Few public policy topics are as important -- and as mind-numbingly complex -- as health insurance regulation.
But Blue Cross Blue Shield of Michigan, its supporters and detractors have tried to keep things lively over the years. And they’re at it again.
Gov. Rick Snyder surprised many in the State Capitol on Sept. 11 when he announced a major overhaul of the way Blue Cross is regulated by the state, saying the 32-year-old law governing the company is outdated.
The combatants have drawn their swords in a fight over whether Snyder’s proposal will promote increased competition in the state’s health insurance market to benefit consumers, or free Blue Cross to gobble an even bigger slice of the Michigan’s health insurance market and raise rates.
And little but uncertainty surrounds the most fundamental question: What would Snyder’s proposal mean for the average Michigan insurance consumer?
"This is an exciting opportunity to improve the health of Michiganders and create a modernized, efficient health care marketplace that spurs innovation and streamlines outdated regulations," Snyder said in announcing his plan.
Critics see it differently. They say Snyder’s proposal and the accompanying legislation to implement it don’t do enough to protect Blue Cross members from higher rates in the future.
“If we take the Blues off the leash without the proper precautions, they will become an unfettered monster. They’ll be accountable to no one,” said former state Attorney General Mike Cox, who often tangled with Blue Cross over rates and other issues.
Snyder’s plan would eliminate the attorney general’s ability to request rate hearings.
Blue Cross is the state’s largest health insurer, covering 4.4 million of the state’s nearly 10 million residents. The company controls 70 percent of the commercial insurance market in Michigan, according to the American Medical Association.
Snyder said the state law regulating Blue Cross — Public Act 350 -- must be changed, in part because the federal Affordable Care Act requires health insurers to provide coverage to everyone without regard to pre-existing conditions by 2014.
The federal act, also known as Obamacare, makes Blue Cross’s special status of being the state’s “insurer of last resort” irrelevant.
“With his proposal, the governor is essentially saying that the Affordable Care Act is here to stay,” said Don Hazaert, director of Michigan Consumers for Healthcare.
Snyder has proposed turning Blue Cross into a nonprofit mutual insurance company that would, for the first time, pay state and local taxes, estimated at $100 million a year. Mutual insurers are owned by their policyholders.
Under Snyder’s plan, Blue Cross would be governed by the state insurance code with all other health insurers. Blue Cross is the only health insurer in the state regulated by Public Act 350.
"The old way of doing business doesn't meet Michigan's demands today for a competitive and efficient health care system," Snyder said.
Blue Cross also would pay the state $1.5 billion over 18 years to fund a new nonprofit entity that will promote “healthy lifestyles, provide better access to health care and improve public health,” the governor said.
The nonprofit entity would be independent of Blue Cross, but other details on how it would operate have not been developed. A Senate Fiscal Agency analysis from September noted, “While there has been public discussion of a $1.5 billion payment by BCBSM over 18 years to the State to support health care, neither bill reflects this proposed payment. Therefore, there is no information on how these annual payments would be used or any information on whether such payments would be subject to the appropriations process.”
“We’re not there yet,” said James Haveman, director of the state Department of Community Health.
Blue Cross is “generally supportive of the framework governor has proposed,” company spokesman Andrew Hetzel said.
Snyder’s plan requires the approval of the Legislature and the Blue Cross board of directors.
“Our competitors complain that our tax-exempt status gives us a competitive edge, and we say that our strict regulations give them an edge,” said Blue Cross CEO Dan Loepp. “The governor’s proposal smooths out those edges. It makes everyone play by the same rules.”
Even labels are subject of debate
But Blue Cross and its critics can’t even agree on what to call Snyder’s proposed restructuring.
Cox and his successor, Attorney General Bill Schuette, said the governor’s plan would “convert” Blue Cross from a nonprofit health care corporation to a nonprofit mutual insurance company.
Hetzel said that’s wrong. He said Snyder’s plan would allow the company to “transition” to a nonprofit mutual insurer.
The distinction is an important one. Schuette has called for a “thorough, complete and independent review of the assets” of Blue Cross because of its charitable responsibilities under current state law.
"Any proposed conversion of Blue Cross Blue Shield of Michigan and its affiliated companies must be approached in the same thoughtful, detailed and transparent way as the recent nonprofit to for-profit conversions at the Detroit Medical Center and Marquette General Hospital,” Schuette said.
But Hetzel said the revenue is unnecessary because Blue Cross is not changing its mission to promote access to affordable health care and is not converting to a for-profit entity.
“Our board of directors is committing to remaining nonprofit,” he said. “Our mission goes beyond selling insurance.”
By converting to a profit-making venture, Blue Cross likely would have to turn over much of its $3 billion in reserves to the state, which first passed legislation granting the company nonprofit status in 1939.
While Blue Cross would contribute $1.5 billion over 18 years to the new nonprofit health entity, critics say the company should pay much more.
“That seems incredibly low for the huge market advantage Blue Cross has,” Cox said.
Michigan State University economist Charles Ballard said the present value of those future payments totaling $1.5 billion over 18 years would be about $1.2 billion, given today’s annual interest rates of about 2 percent.
Rick Murdock, executive director of the Michigan Association of Health Plans, testified before a Senate committee that the legislation implementing the Blue Cross regulatory restructuring lacks numerous protections for consumers and health providers.
The association represents 15 health plans covering 2.4 million residents.
Murdock said the practice of Blue Cross and other providers signing contracts with insurance companies guaranteeing that the insurers pay the lowest rates to providers —known as “most favored nation” clauses — should be outlawed.
In June, state Insurance Commissioner Kevin Clinton banned the practice by Blue Cross and other insurers, unless he gives prior approval.
The state Attorney General and the U.S. Justice Department sued Blue Cross in 2010, charging that the company pressured 22 Michigan hospitals to sign illegal “most favored nation-plus” contracts.
Last year, Aetna Inc. filed suit against Blue Cross over practices in most favored nation contracts.
Critics say such contracts force providers to charge higher rates to other insurers. Blue Cross has denied any wrongdoing.
Murdock’s association also wants language added to the proposed legislation that would require Blue Cross to pay its fair share of uncompensated care caused by shortfalls in Medicare and Medicaid payments.
“Without these payments, a burden largely borne by other insurance carriers, the viability of Michigan’s hospitals are at risk,” he said.
Murdock’s group also is calling for a “full recovery” of Blue Cross assets by the state should the company convert to a for-profit business or be acquired by one.
Hetzel said Blue Cross has no intention of converting to a for-profit company.
Blue Cross has long history at Capitol
But whether or not Blue Cross should, or would, remain a nonprofit company has been the subject of heated debate over the years.
In the 1980s, state officials accused then-Blue Cross CEO John McCabe of violating the insurer’s nonprofit status in setting up a number of for-profit subsidiaries.
McCabe was forced to resign in 1988 after an internal audit revealed several real estate transactions that benefited him and the improper sale of company cars to McCabe’s friends and family members.
In 2005, Crain’s Detroit business called the McCabe affair one of the 20 top local business scandals of the past 20 years.
McCabe was succeeded as Blue Cross CEO by Richard Whitmer, who agreed to sell off the company’s for-profit subsidiaries and abide by the terms of state regulation under Public Act 350.
But in 2002, then-Gov. John Engler proposed a revamping of Public Act 350 that many saw as a maneuver to turn Blue Cross into a for-profit company and get billions of dollars in company assets returned to the state.
Engler and members of his administration vehemently denied they were trying to turn Blue Cross into a for-profit company.
Blue Cross had approached the governor’s office about reforming the insurance market for small groups in which the company was losing millions of dollars.
But Republican Engler proposed a broader reform, including shrinking the size of the company’s 35-member board, comprised of many Democrats and labor leaders, and regulating Blue Cross under the state insurance code.
Engler said he merely wanted a plan put in place to protect the state from a loss of asset value if Blue Cross were to convert to a profit-making enterprise.
The company fought back by launching an extensive lobbying and public relations campaign in which it accused the governor of “profitizing” the nonprofit insurer to the potential detriment of its customers.
In the end, the politically powerful Blue Cross headed off Engler’s proposed reforms and won changes it sought to the small group market.
Snyder’s plan also puts the company under the jurisdiction of the insurance code. But unlike with Engler, the governor and Blue Cross appear publicly to be allies.
Hetzel said members of the Snyder administration and Blue Cross officials met for months about reforming Public Act 350 before the governor announced his plan in September.
“We suggested changes to Public Act 350,” he said. “The governor wanted to take it a step further.”
Rick Haglund has had a distinguished career covering Michigan business, economics and government at newspapers throughout the state. Most recently, at Booth Newspapers he wrote a statewide business column and was one of only three such columnists in Michigan. He also covered the auto industry and Michigan’s economy extensively.