Playing 'Hot Potato' With Insurance Coverage
As the economy worsens, Blue Cross Blue Shield of Michigan (BCBSM) is asking the state legislature for rapid passage of a bill that would change how individual insurance is regulated and who pays for it in Michigan, which has a 9.3 percent unemployment rate, higher than any other state except Rhode Island. BCBSM wants the state to loosen limits on its rate increases and toughen requirements for other insurers. It also wants competitors to help cover its losses on the market through a high-risk pool or a state assessment on their revenues.
Michigan Attorney General Mike Cox, with the backing of the state AARP chapter and Consumers Union, firmly opposes the Blues' bid, saying it would hurt seniors and the seriously ill, eliminate financial oversight of the Blues by the governor and attorney general, and allow BCBSM to purchase for-profit companies.
Specifically, Cox says, the Blues-supported measure would allow the insurer to deny coverage of pre-existing illnesses in the individual market for 12 months, double the current period (the Blues say the bill would actually cut the waiting period in half); charge new customers with chronic and life threatening diseases much higher rates; and let the Blues raise rates without opposition. The attorney general also points out that BCBSM received about $100 million in tax breaks last year for being "the insurer of last resort" in Michigan, which has no high-risk insurance pool, and that its reserves have grown to $2.96 billion.
For its part, BCBSM declares that it lost $111 million on its individual plans in the first nine months of 2008, and expects to lose nearly $264 million on individual policies in 2009. Its tax exemption was worth only $80 million in 2007, the Blues plan says, and all of its social mission contributions totaled $311 million.
As for the surplus in its bank account, BCBSM says that its risk-based capital ratio is projected to fall from 627 percent in 2008 to below 450 percent in 2011 because of continuing losses in the individual market. Once a Blues plan's RBC falls below 600 percent, the Blue Cross and Blue Shield Association could strip it of its designation as a licensed Blues plan, BCBSM notes.
The Michigan Blues, which reportedly controls about 60 percent of the state's health insurance market, has warned policy makers and regulators that it's in trouble. Aside from recent investment losses, BCBSM states, "uncontrollable financial losses on individual policies will escalate and lead to BCBSM's entire business becoming financially unstable in the near future." It blames this problem on an antiquated regulatory structure that allows other health plans to dump the worst risks--many of them individuals who are not covered by employers--on the Blues.
What seems to be happening behind the scenes of this drama is a game of "hot potato" triggered by the reluctance of all stakeholders to cover the escalating cost of health care. The Blues don't want to be dragged down by the increasing number of people applying for individual insurance. Employers that provide coverage and their workers don't want rate increases to subsidize individual insurance; non-Blues plans don't want to subsidize the Blues; and the last thing the cash-strapped state of Michigan wants is to create a high-risk pool that might have to be partly funded by tax revenues.