The Michigan Chamber of Commerce has announced its support for Gov. Rick Snyder’s proposal to change Blue Cross Blue Shield of Michigan into a nonprofit mutual insurance company that is regulated like all other health insurers in the state, as proposed in Senate Bills 1293 and 1294.
Meanwhile, opponents of the proposal fear the change could raise “Medigap” policy rates for Michigan seniors, or even make those policies unavailable to some people who now have them.
According to the Michigan Chamber, coming changes to federal health regulations have created uncertainty for Michigan businesses as they look to comply with new laws and provide competitive benefits for their employees. Public Act 350 of 1980 created BCBSM’s current form, and now its unique regulatory treatment by the state and $100 million per year tax-exempt status “no longer makes sense for Michigan,” according to the chamber.
“The governor’s proposal to modernize Michigan’s health insurance marketplace would level the playing field for insurance carriers, allowing them to operate under one set of regulatory rules,” said Wendy Block, director of health policy and human resources for the Michigan Chamber.
“The Michigan Chamber supports the proposed transition for Blue Cross Blue Shield of Michigan. The governor’s plan, which is included in Senate Bills 1293 and 1294, works to level the playing field and gets government out of the way, thereby allowing purchasers to make individual purchasing decisions,” added Block.
“This ends the cross-subsidization of Medigap policies by purchasers of group policies, and it promotes a healthier population by transitioning BCBSM’s nonprofit/social mission into a new entity that will invest in health and wellness initiatives.”
Senate Bills 1293 and 1294 passed the Senate in October and are currently before the House Insurance Committee. The committee has held four lengthy hearings involving hours of testimony and plans further action in the coming weeks.
Among those who testified at the latest hearing just before Thanksgiving was Dr. Rob Deane, who was asked by the Area Agency on Aging of Western Michigan to respond to a Business Journal inquiry about how the change might affect seniors relying on Medicare.
Deane is a volunteer at the AAAWM and chairs the legislative committee that is part of the agency’s Advisory Council.
Deane noted that BCBSM has operated under the legal status of a charitable and benevolent insurance organization for decades, which has exempted it from state and local taxes on income and property. In return, BCBSM has long offered itsLegacyPlans A and C, which are so-called Medigap insurance policies that cover gaps in Medicare policies. Deane said they are of value to all Medicare beneficiaries, especially low-income individuals.
Legacy Plans A and C are for those 65 and over, and younger individuals who have been disabled for two years or more by chronic illness. They are “guaranteed,” meaning BCBSM must issue them to qualified individuals who pay the premiums and they cannot be increased in price due to age, pre-existing conditions or the onset of additional illness.
“Everyone pays the same premium,” said Deane. “Currently, that’s about $122 a month.”
The cost is subsidized in part by 1 percent taken from all health insurance company premiums paid in Michigan, including BCBSM, but that would end under the “new” BCBSM structure. And BCBSM would begin paying taxes from which it is now exempt. Without the 1 percent set aside, said Deane, “those policies in today’s dollars would be $194 a month. That’s a lot more than $122 a month.”
Based on details within the preliminary agreement between Snyder and BCBSM, Deane said “there is no guarantee that those policies would be even issued” by BCBSM to everyone who now pays the premiums, “certainly not after 2016” and perhaps not even 90 days after a new law changing BCBSM was signed, said Deane.
The proposal also apparently would remove the attorney general from having the power to deny rate increases requested by BCBSM, which is now the case under Michigan law.
The governor’s plan, according to his September announcement, would require BCBSM to contribute about $1.5 billion over 18 years to a new nonprofit entity whose purpose is to fund initiatives that foster healthier lifestyles, provide better access to health care and improve public health.
Snyder said his proposal would “create a modernized, efficient health care marketplace that spurs innovation and streamlines outdated regulations.”
The governor said that under his proposal:
- Blue Cross would become a nonprofit mutual insurance company that would pay an estimated $100 million a year in additional tax revenue to the state and local governments.
- The plan would freeze Medigap coverage rates for four years.
- It would streamline the regulatory environment by regulating Blue Cross under the state Insurance Code, as is the case with all other health insurance companies.
- It would eliminate what Snyder calls a “tax” currently required on Blue Cross’ small-business and individual customers to subsidize other lines of insurance coverage. He said the tax costs small businesses and individual Blue Cross members more than $200 million a year.
- It would ensure that Blue Cross continues as a carrier of last resort until Jan. 1, 2014, for individuals who would not otherwise be able to get health insurance, at which time new federal laws will require all insurers to offer coverage to anyone regardless of health status.
Another concern of critics of the proposal is the cash value of BCBSM. It insures 4.4 million people and holds 70 percent of all health insurance coverage in the state. Over the years, according to Deane, BCBSM has built up a “book value now at $3 billion, and has done so based on the premiums paid by the insured people in Michigan.”
“The current assets really are the property of the state of Michigan, in the form of its taxpayers,” added Deane, because of BCBSM’s tax-exempt status.
Deane said that changing BCBSM from a specially regulated charitable/benevolent organization into a mutual nonprofit organization would mean the policy holders would theoretically own it “like a credit union. But in fact, of course, it is essentially managed and sort of pseudo-owned by the executives and the board of that particular company.”
Although it is a nonprofit organization, BCBSM does own some for-profit subsidiaries.
He said he does not believe BCBSM is “hurting financially or in terms of market share under the present system.”
State Rep. Tom McMillin, R-Rochester Hills, also is concerned about what may happen to the cash value of BCBSM. Last week he said he is considering adding to the legislation a clause requiring BCBSM to pay every Michigan citizen $500 before it could transform its existing business structure.
The same day Snyder unveiled the basic proposal he had worked out with BCBSM, the Blues issued a news release lauding Snyder and stating his proposal will “streamline and modernize Michigan health insurance regulation — a goal long sought by the Blues.”