborative Insurance Company
WPMI, LLC
Zip Drug Inc.
New Jersey
Texas
Indiana
Florida
Florida
Indiana
Delaware
Delaware
Indiana
Delaware
California
Hawaii
Indiana
Wisconsin
Delaware
Delaware
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements:
•
•
•
•
•
Form S-8 No. 333-84906 and Form S-8 No. 333-129334 pertaining to the Anthem 401(k) Plan;
Form S-8 No. 333-156099 pertaining to the Anthem, Inc. Employee Stock Purchase Plan;
Form S-8 No. 333-159830 pertaining to the Anthem Incentive Compensation Plan;
Form S-8 No. 333-218190 pertaining to the 2017 Anthem Incentive Compensation Plan; and
Form S-3 No. 333-249877 pertaining to the Anthem, Inc. registration of senior debt securities, subordinated debt securities, preferred stock,
common stock, depositary shares, warrants, rights, stock purchase contracts and stock purchase units
of our reports dated February 18, 2021, with respect to the consolidated financial statements and financial statement schedule listed in the Index at Item
15(c) of Anthem, Inc., and the effectiveness of internal control over financial reporting of Anthem, Inc., included in its Annual Report (Form 10-K) for the
year ended December 31, 2020.
/S/ ERNST & YOUNG LLP
Indianapolis, Indiana
February 18, 2021
1
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a) AND RULE 15d-14(a) OF THE EXCHANGE ACT RULES,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gail K. Boudreaux, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Anthem, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: February 18, 2021
/s/ GAIL K. BOUDREAUX
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a) AND RULE 15d-14(a) OF THE EXCHANGE ACT RULES,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John E. Gallina, certify that:
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Anthem, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: February 18, 2021
/s/ JOHN E. GALLINA
Executive Vice President and
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Anthem, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2020 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Gail K. Boudreaux, President and Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ GAIL K. BOUDREAUX
Gail K. Boudreaux
President and Chief Executive Officer
February 18, 2021
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Anthem, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2020 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, John E. Gallina, Executive Vice President and Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ JOHN E. GALLINA
John E. Gallina
Executive Vice President and Chief Financial Officer
February 18, 2021