Uncertainty surrounds future of Blues’ Medigap coverage

Blue Cross Blue Shield of Michigan says Gov. Rick Snyder’s proposed overhaul of how the insurer is regulated will lead to better, more affordable health care for Michigan residents.

But one group that could eventually see much higher rates for coverage is senior citizens who buy Blue Cross Medicare supplement policies, known as Medigap coverage.

Blue Cross says it has about 200,000 Medigap customers in Michigan. A report from America’s Health Insurance Plan from 2011 said Michigan had 364,831 “lives” covered under Medigap policies – ranking the state No. 6 nationwide.

Under a 2011 settlement with state Attorney General Bill Schuette, Blue Cross agreed to freeze Medigap rates for five years.

Blue Cross accepted the rate freeze in exchange for Schuette’s agreement not to challenge the company partnering with Pennsylvania-based Independence Blue Cross to acquire a minority interest in a Medicaid insurer.

In addition, Blue Cross provides an annual subsidy of about $200 million to keep Medigap rates low. As a result, the company says it has nearly 100 percent of the Medigap market.

Its Medigap C policy, the company’s most popular Medigap plan, costs $121 a month, about a 60 percent discount from the market rate of $194 a month, the company said.

But Snyder’s proposal would allow Blue Cross to end subsidized Medigap rates. The rate freeze on Medigap policies ends in 2016.

The impact on Medigap rates is unclear. Some say Medigap insurance could become unaffordable for the hundreds of thousands of senior who now purchase it.

“It clearly is a big issue for senior populations that depend on Medigap,” said Rick Murdock, executive directors of the Michigan Association of Health Plans, whose members compete with Blue Cross.

“We’ll see Medigap rates increase substantially,” he said. “Whether it remains an affordable option remains to be seen.”

But James Haveman, director of the Michigan Department of Community Health, said affordable alternatives to Medigap could come about as a result of the federal Affordable Care Act and potential innovations in health insurance for seniors.

"I think there are a lot of unknowns right now,” he said. “Will the Affordable Care Act make up the difference? Will other products emerge in the Medigap world?”

Haveman said the 2016 expiration of the Blue Cross Medigap rate freeze gives the state “plenty of time” to resolve the Medigap issue.

“There’s no reason for anybody to panic and feel they’re going to lose something,” he said.

Blue Cross spokesman Andy Hetzel said Medicare Advantage programs, which roll various Medicare benefits into one package, are becoming an increasingly popular choice for seniors.

Blue Cross’s Medicare Advantage policies, which are not subsidized, didn’t exist when the company was required to subsidize Medigap policies in 1980.

“The number of choices in the marketplace today is much broader than they were in 1980,” Hetzel said.

AARP Michigan, which lobbies for people age 50 and older and offers its own Medigap plans, said it is still studying Snyder’s proposal.

It said in a statement that any changes in Public Act 350, which regulates Blue Cross, should include “affordable insurance rates for older Michiganders for Medigap and other coverage in both the short term and the long term.”

Blue Cross is required to spend 1 percent of its annual revenue, or about $200 million, to subsidize its Medigap rates. It gets back a portion of that money from a surcharge on its business and individual customers.

But Hetzel said some of its customers refuse to pay the surcharge. They include large, multistate businesses that claim they are exempt from the surcharge under federal law.

“We are challenged to collect it,” Hetzel said.

The Michigan Health & Hospital Association, the Michigan State Medical Society and the Economic Alliance for Michigan, a labor-management group with a focus on health care costs containment, all told Bridge they are still studying Snyder’s proposal and haven’t taken a position on it.

Don Hazaert, director of the Michigan Consumers for Healthcare, said concerns about Medigap rates and other issues should prompt the Legislature to take its time in considering Snyder’s restructuring proposal.

Although legislation has been introduced and several hearings have been held, Hazaert said there have been no analyses of the bills by the House or Senate fiscal agencies.

“We see no reason for the Legislature to be fast-tracking this legislation,” he said.

Rick Haglund has had a distinguished career covering Michigan business, economics and government at newspapers throughout the state. Most recently, at Booth Newspapers he wrote a statewide business column and was one of only three such columnists in Michigan. He also covered the auto industry and Michigan’s economy extensively.