Idaho switched government employee health insurers, now lawsuit seeks to void $1.1B contract

Originally published July 23 on IdahoCapitalSun.com.

For the first time in almost two decades, Idaho switched insurance companies for its government employee health insurance plan.

Idaho contract officials used a new contracting process that lets bidding companies and the state negotiate after bids are submitted.

But after losing the contract to Regence BlueShield of Idaho, the former insurer, Blue Cross of Idaho, sued the state in March, asking a judge to void the contract. Blue Cross alleges Idaho’s new contracting process, called an invitation to negotiate, is “unlawful,” citing Idaho lawmakers moves to stop the process’ use this spring. 

“Defendants are not authorized to enter into a multi-billion-dollar state contract without first issuing a lawful solicitation as required by the (State Procurement) Act,” Blue Cross, represented by attorneys at Holland & Hart LLP, argues in its lawsuit.

Attorneys for Idaho officials say Blue Cross’s lawsuit should be dismissed. 

In a May legal filing by the Idaho Office of the Attorney General, they argue the insurance company lacked legal standing for the lawsuit, and Idaho law — when Blue Cross filed its lawsuit — didn’t typically allow judges to review contract award decisions.

Blue Cross’s lawsuit is scheduled for a hearing in August on a request for summary judgment.

In July, Regence took over managing Idaho’s state health insurance plan covering around 62,000 people. That includes more than 25,000 employees and over 35,000 of their family members. 

The Idaho Department of Administration, Idaho’s state contracting agency, will not use the contracting process going forward, spokesperson Kim Rau told the Sun in an email.

If Blue Cross succeeds in voiding the contract, the Department of Administration “is unclear what remedies a court would order,” Rau said.

In March, the Idaho Legislature passed House Concurrent Resolution 29 to repeal rules for the Idaho Department of Administration that allowed the new contracting process.

The resolution called “certain rules” of the agency “not consistent with legislative intent.” The new process, also known as competitive negotiation, “is not permitted by statute,” the resolution says.

WHY IS IDAHO'S NEW GOVERNMENT CONTRACTING PROCESS UNDER SCRUTINY?

State contract officials pitched the invitation to negotiate contract process, in part, as a way to save public funds on complex state business needs. 

Contract officials say the process has resulted in savings on several contracts. They estimate saving over $50 million on the state employee health insurance plan contract.

The Idaho Legislature in 2019 approved rules to allow the new process proposed by the Idaho Department of Administration.

Rep. Brent Crane, a longtime state legislator, sponsored the resolution in 2024 to revoke rules for the new contracting process.

Crane, R-Nampa, told the Sun the process leaves the losing contract bidder feeling like the process is unfair and raises similar concerns among lawmakers.

In a February committee meeting, Crane called the invitation to negotiate process “ripe for fraud and abuse.”

“We have a process here. And it’s worked very well, until the department slipped this in through a rule. And quite frankly, I’m extremely upset that the department did this to us when we were emphatically clear: We did not want this process because we did not want a Syringa situation again,” he said in a House State Affairs Committee meeting. 

He was referring to a separate broadband internet contract — issued before Idaho’s new negotiation contract process — that resulted in a years-long legal battle, as reported on by Idaho Education News.

The recent squabble over the government health insurance contract was what brought the issue back onto his radar, he told the Sun in May.

In the Legislature, Crane stressed the resolution was intended to be forward-looking. But he told the Sun he wasn’t sure how legal challenges could affect the insurance contract.

“That will be up to the judge to make that determination,” Crane said. “But that was not the intent of the Legislature.”

HOW DID IDAHO SWITCH HEALTH INSURERS FOR STATE EMPLOYEES?

The contract for Regence, a Lewiston-based insurer, is expected to cost more than $1.1 billion in the first three years.

Blue Cross of Idaho, based in Meridian, held the contract since 2004. Regence also previously held the contract, the Idaho Capital Sun previously reported.

In December, Blue Cross separately sued the state of Idaho to release information — concealed under trade secret protections — about how outside analysts at Alera Group crunched numbers on the state employee insurance contract bids. 

State officials used Alera’s figures to award Regence the contract. Early numbers — which state officials say were too flawed to use — suggested Blue Cross had the cheapest contract bid, the Idaho Capital Sun reported. (A district court judge ordered Idaho release additional information in the deal; Alera appealed to the Idaho Supreme Court, where the case is on hold for legal briefings while awaiting the outcome of litigation on another contract.)

Citing pending litigation, Idaho Department of Administration spokesperson Rau declined to say whether Idaho’s decision to reopen negotiations on the contract to seek Alera’s new analysis was only allowed under the new contracting process.

HOW HAS IDAHO USED THE NEW CONTRACTING PROCESS?

In requests for proposals, a popular contracting process, negotiations are rare, Rau told the Sun in an email.

The Idaho Department of Administration sought the new process “to obtain best value for the state,” Rau said.

The Idaho Department of Administration created the process to “increase its ability to have dialogue with vendors during the process to clarify expectations and assumptions; increase the ability to get input from vendors who are the experts in their industry; and to negotiate cost, terms and conditions,” she said.

Many states have state contracting methods similar to Idaho’s invitation to negotiate, she said, but some use different names. When designing Idaho’s process, Idaho reviewed processes in other states including Utah and Florida, Rau said.

Idaho has awarded about 16 contracts through the new process, she said. Two of those contracts were challenged, she said. The Department of Administration doesn’t track the number of all challenges, she said.

Several Idaho contracts issued through the negotiation contracting process “resulted in significant cost savings,” Rau said. On a contract for freight services for the Idaho State Liquor Division also using the process, Idaho estimates saving $1 million, she said.

Idaho also used the invitation to negotiate process to pick a new private company to manage Medicaid mental health benefits. That’s Idaho’s largest state government contract for $1.2 billion. 

The new contractor, Magellan of Idaho, hired three former Idaho state government employees, including one who judged companies’ bids on the contract, the Idaho Capital Sun reported.