Blue Cross Blue Shield

An Interview with Steve Martin, CEO of Blue Cross Blue Shield of Nebraska
By Sam Bhatia and Richard Gonzalez, Creighton University MBA students

The insurance side of the healthcare industry may not always have the most perfectly portrayed image, but the image conveyed between each individual insurance company is a different story. The public may sometimes think that what insurance companies do is not ethical because they raise premiums too much or their co-pays are too expensive. But that is business and that is what separates one company from another. It’s a difficult job for a company to manage these, let alone a CEO to do by him or herself. However, we had the pleasure of interviewing Steve Martin, CEO of Blue Cross Blue Shield Nebraska. He explained to us about what it took to be successful, with a well-perceived image of an insurance company. It involves a lot of hard work and a lot of ethical decision making. Obviously it starts with the CEO, but he brought it upon himself to embed the correct ethical decision making principles to all of his employees and staff members at Blue Cross Blue Shield. In our hour long interview with Steve Martin, he explains how family and childhood played an important role in his ethical decision making and how he does his job to the best of his ability while keeping ethics in mind and what is right for his customers at Blue Cross Blue Shield.

How does your early up-bringing and family play into your ethical development?

I was born in the Midwest and grew up in Kansas, Colorado, and Nebraska. I went to Washburn University, and completed my master’s degree here at the University of Nebraska. I don’t think my training specifically defines to what degree I have been prepared to deal with a moral challenge. There are a lot of pressures that can influence our business and the economy today. Ethics plays a major role in our performance and the overall performance of our economy as the current financial crisis illustrates. The performance of our business can be easily impacted either positively or negatively based on the ethical behaviors of employees, customers, physicians or other providers, brokers and regulators.

I think how you are brought up plays a strong role in your moral/ethical reasoning in whether you want to do the “right thing” and not the “popular thing.” I know that my world view makes me want to make it right for a customer rather than simply abandon them for an economic gain. Many things that define our world view and ethical behavior are learned. These things can be taught and modeled. I also think a certain degree of courage is learned through family and life experience. I think the purpose of the Business Ethics Alliance is to help business and individuals understand ethical behavior and to give support to organizations and individuals to be morally courageous in terms of ethical behaviors and business practices

What does ethics mean to you?

Ethics provides us a framework to evaluate the actions taken by people in the world along with the consequences created by those actions. It provides us a framework on which to decide where we stand on issues that are not clearly true or false. We live in a complex world that is presenting us with a growing number of dilemmas that are not immediately evident as being good or bad. An understanding of ethics and how it can be applied to critical thinking provides me with more solid grounding on which to make complex decisions.

One model I appreciate is the one developed by Jack Glaser, the Senior Vice President for Theology and Ethics of the St. Joseph Health System in Orange, California. His model suggests ethics are defined at three levels: 1) individually; 2) institutional/ organizational; and, 3) socital. The individual level describes the person, their influences and behavior. The institutional/organizational level defines the culture and rules within the organization that set the “ethical tone” and influences the ethical code of moral behavior. The societal level of ethics deals with laws and regulations along with local and national cultural environments. Any one level alone does not necessarily hold people to the highest level of ethical behavior, but together they provide the framework for influencing most ethical behaviors.

I have learned that ethics are based upon four principles: justice, beneficence, fidelity, and autonomy. Ethics is not confined to just the moral or legal domains. If it’s clearly black and white then it isn’t necessarily an ethics issue. Ethics is where there is a conflict in values and in our profession it may impact autonomy. It may be about being faithful? Do you follow the code in your profession? These are important questions to ask. These four principles provide a framework. Ethics is important to me because it makes the difference in understanding how to live in a good and bad world. It’s a difference in whether you walk away each day knowing whether you gave something to the world or took something away from it.

What is the biggest ethical question or problem you face inside your company today?

The biggest ethical issue in my insurance company is truth telling and customer loyalty. We put a lot of emphasis in those areas. We are a non-profit, mutual insurance company, which means we are owned by our members. Our goal is to pay our customers claims as quickly as possible, at the best price possible from the health care system, and keep our customers informed with the best service possible throughout the process.

Many of our competitors are investor owned and owe their primary duty to investors and to providing those investors a return on their investment. They also serve their members, but that service obligation can come into conflict with their primary obligation to investors? As a member owned company, our primary loyalty always lies with the member.

Because of the complexity of our business, it is easy for mistakes to occur. The worst thing you can do in our business when we make a mistake is not to immediately admit and correct those mistakes. The sooner we admit a mistake and correct mistakes, the better off we are. I have found through my experience doing all sorts of business that admitting mistakes, addressing them quickly and honestly helps you to get past the mistakes and builds greater customer satisfaction and loyalty.

In healthcare, the classic example is Johnson & Johnson and Tylenol. Their product was sabotaged and that undermined trust in their product. They didn’t hesitate to admit it and take decisive action to correct it. They pulled everything off the shelf, came up with new packaging to assure safety and restored trust. Today, most packaging of this kind of product is based on the solutions implemented by Johnson & Johnson. They defined the new level of public trust for this type of product.

Many professionals in health care do not understand the underlying economic impact of their own financial behavior. The U.S. health care reimbursement system, largely based on 1965 Medicare law and subsequent regulations, rewards professionals and institutions on doing more services regardless of outcomes. The U.S. health care system allows the seller (professionals) to define the unit of service in their own terms with no consideration to consumer clarity. This has caused fragmentation and confusion in billing and is one of the largest drivers of annual health care cost inflation. It is also the real driver in the difference in income between specialists and primary care professionals.

Health care bills in the U.S. have no basis in “value” measurement to the individual patient and our current billing methods were not founded on any of the previously mentioned ethical principles. Current billing practices were based on traditions of the time (circa 1965) and at that time health care was much simpler to define. This is a very important ethical concern in health care.

Unfortunately, very few voices in our current health care debate are addressing this issue. I don’t believe this is because any party is less ethical than another. It is simply based on the fact that the way billing is performed is based in regulations and tradition, and many lack understanding the economics that drive their individual incomes and the subsequent ethical issues that pertain to these practices.

Which of the four ethical principles that you mentioned before are most important to you?

None are more important than the other; they are all important and must be analyzed and balanced against every ethical situation. Our members hired us to serve them. Doing so requires us to hire or contract with doctors, pharmacists, other professionals and institutions. We come together with them to help the customer obtain needed health care services. We should come together to give the patient the best customer care that we all can. One of our biggest problems is how can we help all of our customers as a whole at a reasonable price. Many times, our biggest problems revolve around costs and price and whether a service is medically necessary. We work very hard to anticipate as many of these potential problems as we can, but we cannot foresee all of the conflicts.

Once example is when professionals sell products, such as pharmaceuticals, and mark up profit on top of the products they sell to patients or consumers. How much profit should they be allowed to take, if any? Some suggest if the professional is prescribing the product and being paid for their professional services, it is not ethical for them to benefit by making a profit on the product. Others suggest this makes the professional more concerned about the quality of the product. Who is right? In my experience, I have seen abuses in profit taking by professionals, and I have also seen indifference on the part of professionals regarding quality and value of products they prescribe when they have nothing to gain from the sale of the product. This is a very complex issue and it is not always resolved with simple rules or regulations.

How is the insurance market changing these days?

Health care was very simple when our business began over 75 years ago. Most policies paid a fixed amount ($1-2 dollars per day) for hospital coverage and the premiums were around twenty-five cents a month. Today, a short-term hospital stay will cost several thousands of dollars and catastrophic care can cost a quarter of a million to several million dollars. Over time, we have allowed our health care financial system to become too complex and much of the costs of care are not able to be challenged or restrained by those who are receiving the services.

Medical procedure coding through CPT-4 and diagnostic and procedure coding through ICD-9- CM (ICD-10-CM) systems are used as the basic unit of service for billing and reimbursement of all medical services in the United States. While these coding systems provide valuable information regarding the rationale for a specific medical service, they are defined in a highly technical manner that is not easily understood by the average consumer.

Using individual procedure codes for billing provides an economic incentive for the health care delivery system to increase the overall number and complexity of these codes. The ongoing practice of tying reimbursement to specific codes has resulted in a greater proportional shifting of health care financing dollars to specialty care services instead of primary care services because of the greater opportunity for specialties to define new technologies and associated individual codes. Coding systems remain important and should be the foundation for creating a national billing standard that clusters individual codes in a manner that defines a clear and understandable episode of care for the public and rewards the health care professionals and institutions for higher efficiency and improved outcomes in the delivery of care.

Consumers have the right to understand the health care services and affiliated charges that are being billed to them. Consumers should understand that someone, either a professional or an organization, is responsible for billing them for services and products they (the consumer) had no control over requesting or selecting. Unfortunately, the concept of a “general contractor” doesn’t exist in today’s health care system and as a result the confusion and fragmentation of our current system can be a powerful driver of annual health care cost inflation.

Because of the higher annual inflation of health care over the rest of the economy, employers, government and individuals continue to purchase higher deductible and out-of-pocket health care policies to reduce their premium costs. This is thrusting the American consumer into a direct purchasing role with the health care system. Gradually, consumers are becoming more and more upset with the billing systems and are not paying for services that they did not understand or did not believe they received.

Over time, this will be a major influence in forcing the overall health care system to simplify the way it does business. I think this will simplify health care insurance, lower costs of administration, and has the potential to reduce the annual inflation of overall health care costs.

This will also drastically change the way health care is delivered and financed. If these forces continue to influence health care, they will force insurers and health care professionals and institutions to work together more collaboratively for the benefit of the consumer.

Talk about the ethical culture at your organization. What are the unspoken ethical rules in your organization? How do you infuse ethics in your organization?

We created a framework of values within our organization. We surveyed the organization about our values. They were informal and time tested. They were based on fidelity, beneficence, other words, being focused on our customers. We ran further surveys of employees and managers and went through a process test which values were most appropriate for our company.

Today, those five values are:

Customer First

We believe our success depends on exceeding our customers' expectations. All employees regardless of their jobs play a key role in satisfying customers, putting the customer at the center of everything they do. “Customer first” focused employees go the extra mile to create customer loyalty.


We value teamwork as essential to our success. Teams are diverse groups of people who foster mutual respect and make decisions that are in the best long-term interest of the company. Team-oriented employees embrace the company's mission and perform enthusiastically in a way that supports our mission and strategies.

High Performance

We embrace a clear operating philosophy that promotes a high performing corporate culture. We sustain high performance through efficiency in our operations, designing processes and systems that exceed our customers' expectations, attracting and retaining top performing employees, and encouraging innovation—all of which strengthen our competitive advantage and financial stability.


We pride ourselves on the trustworthiness of our brand and the confidence that others have placed in us. By fulfilling our corporate commitments and demonstrating integrity in all of our business dealings, we earn the trust and respect of our customers and the public at large, as dependable corporate citizens.


We encourage a work environment that embraces and fosters appropriate and ongoing change as needed to support strategic corporate initiatives. An adaptable climate is characterized by speed, simplicity and flexibility in everyday business processes and decisions. Two-way communication and ongoing learning are critical to our success and enable us to quickly adjust to a changing environment.

Once values are firmly in place I believe you must test them against every strategic decision you make and you make it very transparent to the employees. Initially, the first value was “Customer Focus. Over time our employees said “focus” was not clear enough; let’s just make customers “first.” That means when we have a doctor complaining and a customer complains about an issue and there is a balance between complaints, who we side with, we side with the customer. If the doctor is right and the customer is complaining to something that is not accurate or fair then we will clearly decide for the doctor...the customer is clearly demanding something that is outside the framework of the trust agreement we made with that customer and it would harm every other customer if we treated a doctor unfairly.

How do you choose or hire ethical employees?

It helps to have a moral foundation that compels you not to place yourself over others or the organization. We look for those things in executives we hire. In fact, we test for servant leadership. It is learned through family, culture, and education. Over my career, I have had to release several executives. In most cases, they either lacked servant leadership skills, or lacked the ability to see outside their immediate point-of-view. Those aren’t leaders. Leaders learn to see outside their own point-of-view and reach out to others to be taught. In the end, they still may not agree, but they were willing to listen, to learn, and if needed, to adapt.

What programs do you offer to improve health?

Health and wellness programs are a very high priority. It’s part of our job to integrate those programs. We offer extensive programs to help employers. We have one of the most robust internal wellness programs available. We are a Platinum Well Workplace as designated by the Wellness Council of America. We believe employers can make big changes to their overall health risk profile is they do some very basic, low cost things.

We also believe that wellness programs are as much “cultural” as they are “programmatic.” For example, an employer who puts in an expensive and comprehensive wellness program, but does not make it part of their corporate culture will fail with that program. An employer who installs a very basic program, but who integrates that program into the overall culture of the workplace will see significant results.

How do you ethically compete?

We compete on overall value. There are policies that are sold cheaper than ours. Most always those policies have small pools of people who generally have less health problems than the normal population. If most the people insured in a group are above average health, the insurance company will pay fewer claims, have service costs and can sell a product cheaper and collect higher profits. However, most people want their insurance product to be around and pay claims when they need them.

This requires a larger pool of people who are balanced between a normal amount of sick and health y people. The healthy people pay for the sick people in any given year. Our job is to create that balance, to pool the funds to pay for the illnesses of the future and to give high quality service in the process. In the under 65 populations only 10 in 100 people will have up to 70% of the claim experience. So if I could avoid those people, I could sell you insurance for 20% off all the other competitors and have hardly any claims and still make a 20% profit, because I just avoided 70% of the costs. I encourage consumers to be careful what they buy when it comes to health insurance. The old saying applies...“if it is too good (or cheap) to be true, then it usually isn’t.”

What separates Blue Cross Blue Shield from the competitor?

We are owned by those we serve. We are not in business to make a profit for investors. We must make a modest profit over time to make sure we have funds in reserve for those times when the actual claims are greater than the premium. When all things are equal (balance in the number of sick and healthy people insured), our coverage is priced at a lower rate than any national competitor.

As a Nebraska based, member owned company, we are here to serve members first. We employee local people and do business with other local companies who in turn, employ more Nebraskan’s and Western Iowans. Our reserves stay in Nebraska and are invested in a conservative manner so they will be there for our customers when claim costs are greater than premiums. We are large enough to provide the same overall operational efficiencies that any national competitor can provide, and we are networked with 38 other Blue Cross Blue Shield plans across the United States in a manner that provide our members access to the broadest network of doctors and hospitals across the country as the lowest overall price available.

How can the system be self supportive and beneficial to everyone?

The bottom line for good insurance is having the healthy people pay for the sick people that year. A solid private insurance company will also set aside their profits into reserves to pay for future claims and hopefully hedge against future inflation.

In health care, costs associated with claims from doctors, hospitals, drugs, and other products and services inflate each year at 2-3 times of normal inflation (CPI) or normal investments. So if you are creating your own savings account for long-term health costs... you are already falling behind by at least a factor of 1.

In terms of Medicare, those who are enrolled in the program are being funded by the tax paid by current workers (you guys). Medicare is not a savings account and the so called “reserves” provide no hedge to future inflation. The government has already spent them. Unless the government is generating a budget surplus (which has not happened in the last eight years), any excess health Medicare funding is spent by the government and an I.O.U. is given by the government to the Medicare Trust Fund. So, unless you want to pay a future tax to recover the tax you already paid, the money is gone, spent by the government. Unfortunately that how government (Medicare) insurance works.

Long term, the Medicare system is unsustainable. We need to fix the way we pay for health care across all payers (Medicare, Medicaid and private) to uniformly lower annual inflation of health care costs. Then we need to return to fundamentals employed by private financing to properly insure health care with real reserves that people can depend on to pay for their care into the future. This is already done in some areas of health care, such as the way the Blue Cross Blue Shield Association funds the Federal Employee Health Benefit Plan with private reserves (real cash) that cannot be touched by the government. The funds can only be spent to pay the current or future claims of federal worker health benefits enrolled in Blue Cross Blue Shield products.

What ethical problems do you have with Physicians?

The biggest concern I have is not specifically with physicians; it is with the overall health care “team.” Health care has become very complex and is best delivered by a team who works together to coordinate services, procedures, product delivery and care across the entire episode to treatment. However, most professionals today work as individuals and do not see themselves as coordinators. A lot of this is a result of the payment systems that does not reward for care coordination. This results in a lot of missed handoffs when people or “patients” migrate from professional to professional and institution to institution.

The payment system itself was created with the creation of Medicare and has become so entrenched, that it will take a national coordinated effort between federal and state legislation and government and private payers’ to change. Currently half of all health care in the U.S. is paid through government programs that run largely under the rules of Medicare. This payment system rewards individuals and institutions for doing more things to a person without consequence for negative outcomes.

Here is an example of where the societal and intuitional level systems have a negative impact on ethical behavior of the individual. Under the current payment systems for health care in the U.S., we have too many financial incentives for negative ethical behavior. We must be careful when we change them. In today’s “fee-for-service” reimbursement system, we reward professionals for doing “more” services regardless of their outcome. We were wrong to change the system in such a way that we reward professionals for doing “less” services regardless of outcome. We need a balanced approach that limits the risk to a “reasonable episode of care” that can be managed by a professional team, rewarded for the best possible outcome, and defined in a manner that consumers can understand.

What ethical problem do you run into with pharmacists?

Again, I cannot define one specific area. I think most problems we experience arise from the incentives from the payment system. In the drug store setting, much of the pharmacist’s income is taken from the sale of the drug. Again, the more drug prescriptions a person gets, the greater the income to the pharmacy and pharmacist. I would rather see us move to a reimbursement system that pays the pharmacist to manage the overall portfolio of prescriptions. I believe that most all professional pharmacists are trying to achieve this goal; however, the reimbursement system does not fully encourage this today. Pharmacists who work inside hospitals today are already aligned with this goal as they are not rewarded based on individual prescriptions dispensed, but rather the overall quality and outcome of the drug therapy delivered to patients in the hospital.

In time, I would much rather see a system where health plans purchase the ingredient costs of drugs directly from pharmaceutical companies much the same as hospitals do today. This would lower the overall costs of prescription drugs to consumers and would not require governmental drug price fixing which may limit innovation over time. The current drug wholesale and drug card payment systems would permit health plans to create similar purchasing groups as hospitals have done to bring down the costs of drugs in the retail setting. Once that has been done, health plans could pay pharmacists through pharmacies in a manner that rewards for the overall outcome of drug therapy delivered.

Leaving a legacy: What are the biggest ethical challenges that you think face the younger business professionals today? Any tips for dealing with them?

Young professionals have grown up in a very different information age than their parents. I think they are faced with greater understanding and defining of what that means in term of ethics. If the information correct is it protected intellectual property, will using the information create harm? These questions and many others are emerging as a result of the internet and instant access to a plethora of global information resources.

Young professionals and current professionals will have to still turn to the basic principles outlined at the beginning of this interview to resolve these new ethical questions.

As you have gone up the ladder in business, from director and now CEO, how important do ethics play a role in your decision making?

It plays a greater role as the decisions become more complex. Especially as ethical issues take on greater organizational and societal emphasis. When I think of my individual ethics, it’s actually a bit easier as you age and mature if you are working from a framework that has a reasonably strong moral foundation.

Describe an ethical situation in business you have faced that was relatively easy/hard to handle – who was involved, where, what did you do, why?

Where it gets extraordinarily hard is where the organizational culture runs is counter to individual or societal ethics. Today, unfortunately we have a lot of examples, such as the ENRON model. They did very unethical things. They started down a path that became as “slippery slope” and they could not stop it. I guess I am worried about where the slippery slopes are that I might not be aware of.

As an example, I have to go back to a former organization. This is the second company I have been the CEO for. The first was pharmacy benefit management that was swimming upstream against a lot of unethical practices in pharmacy benefit managers.

We decided not to do a number of practices that other companies were doing. We refused to sell any of our doctor data to drug companies to help them persuade doctors to prescribe more expensive brand drugs when generics were equal and safer. We refused to take dollars from drug companies to specifically position a drug in our formulary that did not have the best clinical value as determined by outside experts. We did not allow our staff to take pharmaceutical industry trips or honorariums that might influence them improperly. We did not allow mail order companies to access claim data to try to leverage customers to prescribe more mail order drugs to increase company profits. We paid our pharmacies as soon as we were paid by our health plans while our competitors held funds for 2-4 week and invested the money before paying pharmacies for drug claims. All of these things cost the company a lot of money and made us less competitive. However, today that company has never been sued for “breach of our fiduciary duties” or other business practices that were not in the best interest of our customers. Today that company is the largest privately owned pharmacy benefit processor in the U.S. and continues with the same business practices it was founded upon.

How does it feel talking with us about ethical quandaries you faced?

I have been fortunate enough to witness a lot of slippery slopes inside and outside of our industry. Fortunately, I have not been engaged in those situations. As a CEO, if you’re in it just for the money – I don’t think you will last too long.

Do you know any good jokes?

It is an old joke, and perhaps not so funny anymore in light of how much corporate trust has been compromised in recent years. The joke goes to the point of our discussion:

A CEO was hiring a CFO and at the end of the interview he asked the following question. “What is 2 + 2?” The first three interviewees said “4.” The CEO asked a few more questions, shook their hand and said farewells. The last interviewee was asked the same question. He got up and locked the door, put down the blinds and he leaned in and whispered, “What would you like it to be?” The CEO hired him.


© 2017, Kracher & the Business Ethics Alliance