MICHIGAN — What one side sees as leveling the playing field in Michigan in preparation for major national changes in the health care landscape, the other side views as potentially preserving what it considers a monopoly.
Amid that atmosphere, legislators are weighing a proposal that would change how Blue Cross Blue Shield of Michigan operates. It would transition Blue Cross into a not-for-profit mutual insurance company that pays local and state taxes estimated at $100 million a year.
When the federal Affordable Care Act requires all health insurers to issue policies to anybody seeking coverage as of Jan. 1, 2014, regardless of health status, Blue Cross is no longer alone as the “insurer of last resort” in Michigan. That requires a common set of rules for Blue Cross, HMOs and commercial health insurance carriers that now all have their own regulations, said Kevin Clinton, a commissioner with the Michigan Office of Financial and Insurance Regulation whose office would retain regulatory oversight of Blue Cross.
In presenting the proposal to legislators, Clinton said Blue Cross operates under an outdated, 30-year-old law. Gov. Rick Snyder’s proposal would replace the law, Public Act 350 of 1980, with changes to the state insurance code that transitions Blue Cross from a not-for-profit health care corporation to a not-for-profit mutual insurance company owned by policyholders.
“Over the long term, we want to create a health care regulatory environment in Michigan that encourages competition, market speed and innovation, efficiency and cost reduction, and high quality, affordable and accessible care,” Clinton said in a presentation to the Senate Insurance Committee.
That’s the same goal Michigan Association of Health Plans Executive Director Rick Murdock holds, although he sees the issue from a different perspective. Murdock questions whether the present proposal will only sustain what he considers a monopoly held by Blue Cross, which holds a 70-percent market share across the state.
Murdock cites a 2011 American Medical Association report that ranked Michigan as the fourth least competitive state in the nation for health insurance. The Association of Health Plans, which represents HMOs and commercial insurance carriers, wants to assure “that this proposal does not end up simply converting an existing monopoly,” Murdock said.
“We hope that the proposed reform of (Blue Cross) will take place under the shared objective of Michigan striving to become the most competitive marketplace in the nation — which means by definition, no company be permitted to have a monopoly position in any of the commercial markets of the state,” Murdock told the Senate Insurance Committee.
Under the proposal, Blue Cross would pay $100 million annually in state and local taxes as a mutual insurance company. The organization would steer $1.5 billion over 18 years from its surplus to a new not-for-profit organization that would carry out the insurer’s traditional “social mission” to improve the health of Michigan residents and keep health coverage affordable.
The proposal from Gov. Snyder needs approval from both legislators and Blue Cross Blue Shield’s board of directors. The board has already provided its initial support to the concept and would need to approve any final package passed by the Legislature and signed by the governor.
“We should be competing on a completely even playing field,” Blue Cross Blue Shield CEO Dan Loepp told MiBiz.
One key area of concern for the future for Blue Cross is the individual health insurance market that’s expected to grow considerably under the Affordable Care Act.
Now at about 6 percent, the individual market could become 20 percent to 25 percent of Blue Cross’s book of business in the years ahead, Loepp said. Speaking at last month’s West Michigan Policy Forum, Tim Pellathy of Pittsburgh-based McKinsey & Co. estimated the individual health insurance market nationally could grow to as much as 40 percent.
Through the Affordable Care Act, individuals and small businesses can shop for coverage on health exchanges every state must have operating by Jan. 1, 2014.
Present regulations require Blue Cross to file rate proposals with OFIR months ahead of their targeted implementation, which would enable competitors to see well in advance what it wants to charge for policies sold on the exchange. Loepp contends that would put Blue Cross at a competitive disadvantage in a growing market.
“If you don’t fix it, we’re the only ones that would have to telegraph our rates,” Loepp said. “We should be able to compete in the marketplace reasonably with everybody.”
The key, of course, is what’s reasonable.
Loepp pegs the Blues’ share of the individual market at 55 percent and 100 percent for people with ongoing medical issues. He argues that because Blue Cross must accept everybody who seeks coverage, it covers a disproportionate share of people with high-cost chronic medical conditions. That so-called “adverse selection” drives annual losses of $70 million to $80 million in the individual market, Loepp said.
The Michigan Association of Health Plans’ Murdock agrees on the “absolute need for reform” and that the state needs to create an even playing field for all health plans. Given Blue Cross’s market size, however, Murdock questions whether the proposal can actually accomplish that goal.
“How does this make us better is kind of the question we need to ask everyone,” Murdock said.
The association wants whatever is eventually adopted by legislators to prohibit all carriers from using most-favored nation clauses in participating agreements to get the best price possible from hospitals.
The practice is the subject of a federal anti-trust lawsuit that claims Blue Cross Blue Shield uses its large market clout to impose and enforce the provisions, driving up the costs and premiums of competitors. A July order from Clinton ruled that the clauses “may” violate state laws and prohibits their use after Feb. 1, 2013, unless health insurers receive prior approval by OFIR.
The Association of Health Plans also argues that Blue Cross should have to divest its entire $2.8 billion surplus.
“They should not be allowed to take that with them under the transition to a mutual. The current proposal would seem to allow Blue Cross to hold onto that surplus, giving them a continued and substantial advantage over other health carriers,” Murdock said.
Other issues for the Michigan Association of Health Plans include banning predatory pricing, ending Blue Cross’s exclusive marketing arrangements with chambers of commerce and trade associations, and requiring the insurer to pay its “fair share” to care providers for treating Medicare and Medicaid patients.
An August report from OFIR concluded that Blue Cross underpays hospitals to cover the underfunding of Medicare and Medicaid, forcing competitors to pick up the difference and raising their costs. OFIR ordered Blue Cross to address the deficiency with a new reimbursement methodology.
In his comments to the Senate Insurance Committee, Murdock said transitioning Blue Cross to a mutual without other reforms to the state insurance code “is not leveling the playing field — that is tilting the playing field,” and could create a deregulated monopoly.
“If all we’re doing is converting Blue Cross to a mutual without doing any other change, then we’re just moving a monopoly from one platform to another,” he said. “We haven’t affected the competitive environment.”
If the proposal earns approval, Blue Cross Blue Shield of Michigan would join 17 other Blues plans that have transitioned to mutual insurance companies.
In proposing the transition, Gov. Snyder said the Affordable Care Act requires the state to modernize the insurance code and law that governs Blue Cross Blue Shield.
“Times have changed,” Snyder said. “This is an excellent opportunity to say, ‘We should update. We should move into the 21st century with our rules and regulations to keep up with that and make sure we have better cost, quality and access.’”