Gov. Rick Snyder says his plan to reform Blue Cross Blue Shield of Michigan would make health care more affordable and improve health, but it was met Tuesday by resistance from other insurers, the state’s attorney general and a consumer group.
Snyder’s proposal would convert the state’s largest health insurer into a mutual insurance company owned by its members, end its special exemption from state taxes and make it comply with state rules that other insurers must meet.
It would change a 32-year-old law known as Public Act 350 that requires the Blues to be the insurer of last resort and force it to start paying state and local taxes of about $100 million a year.
The Detroit-based insurer also would contribute $1.5 billion over 18 years to a new independent nonprofit organization set up by the state that would fund programs for healthier lifestyles, give Michigan residents better access to health care and improve public health, according to Snyder.
That group would be advised by a community council that would help it determine how to make investments.
“Our social mission as a nonprofit would be sustained through the contributions the governor is outlining in his plan — approximately $1.5 billion over 18 years,” Andy Hetzel, vice president of corporate communications, said in an email.
“This is an exciting opportunity to improve the health of Michiganders and create a modernized, efficient health care marketplace that spurs innovation and streamlines outdated regulations,” Snyder said in a statement.
The Blues said the plan would not change the coverage of its 4.4 million Michigan members or affect its 7,085 employees, contracts it has to administer or claims for self-insured customers, or contracts the Blues and its HMO Blue Care Network have with hospitals, doctors or other providers. The Blues’ conversion to a mutual insurance company would be the 15th nationally.
“This plan is not exactly what Blue Cross would have proposed, but it does create a fair and balanced set of rules for health insurance,” Daniel J. Loepp, Blue Cross Blue Shield of Michigan president and CEO, said in a statement.
Snyder last September called for the state and the Legislature to take a “fresh look” at Blue Cross’ special legal and regulatory requirements in an effort to encourage competition, lower costs and improve access to high-quality care.
Another reason for the move is that the Blues’ requirement of being the insurer of last resort will become irrelevant on Jan. 1, 2014, when federal law will require all insurers to cover customers regardless of pre-existing conditions.
The plan, which requires approval from the Legislature and the Blues’ board of directors, quickly drew opposition. The Michigan Association of Health Plans said it isn’t sure the proposal would change much in the state’s health insurance market, which the American Medical Association rates as one of the least competitive in the nation.
“If indeed they (the Blues) have 70 percent of the commercial market today, then by anybody’s definition, it’s a monopoly,” said Rick Murdock, executive director of the association that represents 16 health plans that serve 2.5 million in Michigan.
“If all we’re doing is shifting under Public Act 350 to a new format … without making any other change, then we haven’t changed anything. The competitive advantage they have remains intact.”
Surplus questions
Murdock said the Blues should immediately contribute more than $1.5 billion to the independent fund. The Blues has a $3 billion surplus that would carry over to the mutual insurance company. That would give the Blues a “continued and substantial advantage over other health carriers,” according to a statement from Murdock.
But Hetzel said Blue Cross is not becoming a for-profit company that would generate money for stockholders.
“This is not the same as a conversion of a nonprofit into a for-profit entity,” he said. “We can’t be more clear about that point.”
Hetzel said the $1.5 billion amount is 25 times larger than any other Blues’ plan in other states has done in a transition from a nonprofit to a mutual insurance company.
Steven Hilfinger, director of theMichigan Department of Licensing and Regulation, said the Blues’ surplus would be used to help its operations and to help pay the $1.5 billion.
But some in Michigan’s health insurance industry say the proposed legislation could pave the way for Blue Cross to sell itself to a for-profit company, buy into other businesses or make purchases in other states. State law currently limits the ability of the Blues to make any such moves.
Health rate commitments
The Blues will honor an agreement made late last year with state Attorney General Bill Schuette to freeze rates for Medigap coverage — insurance that supplements Medicare — for seniors through 2016.After then, Hetzel said Blue Cross “would transition rates toward those that are charged by other insurers offering Medigap products in Michigan.”
Under state law, Schuette has oversight over Blue Cross to protect charitable trust assets and can request reviews of rate increases with the state insurance office.
Still, Schuette has questions about the plan.
“The attorney general would like to see a fair valuation of the company by an independent consulting firm or expert, similar to what we just went through with the Detroit Medical Center,” spokeswoman Joy Yearout said, referring to evaluations done of the sale of the nonprofit DMC to Vanguard Health Systems Inc.
A consumer group worried that Snyder’s plan could make rate increases easier.
The Blues would have a more streamlined rate approval process that Snyder applauded, but the idea generated opposition from Michigan Consumers for Healthcare’s director Don Hazaert.
“This significantly increases the need for the Snyder administration and the Office of Financial and Insurance Regulation to develop an open and transparent rate review process where consumers will not only be at the table, but will be provided the information necessary to meaningfully participate in rate-setting decisions,” Hazaert said in a statement.
He also noted that the new Blues setup would need to boost health care access and coverage, “or it is not a good deal for consumers.”
Benefits for the Blues
The plan has advantages for the Blues. After 2016, it could stop incurring an annual loss of $200 million to $220 million with subsidies related to Medigap or Medicare supplemental insurance policies for seniors. It also puts the Blues on an even regulatory playing field with its competitors.
Michigan Insurance Commissioner Kevin Clinton said the change would allow Blue Cross to respond to the market more quickly because it would no longer have to go through a detailed state rate review that takes about 18 months.
Hilfinger said the legislation will originate in the Senate, where Insurance Committee chairman Joe Hune, R-Hamburg Township, is working with the committee to develop bills.
“What I do have are a lot of questions, and I can promise you in my committee this is going to get a full hearing,” said House Insurance Committee chairman Pete Lund, R-Shelby Township.
The proposal calls for two pieces of legislation. One bill would amend the Michigan Insurance Code and turn Blue Cross Blue Shield into a nonprofit mutual.
The other would change the state law to enable other changes, Hilfinger said.
“We’re working with stakeholders, and there’s a lot of due diligence that has to be done,” Hilfinger said. “We want to do it in a careful and responsible way, but our goal would be to try and get this concluded by the end of theyear in order to facilitate the changes to the market that would be in place before 2014.
“Hearing from the other health plans is important, and we’ll be working closely with the attorneygeneral on the details.”
The Blues’ board would vote on whether to approve a change in its corporate structure only after the legislation signed into law, Hetzel said.
Blue Cross Blue Shield of Michigan faces dramatic overhaul | The Detroit News | detroitnews.com.