Michigan Insurance Giant Calls for More Independence … and Subsidies

Published February 1, 2009

Blue Cross Blue Shield Michigan is requesting state lawmakers reduce government intervention and give them more independence in determining premiums as demand for coverage by the state’s insurer of last resort has doubled in two years.

Opponents of the proposal say the government-subsidized insurance giant is trying to get even more favorable treatment.

Blue Cross Blue Shield (BCBS) Michigan, a nonprofit organization, is the state’s largest insurance provider and its insurer of last resort. In exchange for favorable regulatory treatment, it is required to provide coverage to applicants who cannot get coverage from a for-profit provider because of credit, preexisting conditions, or other high-risk circumstances.

Fewer Jobs, More Applicants

With Michiganders losing their jobs and workplace benefits, Blue Cross has seen its individual insurance pool double in the past two years, according to Andrew Hetzel, BCBS’s vice president of corporate communications. He says this is “causing [the organization] to lose significant amounts of money.”

Regulations making it difficult for BCBS to raise premiums, coupled with a statutory inability to turn away applicants, will likely result in the company’s losing $260 million in the next year alone, Hetzel said.

“The economy is so bad in Michigan that small employers are having a hard time staying in business, let alone providing health care for their employees,” Hetzel said. Michigan’s 9.3 percent jobless rate is tied with Rhode Island for the nation’s highest, according to the federal Bureau of Labor Statistics.

Financial Claims Questioned

State Attorney General Mike Cox (R), the Michigan Consumers Union, and the Michigan chapter of AARP have accused BCBS of exaggerating its financial plight.

Jack McHugh, senior analyst at the Michigan-based Mackinac Center for Public Policy, agrees with the skeptics. “I suspect that [BCBS Michigan’s] claim is exaggerated,” he said. Before any legislative action is taken on BCBS’s behalf, he added, “the very least that should be done is to require an independent audit from top to bottom of Blue Cross.”

Having Cake, Eating Too

Hetzel said BCBS wants the state to pass legislation making rates more comparable between Blue Cross and commercial insurance carriers and enforce a penalty when for-profit insurers reject a certain amount of high-risk applicants. The fines imposed on insurers rejecting more than the allowed number of high-risk applicants would be used to supplement Blue Cross’s losses.

“I think it would level the playing field,” Hetzel said.

That wouldn’t be as fair as it may sound, McHugh says. “States have addressed this problem in one of two ways. One, name a subsidized insurer of last resort, like Blue Cross Blue Shield, whose subsidy is approximately $100 million in tax exemptions; or, two, don’t name a tax-exempt insurer, but instead create a high-risk pool to which all the tax-paying insurers contribute, and which in turn provides insurance at an expensive but not out-of-this-world price to high-risk people,” McHugh said.

“Blue Cross’s request that they continue to enjoy their subsidized status while for-profit insurers are forced to effectively pay into a high-risk pool is a request that Michigan do both,” McHugh continued. “There is no benefit to consumers from such a system. In fact, the only entity that would benefit would be Blue Cross Blue Shield.”

Strong Differences

Cox has encouraged lawmakers to refrain from supporting BCBS’s proposal, saying it “would result in more expensive coverage for the elderly and sick” and “eliminate financial oversight by the governor and attorney general.”

The process of changing insurance rates is too difficult and too slow, said Hetzel, “because Blue Cross is required to follow a lengthy rate approval process that involves filing with the state insurance commissioner and attorney general, and then going through a hearing process requiring witness testimony for and against the requested change.

“That process has no time limit,” Hetzel said, “and the last time Blue Cross changed rates, it took two years.” It is partly because of this that BCBS is struggling to adapt to the new economic challenges and the increased demand to provide insurance for high-risk Michigan residents, said Hetzel.

“There is nothing appropriate about eliminating oversight and raising rates,” said Cox in a release opposing BCBS’s request

Jillian Melchior ([email protected]) writes from Michigan.