Cash management in a crisis: Blue Shield of California on the healthcare front line
How one US health-insurance plan looked after itself and the providers its policyholders rely on when routine treatment demand started to dry up.
When Emily Glidden realised the coronavirus pandemic was about to unleash severe disruption on the staff, counterparties and clients of Blue Shield of California, where she is senior director, treasury, one of her first thoughts was to ensure that the non-profit health insurer could secure enough liquidity to cover it for what might be coming.
No problem, she thought, the company had a big investment portfolio of safe, liquid fixed income securities. But this was March, when people were selling whatever would sell. She was in for a surprise.
“In a bad crunch, it might take a bit longer than normal and the bid-ask might be a bit wider,” she tells Euromoney. “But – wow! – you don’t think to yourself that you may have to give someone two weeks to sell triple-A paper at a decent price.”
When it came to preparation for the crisis, Blue Shield of California was in many ways ahead of the game – partly because of where it is based. The Six Counties in the Bay Area of San Francisco are widely recognised as having been early movers on shelter-in-place policies in the US.
And even before those were implemented on March 17, San Francisco governor Gavin Newsom was advising that people should start to work from home. He had declared a state of emergency as early as March 4, after the first coronavirus death in California.
“When we decided to work remotely, within a week or two we had all of our 6,800 staff working from home,” says Glidden.
The company was well prepared for it – employees have always had the ability to take their laptops home for business continuity reasons, and Blue Shield’s treasury operations are able to access the company’s cash remotely with little trouble.
“It was seamless for us and for most of the company,” she adds.
Liquidity was the first priority, but awareness of the potential for fraud came a close second. Glidden says the banks she works with were regularly reminding the firm of the need for vigilance – as well as stepping up their own monitoring.
“There were a lot of calls to check individual wire payments,” she says.
In health-plan companies like Blue Shield, margins tend to be small but the movement of money can be substantial – about $21 billion comes into Blue Shield each year, and only a bit less goes out.
From a treasury perspective, it’s the bit that goes out that can be complicated.
“Very often those payments relate to claims, and therefore you have to associate payment with the corresponding claim information,” says Glidden. “It is a regulatory requirement for payers like us, so our systems include a trace number on the ACH [automated clearing house] payment.”
But the crisis brought new complications that needed new thinking to solve.
“In March we started hearing about healthcare providers potentially having liquidity problems, because everyone was putting off their routine health needs,” says Glidden. “Providers weren’t seeing patients, so they had less income coming in.”
Healthcare insurers need healthcare providers to be there for their policyholders. Much as big manufacturers have had to use supply-chain finance to look after their small suppliers, it was clear that Blue Shield might need to step in to assist healthcare providers.
What it came up with was a programme of advances against healthcare claims payments.
“If a provider was doing $10 million of business with us over the course of a year, we could advance them up to $5 million of that now,” says Glidden.
To do this, Blue Shield needed the money itself.
“We have a working capital line for our daily needs, but with this situation we weren’t really sure what we would need, and we didn’t know how the environment was going to impact our own financials,” says Glidden.
"We are holding more cash, and we have to be aware that we might miss out on some upside as a result. But everyone recognises that this is an environment where other things are more important" Emily Glidden, Blue Shield of California
Blue Shield’s existing $50 million line was with Bank of America, and the bank was able to provide another $50 million to support the programme.
It’s a good example of the kind of responsiveness that Glidden likes about the bank. She has been with Blue Shield for about 13 years, but the company’s relationship with BofA predates that by nearly another 20 on the cash management side, a little less on the credit side.
“Several years ago they had people come out and sit with my cash management desk folks to watch the process to identify things that would enable improvements,” she says.
While support from banks will continue to be crucial, many treasurers are also coming to the conclusion that their companies need to become more resilient, to reassess how they approach funding and preparation.
What will Glidden consider in future? More lines of credit, bigger lines of credit, running with more cash?
“All those things are on the table,” she agrees. “We are holding more cash, and we have to be aware that we might miss out on some upside as a result.
“But everyone recognises that this is an environment where other things are more important.”