Blue Cross getting quite a deal at Capitol

Spend more than $500,000 on lobbying and write nearly $1.2 million in PAC checks in an election cycle, the chances are pretty good that the post-election lame duck legislation you’re seeking is going to be delivered in pretty much the form you expect.

So it’s been relatively smooth sailing for Blue Cross Blue Shield of Michigan as it pursues less state regulation through a conversion from its 70-year status as a charitable trust owned by the citizens of the state to a nonprofit mutual owned by policy-holders.

Since Blue Cross has a 71 percent share of Michigan’s health insurance market, the change wouldn’t seem to be much of a change in ownership structure. The real change in Senate Bills 1293 and 1294 is that policy holders lose stringent review of proposed rate increases. Not coincidentally, it’s being sought as more and more baby boomers become eligible for subsidized policies that supplement Medicare and as new federal health care law promises to greatly expand the individual market for health insurance.

Blue Cross is currently regulated under Public Act 350 of 1980, which allows the public, the attorney general and insurance regulators -- independent of their boss in the insurance commissioner's office -- to pursue contested rate hearings for policies purchased by individuals, small groups of businesses, seniors and the disabled.

A key element in the Senate-passed bills up for a likely vote in the House next week is to, instead, regulate Blue Cross under the state’s commercial insurance code, as other health insurers such as Aetna and UnitedHealthcare are. Blues officials say they quickly need a level regulatory playing field if they’re to participate in health insurance exchanges established by the federal Affordable Care Act.

It shouldn’t be surprising that a monopoly should seek less regulation. Michigan’s utilities have long done so in the Legislature, mostly with success. Blue Cross rate reviews that allow for public intervention currently take an average of less than 11 months. Under the change, a rate increase would be filed and the legal authority to challenge them would be confined to the state’s financial and insurance services commissioner. He would have, at most, 60 days to evaluate the filing with fewer criteria to consider. If the commissioner took no action, the rate would go into effect.

Leveling the playing field also could involve applying Blue Cross' current rate review standards to its competitors -- but that option hasn't been much considered.

Big changes coming to Medigap

In replacing PA 350, the measures also eliminate Blue Cross’ responsibility to provide Medigap supplemental insurance to Medicare beneficiaries who can purchase it at any time, regardless of their medical history. Blue Cross would no longer be an insurer of last resort for policies outside the scope of the ACA, where Medigap falls, except for a six-month window that opens with Medicare enrollment.

Blues officials consider Medigap to be an inferior product to its Medicare Advantage plans that are cheaper, but can come with significant co-pays and deductibles. Even if the bills obligated Blue Cross to keep writing new Medigap policies beyond July 31, 2016, they certainly wouldn’t be priced at the current subsidized rate of $122 a month that will remain frozen until then per a 2011 agreement between Blue Cross and Attorney General Bill Schuette. Take the subsidy away and AARP Michigan contends that the some 200,000 current policy-holders would pay at least $876 more per year for their supplemental insurance.

That subsidy totals some $200 million annually in the aggregate. Factor in direct losses on the product, $88 million in 2008, and it’s no wonder Blues executives are seeking the authority to exit the market.

Avoiding those losses alone would pretty much pay the state and local tax bills Blue Cross would pay under the legislation. Converting to a nonprofit mutual also will require Blue Cross to make a "best effort" to contribute $1.5 billion on a back-loaded basis over the next 18 years into a new health and wellness foundation run by a 13-member board appointed by Gov. Rick Snyder. Some of the money would offset the loss of Medigap subsidies through 2021, assuming the product is still being offered. The rest could be spent or endowed annually along rather vague public health parameters.

But if the public, through its elected representatives, is being asked to transfer its ownership of Blue Cross, what's the fair, accurate price that should be paid in return? That figure hasn't been determined.

The $1.5 billion, about half of Blue Cross' book value, was apparently proposed by Snyder and readily agreed to by Blue Cross. By deferring to the executive branch on this rather crucial detail, lawmakers are unwilling to determine for themselves whether it's adequate reimbursement. Calls last week to slow the process down so Schuette's office or an independent auditor could render an opinion went unheard. This train is on schedule.

Schuette, empowered by law to oversee Blue Cross, told the House Insurance Committee that he wasn’t a part of the $1.5 billion discussion and estimated the present value is $760 million, when inflation is factored. Consumer advocates say the true value -- what Blue Cross could fetch on the open market -- is north of $6 billion.

Since legislating is, at its core, political, lawmakers in both parties have apparently determined that it's good politics to:

* Reduce regulatory oversight that even a Republican attorney general says should be in place.

* Eliminate the guarantee to Michigan seniors of affordable, comprehensive and understandable supplemental insurance.

* Sell off what is essentially a public asset without first determining it's worth.

* Cede the authority to spend the proceeds to an unelected body that is a tenth the size of the Legislature.

Well, it's good for somebody obviously.

Peter Luke was a Lansing correspondent for Booth Newspapers for nearly 25 years, writing a weekly column for most of that time with a concentration on budget, tax and economic development policy issues. He is a graduate of Central Michigan University.