Michigan Attorney General Bill Schuette may have thrown a monkey wrench into the six-month timetable Gov. Rick Snyder announced last week that would allow Blue Cross Blue Shield of Michigan to convert into a nonprofit mutual insurance company.

Schuette, through acting communications director Joy Yearout, said he wants to hire an independent expert to assess the value of Blue Cross and its charitable assets for the taxpayers of Michigan, similar to what was done when the nonprofit Detroit Medical Center was sold in late 2010 to for-profit Vanguard Health Systems inc. of Nashville.

"His first priority is to make sure the assets of Blue Cross (and its affiliated companies) are evaluated because the end game is to make sure seniors and the most vulnerable are protected," Yearout said.

It is unclear when the asset evaluation would be completed or who would be hired, but it is expected to be done before the Legislature approves enabling legislation this year that would allow Blue Cross to become a nonprofit mutual.

Under Snyder's proposal, Blue Cross would transfer about $1.5 billion of its estimated $2.78 billion surplus to fund a new nonprofit with a mission that is not yet clearly defined. (See story at right.) The final amount would be set in the legislative process.

"We want to make sure there is enough funding (for the new company) to fulfill the charitable mission going forward," Yearout said.

Under state statute, Act 169 of 1965, Schuette has the authority to challenge Blue Cross' conversion into a nonprofit mutual if he believes the transaction will not result in a fair value of the charitable assets, said Joe Aoun, health care attorney with Ann Arbor-based Nuyen, Tomtishen and Aoun PC, Ann Arbor. For example, if the asset review of Blue Cross finds the company is worth $6 billion and only $1.5 billion is being transferred into the new nonprofit, Schuette could sue to block the transaction, Aoun said.

Sara Wurfel, Snyder's press secretary, said enabling legislation on the plan will be introduced this week by Sen. Joe Hune, R-Hamburg Township, chairman of the Senate Insurance Committee.

The committee will hold a hearing Wednesday morning to discuss the bill and hear a presentation from state Insurance Commissioner R. Kevin Clinton.

The bill would spell out the details of the deal negotiated over the past six months between the Snyder administration and Blue Cross officials. "This will allow Blue Cross to transition into a nonprofit mutual insurance company like many others in Michigan that are mutuals," Snyder said at a press conference last week.

"Blue Cross will be a marketplace competitor, working under normal insurance company regulatory rules," he said. "They can compete with everyone else, and offer lower costs and better choices."

Rep. Pete Lund, R-Shelby Township, chairman of the House Insurance Committee, said he will hold hearings before a bill is introduced to allow a full discussion of the merits of Blue Cross' transition into a mutual.

But Snyder said he expects to have legislation approved and on his desk before the end of the year to give Blue Cross time to make changes under the Patient Protection and Affordable Care Act.

Snyder's timetable could allow for the Blue Cross board, which must approve any corporate changes, to review the bill in December or January. This timing would give the insurer time to prepare in early 2013 to create specific insurance products that would be sold on a federal-state private health insurance exchange starting in October.

"We believe that Michigan will be much better off with a fair and balanced regulatory system early in 2013, where all companies are operating under the same approach to rate setting," said Andy Hetzel, Blue Cross' vice president of corporate communications.

However, the Snyder administration also is working on a transition plan that would require Blue Cross to continue as the carrier of last resort until Jan. 1, 2014, at which time the federal health care law will require all insurance carriers to cover all people, regardless of whether they have a pre-existing medical condition.

Primarily because of health care reform, Snyder last fall called for a review of Public Act 350, the 1980 legislation that governs Blue Cross as the state's official insurer of last resort. Steve Hilfinger, director of the state Department of Legislative and Regulatory Affairs, said "the governor wants to modernize that regulatory structure of Blue Cross that has remained the same over the last 32 years."

Clinton said the state Office of Financial and Insurance Regulation will continue its oversight of Blue Cross under PA 350 now and through the state insurance code if the company eventually becomes a mutual.

As the state's designated insurer of last resort, Blue Cross is the only insurer in Michigan that is required by law to write policies for anyone willing to pay its premiums.

"Blue Cross has long advocated for all health insurers to play by the same rules," Daniel Loepp, Blue Cross' CEO, said in a statement. "This plan is not exactly what Blue Cross would have proposed, but it does create a fair and balanced set of rules for health insurance."

Hetzel said as a Michigan-based mutual, Blue Cross would continue its mission that includes investing in projects that improve patient health outcomes.

"There are 20 other nonprofit mutuals that exist in Michigan," he said. "We are very comfortable with that structure as long as we are in a regulatory system as the others (insurance companies)."

In the late 1980s, Blue Cross lobbied to convert into a nonprofit mutual, but then-Michigan Attorney General Frank Kelley opposed it and the plan died.

Over the past 20 years, some 17 other Blue Cross plans have converted into mutual insurers, including Blues plans in Arkansas, Florida, Hawaii and Louisiana. Two of those plans have converted into investor-owned companies.

While Snyder first proposed the possibility of Blue Cross converting into a for-profit mutual, Hetzel said the Blue Cross board and management has always maintained that its future is as a nonprofit.