Blues Conversion Hits A Few Bumps

The legislation that would convert Blue Cross Blue Shield of Michigan into a mutual insurer from its current role as the state’s insurer of last resort is slowly making its way through the give-and-take of compromise, with some moderate resistance from consumer advocates and its market competitors.

The pending legislation would alter the 32-year-old Public Act 350, which allows the Blues to avoid paying state and local taxes in exchange for taking on beneficiaries who would otherwise be uninsurable. Michigan is one of the last states to operate in this way – most other states have high-risk pools to insure these individuals.

With guarantee issue part of the Affordable Care Act, there is no longer a need for this kind of regulation of the Blues, officials say.
The bill  – based primarily on proposals floated by Gov. Rick Snyder earlier this year – would allow the Blues to become a mutual insurer owned by its policyholders while retaining its nonprofit status. However, it would be compelled to pay state taxes of about $100 million annually and contribute $1.5 billion over 18 years to a nonprofit funding healthier lifestyles and improve public health.

“The legislation acknowledges that the ACA is changing the industry but the purpose goes beyond the ACA,” said Andy Hetzel, vice president for corporate communications for the Blues. “Michigan has a broken system for health insurers. We have a trifurcated system where commercial insurers, HMOs and others all play by different rules.”

The legislation has moved through the Senate and a hearing is scheduled in the House when legislators return shortly after this week’s election. Snyder has said he wants the legislation on his desk to sign by the end of the year.

Hetzel said there are two core principles for BCBSMI under this proposal. The first is the creation of a “fair and balanced regulatory system in Michigan.” The second is that the company is able to retain its nonprofit status.

“We don’t want to be a for-profit company co-owned by stockholders,” he said.

Hetzel said the company’s main complaint is its inability to expediently set rates in the individual market. The organization currently has to submit rate requests for the individual market to the insurance commissioner, where they are subject to a public hearing and review. The process can take up to 18 months, and is generally slower for the Blues than for its competitors.

“The Blues’ rate-setting process is a huge competitive disadvantage,” Hetzel said. “It is cumbersome to set pricing effectively and efficiently.”
Hetzel said the legislation is not contentious and received overwhelming bipartisan support in the Senate. But there are a handful of dissenters outside of the Legislature including AARP, the Center for Insurance Research, a nonprofit public policy and advocacy association, and the Michigan Association of Health Plans.

Bill Schuette, the state’s attorney general, has spoken publicly about the need for an independent consulting firm to analyze the assets and value of the company before the legislation is signed by Snyder and enacted. This step, which traditionally occurs when a not-for-profit company converts to a for-profit or undergoes a radical shift to another corporate form, is not required under this legislation.

Schuette may sue if the legislation is passed as-is and he feels it is does not presetve the interests of the state’s residents.

Brendan Bridgeland, director for the Cambridge, Mass.-based Center for Insurance Research, agreed with the need for an impartial evaluation of the company. He estimates BCBSMI’s market value could be more than double its $3.2 billion book value.

“You only get a chance to do this once … and if conversions happen and payment transfer weren’t made or assets weren’t valued, if you try to recapture them later through litigation, you only got pennies on the dollar.,” he said. “They need to value it right now.”

MAHP called a meeting last week with the media detailing their opposition to the legislation. Rick Murdock, the group’s executive director, said it has been advocating the Blues make the transition for a number of years. His concern, however, is to truly make it a level playing field.

“It may sound equal, but it isn’t,” said Joe Aoun, an attorney representing Aetna at the MAHP media session. “They say want to be regulated like everyone else and it sounds good, but there should be a different regulation when someone has that large a portion of the market.”

Could Cause Medigap Issues

Mary Ablan, executive director for the Michigan Area Agencies on Aging Association, said the bills eliminate the Blues‘    status as the insurer of last resort for Medigap, the state’s Medicare supplemental insurance.  Under the Patient Protection and Affordable Care Act, there are no direct regulations for this kind of insurance. So people who need it the most – the disabled elderly – may not be able to get policies from commercial insurers because they wouldn’t meet underwriting standards.

“This is a lifeline for those individuals,” Ablan said.

Michigan is one of the only states where Medigap is subsidized – keeping the cost of premiums well below market rates.
Under the current law, an assessment of up to 1% of BCBSM’s revenues can be used to subsidize Medigap coverage – which Hetzel said covers about 210,000 beneficiaries. The legislation also eliminates subsidies for Medigap in 2016. But Hetzel said this won’t have a huge impact on the market.

“Over time, people have become accustomed to subsidized Blue Cross plans but there are much better options out there,” he said. “Even at subsidized prices, almost all of our Medigap subscribers would be better off buying a Medicare Advantage Plan.

Bridgeland and others don’t necessarily oppose a Blue Cross conversion, but would like to see the process slowed. The guarantee issue policy of the ACA doesn’t go into effect until January 2014.

  Another option, he said, would be to evaluate the state’s insurance regulations to make them fairer, in lieu of converting Blue Cross. 
“We want a longer look and more public disclosure,” Bridgeland said. “This shouldn’t be happening behind closed doors and there has to be the opportunity for the public to provide input.”