I meant to post this last week....thx for the reminder...I think. This article is so needed, though it may add fuel to the fire.
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DECEMBER 4, 2008
Michigan Blue Cross Makes Bid for Aid
By VANESSA FUHRMANS and BARBARA MARTINEZ
(See Corrections & Amplifications item below.)
As Detroit's auto makers seek aid in Washington, Michigan's biggest health insurer is arguing that it needs a rescue of sorts too.
Blue Cross Blue Shield of Michigan has asked state lawmakers to give it more flexibility over the premiums it charges, reduce regulators' power to intervene and toughen regulations for its rivals. If the not-for-profit insurer's controversial plan succeeds, the Michigan insurance market for individuals -- one of the most affordable in the country -- will be revamped.
Blue Cross says the changes, which could be voted on as early as this week, are necessary to curb the mounting losses that result from its status as the state's insurer of last resort.
But the company's push has sparked a political showdown with the state attorney general, for-profit insurers and consumer groups. They argue that Blue Cross is exaggerating its financial problems and that the proposals would lead to higher premiums for sicker customers and permit Blue Cross to skirt its social mission.
In exchange for being exempt from $80 million to $110 million in state and local taxes every year, Blue Cross is expected to provide affordable health insurance and take all applicants, including those rejected by for-profit insurers.
As the economy worsens, other not-for-profit Blue Cross and Blue Shield plans across the country are also making moves to improve their financial situations and fend off for-profit competition.
In Pennsylvania, the two biggest not-for-profit Blues, Highmark Inc. and Independence Blue Cross, argue that the merger they proposed last year is necessary to better compete against multistate, for-profit insurers. Last summer, Horizon Blue Cross Blue Shield of New Jersey applied to switch to for-profit status. Others are raising premiums more than in the recent past.
Such moves could affect the health coverage of millions of Americans. Though no single Blue plan provides health coverage for nearly as many people as the major publicly traded insurers, such as
UnitedHealth Group Inc. or
Aetna Inc., not-for-profit Blues dominate insurance markets in more than 30 states. Altogether, they cover one in three people with private health insurance in the U.S.
The debate in Michigan is particularly heated because of Blue Cross's history in the state. Like other Blues, Michigan's was set up 70 years ago by doctors and hospitals that wanted to be sure they would be paid for their services. But the state is one of a handful that hasn't revoked or pared Blue Cross's special tax breaks and freed it from its insurer-of-last-resort mission.
Now, though, as more people in Michigan lose their jobs or company health benefits, Blue Cross argues that it is headed for financial difficulties as well. The number of individual Blue Cross policy holders, many of them former auto workers, has doubled in the past two years. But because it takes all comers, the insurer says its per-member costs are four times as high as those of commercial carriers, which can reject applicants they deem to be potentially costly.
Though it continued to make a profit through the first nine months of 2008, Blue Cross says it is likely to have a $166.5 million loss on individual products for the full year. It also projects its loss on individuals will swell to $264 million in 2009.
One version of Blue Cross's proposal was passed last year by the Michigan House of Representatives, and a bill stripping out some of the more dramatic proposals was passed this spring in the Senate. Lawmakers, many of whom are ending their terms this year, are working to hammer out a final version, which could be voted on this week.
In addition to giving Blue Cross more flexibility, the draft legislation would require for-profit insurers to pay a "cherry-picking" penalty for rejecting high-cost consumers who end up with Blue Cross, helping finance their premiums.
Other insurers operating in Michigan have lobbied intensively against the plan, though they have been outspent by Blue Cross.
"This does nothing for Michigan's uninsured population, and it only raised the possibility of the worst-case scenario of higher premiums," says Richard Murdock, executive director of the Michigan Association of Health Plans.
Blue Cross's spokesman, Andrew Hetzel, responds: "They don't want to see Michigan change because they know it's the last free ride."
But other critics say the increased latitude Blue Cross would have to set and adjust premiums would also diminish regulatory oversight. "It would take away the ability of individual policy holders and the attorney general to challenge proposed rate increases," says Charles Bell, program director at Consumers Union, the Yonkers, N.Y., nonprofit publisher of Consumer Reports. Blue Cross says the proposals would make rates more dependent on actuarial data and less on "politics."
Mike Cox, Michigan's attorney general, and other critics say Blue Cross is exaggerating its problems and has been reaping handsome profits from its business and tax status. From 2001 to 2007, Blue Cross's reserves more than doubled to $2.96 billion.
In recent years, Blue Cross's capital ratio -- a key indicator of an insurer's capital adequacy and financial health -- has been higher or in line with the large surpluses of other not-for-profit Blues. Though the ratio of total capital to risk-based capital has fallen to 627% this year from 891% in 2005, part of the decline comes from the $493 million Blue Cross has spent to purchase for-profit companies.
But Blue Cross argues that its growing individual-business losses will drive its ratio to below 450% by 2011, and it says that doesn't take into account the possibility of continued investment losses. That ratio is perilously close to the 375% minimum required by the national Blue Cross Blue Shield Association, it says.
If that is the case, Mr. Cox argues, Blue Cross can avail itself of the state's premium-setting process to make the case for increases. Meanwhile, he says, Blue Cross has still been able to cover its individual losses with other income and still made a $110 million profit in the first nine months.
"You think about that in the Michigan economy," he adds. "Most for-profit businesses would kill for that."
Write to Vanessa Fuhrmans at
vanessa.fuhrmans@wsj.com and Barbara Martinez at
Barbara.Martinez@wsj.com
Corrections & Amplifications:
Andrew Hetzel is vice president of corporate communications for Blue Cross Blue Shield of Michigan. This article omitted his full name and title.
Courtesy of Wall Street Journal, see URL:
http://online.wsj.com/article/SB1228...html#printMode
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