Blue Cross revamp: What does it mean for your pocketbook?
Blue Cross Blue Shield is, in some ways, health care in Michigan. The nonprofit firm and its family of companies cover 4.4 million Michigan residents – or almost half the state.
It paid out more than $18 billion in claims in 2011 – most of it in Michigan – while doing business with 158 hospitals and 30,000 doctors.
So when Gov. Rick Snyder announced last fall that he wanted to drop the state law that has governed the charitable nonprofit insurer since 1980, it became a very big deal.
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Legislation to convert Blue Cross Blue Shield of Michigan to a nonprofit mutual insurance company moved through the Legislature last year, but was ultimately vetoed by Snyder in December because of an amendment that would have banned the company from providing standard abortion coverage.
Last year’s bills have been reintroduced in the Legislature. The Senate quickly passed them, and they are pending in the House.
How would the Blue Cross conversion affect the millions in Michigan it covers?
Blue Cross officials say the changes will make the insurer more competitive and innovative. Spokesman Andrew Hetzel said the conversion will not directly affect rates of Blue Cross customers.
“Rates are predominantly affected by health-care cost growth,” he said. “Indirectly, rate increases in the market should moderate because this reform levels the playing field, improving competition among all carriers.”
But critics say the legislation will unleash Blue Cross, which already controls 70 percent of the state’s health insurance market, from state oversight and free it to more easily raise rates. The current legislation removes the ability of the state attorney general to request rate hearings – an option exercised in the past on behalf of premium payers.
Snyder has said new regulation is necessary, in part, because Blue Cross’s traditional role as an insurer of last resort ends in 2014 under the federal Affordable Care Act, known as Obamacare. The act requires all insurance companies to provide coverage to everyone without regard to pre-existing conditions.
Blue Cross is big spenderBlue Cross Blue Shield has a unique role in health care in Michigan due to the provisions of Public Act 350 of 1980. As a charitable insurer of last resort, the firm has responsibilities to the state, which may help explain why the firm is such an active political presence at the State Capitol. A review of lobbying and campaign finance records performed for Bridge by Rich Robinson of the Michigan Campaign Finance Network reflects consistent and wide-ranging spending – spending not limited by ideological divides. In the 2011-12 cycle, Blue Cross, through its political action committee, gave more than $1.2 million in campaign donations to everyone from Democrats such as Senate Minority Leader Gretchen Whitmer of East Lansing and Rep. John Olumba of Detroit to staunch Republicans such as Rep. Tom McMillin of Rochester Hills and Sen. Bruce Casperson of Escanaba. According to the Center for Responsive Politics, the Blues PAC has trebled its activity in recent years. In the 1990 election cycle, it spent about $155,000. By 2000, that had more than doubled to more than $375,000. But since 2000, PAC giving has soared to its current $1.2 million level. Such largesse places Blue Cross in the forefront of political players in the state. But under Michigan’s less-than-muscular gift and lobbying rules, the firm can do even more to get its point of view before lawmakers. More than 80 state legislators were the recipients of food and beverage services paid via Blues lobbying between 2009 and 2012. Sen. Joe Hune, R-Hamburg, is attached to more than $2,300 in such reports; Hune is the chairman of the Senate Insurance Committee. Whitmer is another major recipient of food and beverage gifts. The East Lansing Democrat is listed next to more than $2,800 in entries. |
How will some 200,000 seniors who purchase Blue Cross-subsidized Medigap policies be affected if the company is allowed to convert to a nonprofit mutual insurance company?
Under a 2011 agreement with state Attorney General Bill Schuette, Medigap rates are frozen until August of 2016. Medigap rates would immediately jump by 66 percent when the freeze ends, said Schuette, who opposes the Blue Cross conversion.
House Democrats say they are considering offering changes in the legislation that would require Blue Cross to continue the Medigap subsidy beyond 2016.
The company argues that new insurance products, particularly Medicare Advantage plans, have come on the market since it started offering Medigap plans in 1980. It says it will be able to offer seniors affordable insurance after the Medigap rate freeze expires in 2016.
How does Blue Cross subsidize Medigap policies?
CLARIFICATION: A 2009 ruling by the state insurance commissioner requires Blue Cross to discount its Medigap policies in an amount equal to 1 percent of its annual revenues. Blue Cross recoups some of that money from a surcharge on business and individual customers. State law requires the company to spend 1 percent of its revenues, about $200 million a year, to subsidize Medigap plans. Blue Cross recoups some of that money from a surcharge on 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.
Why does the legislation call for Blue Cross to pay the state $1.5 billion over 18 years as part of its conversion to a mutual insurance company? Is that fair?
Blue Cross was created as a charitable health care corporation by state enabling legislation in 1939. Schuette and others say its conversion to a mutual insurance company should trigger an independent review of its assets.
The company argues that it is not legally converting from a nonprofit, charitable health care corporation, but rather “transitioning” to a mutual insurer, so no legal review of its assets is necessary.
Blue Cross spokesman Andrew Hetzel said Gov. Rick Snyder proposed a payment by the company of “up to” $1.5 billion and that figure was put into the original legislation. Since then, the Legislature added $60 million to subsidize Medigap policies through the new nonprofit corporation.
Schuette and his predecessor, former Attorney General Mike Cox, have argued that $1.5 billion is too little for a company with some $3 billion in reserves.
The present value of that $1.5 billion spread over 18 years would be about $1.2 billion if interest rates averages 2 percent during the time period.
What will happen to health insurance costs if Michigan if the Blue Cross conversion occurs?
Hetzel said the proposed new regulation of the Blues will create a “fair system where all insurers play by the same rules and where market forces ensure greater competition and choice of affordable health insurance plans.”
In addition, he said a restructured Blue Cross will allow for a “functional health exchange with fair competition among carriers” that will expand consumer choice and promote affordable coverage.
Critics say the legislation does nothing to address competition, and that the Blues will continue to have an overwhelming share of the state health insurance market.
In testimony at the Capitol recently, Mary Ablan, executive director of the Area Agencies on Aging Association of Michigan, warned, “"Seniors living on the financial edge will be forced to drop their Medigap coverage and rely on bare Medicare with its large out-of-pocket costs. Research shows that seniors without sufficient income will forego medical care and prescription drugs that they desperately need."
Hetzel said the pending legislation in the House must be passed soon so that the company will have time to develop insurance products for the upcoming health insurance exchange under Obamacare.
Product descriptions and prices are due to the federal government by March 31. The exchange is designed to provide a competitive marketplace for small businesses and individuals to purchase health insurance.
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.
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