LANSING (AP) - A proposal that would end Blue Cross Blue Shield of Michigan's tax-exempt status and transform the organization from a charitable trust of the state to a customer-owned nonprofit is making headway in Lansing, but not without critics trying to step in the path of the legislation to overhaul Michigan's largest health insurer.
Competitors and advocates for consumers and the elderly - including the state attorney general - have been attempting to change or stop the legislation, which was proposed by Gov. Rick Snyder and enjoyed widespread support in the Michigan Senate. The voices for and against it now are setting their sights on the House, which is holding committee-level hearings that continue Monday and plans to bring the measures to a full and final vote by year's end.
Supporters, including the company, say the aim is to level the regulatory playing field for all health insurers. The proposed overhaul aims to modernize but not sell Blue Cross, which is governed by a separate state law from other insurers and typically waits much longer for its rate changes to be reviewed. Streamlining regulations, they say, is particularly important, as health insurers gear up for the implementation of the federal Affordable Care Act and try to meet a March deadline for getting its products and rates ready for an online health exchange where people can compare and buy their own insurance plans.
Blue Cross' special status is no accident. The insurer has been designated the state's insurer of last resort - meaning it must provide insurance coverage regardless of a customer's health status. Because of that, Blue Cross has been exempt from paying several local and state taxes. The measures proposed by Republican Gov. Rick Snyder, endorsed by Blue Cross and passed last month by the Senate, require the company to begin to pay those taxes, which Blue Cross estimates will average $100 million annually.
By transforming, Blue Cross also would shed its charitable "social mission" and contribute up to $1.5 billion to a nonprofit foundation that would carry on that work. Broadly speaking, the foundation would work to improve public health and health care access, particularly for children and the elderly. About 60 percent of the money is earmarked in the first four years to subsidize Medigap, which fills the gap in Medicare coverage for seniors, to prevent rates from significantly rising.
It would join 12 other Blue Cross Blue Shield companies nationwide structured as mutual insurers, which means they are owned by members. Those companies operate in 14 states.
Critics say it all doesn't add up. For starters, the contribution isn't set in stone and neither is the size of the tax bill after credits are taken into account. They fear that the social mission will be diminished because it doesn't cover the more than $300 million it contributes to social mission work.
The $1.5 billion represents half of Blue Cross' book value - the organization's assets minus liabilities. Some have been calling for a full financial valuation, saying it would provide a more accurate picture of its worth.
Michigan Attorney General Bill Schuette has opposed various parts of the legislation during the past two months and successfully lobbied to get the extended subsidies for eligible seniors, among other things, into the Senate bills. This past week, officials from his office argued for the first time publicly that the specific language creating the foundation needs to be much tighter and it should be set up so the Internal Revenue Service doesn't see it as "self-dealing" when Blue Cross - a major supplier of Medigap coverage - receives subsidies from the nonprofit.
Mark Cook, Blue Cross' vice president of governmental affairs, said at a hearing Tuesday that the intention of the legislation is clear to Blue Cross, which plans to make annual payments. He said the insurer is "open to more language" provided it's not forced to make that $1.5 billion payment at one time.
Also, he said, what some call "social assets" paid by Blue Cross in Michigan are viewed by the organization as losses. Blue Cross reported about $300 million in losses last year related to the subsidies it pays for Medigap and money it loses on individual insurance products "because we tend to get the sicker folks."
"There is not a social asset meter that accrues to the state," he said. "There are individuals who benefit from our losses."
Ultimately, Cook said the legislation is "not what we would have proposed," but the company supports it. He said Snyder "wanted to go larger" and create uniformity in the insurance system, so he called for a review of the 32-year-old public act that pertains to Blue Cross, which led to the proposal he announced in September to do away with it.
"A member with a Blue Cross card in their pocket will see no change," Cook said. "It's simply a different governance structure."
Regardless, any large internal change to an insurer with 4.4 million customers representing 70 percent of the market is going to raise concerns and should be scrutinized, said Allen Goodman, an economics professor at Detroit's Wayne State University.
"It seems to me that it scares people a little bit. You've always had Blue Cross. It's always been a big corporation, and it's always been nonprofit," he said. "People think of the Blues as being a monolith. ... It's a very valuable franchise."
© Copyright 2012 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.
for more features.