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Mich. House committee OKs modified Blue Cross conversion bill


By Jay Greene, Crain's Detroit Business
Posted: December 6, 2012 - 1:45 pm ET
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The end zone is in sight for Blue Cross Blue Shield of Michigan in its quest to become a taxpaying, nonprofit mutual insurance company governed under the same state insurance code as its competitors.

Wednesday night, the Michigan House Insurance Committee approved a legislative package that also requires the Blues to contribute $1.56 billion into a nonprofit foundation over 18 years and pay about $100 million in state and local taxes.

Sources told Crain's the House could vote this afternoon on the package and amendments, followed by a Senate concurrence vote. There is an outside chance, however, that Democrats could hold up all votes today if Republicans move forward with plans to approve "right to work" legislation.

"This legislation gives Michigan a modern system of regulation and levels the playing field among insurers to strengthen competition and expand consumer choice," said Andrew Hetzel, Blue Cross' vice president for corporate communications, in a statement.

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"The legislation preserves Blue Cross as a Michigan-based nonprofit company, committed to contributing in substantial and meaningful ways to help our state build a healthier future."

The bills, which some critics charge shortchanges seniors and ensures Blue Cross' near-monopoly status will continue, also require Blue Cross to continue to provide subsidies to seniors for Medigap supplemental insurance policies through July 2016.

The requirement was part of a settlement last year with Attorney General Bill Schuette. The subsidies are worth an estimated $800 million over four years, said Blue Cross.

Business groups hailed passage of the bills, as most were required to pay additional taxes to support the Medigap subsidies, which were earmarked for low-income seniors.

During the fall while the bills were debated, critics expressed concern that Blue Cross' funding of the Michigan Health and Wellness Foundation would be insufficient to help continue subsidize Medigap policies for seniors.

Critics also argued that Blue Cross could easily convert into a for-profit health insurer. But the legislation requires the state Legislature to approve any subsequent purchase or conversion into a for-profit entity and the people of Michigan to benefit from any sale.

"This legislation represents a unique opportunity to invest in a healthier future for Michigan," Hetzel said. "Between the new tax revenue, Blue Cross charitable contributions and continued heavy subsidies for Medigap, at least $4.1 billion from Blue Cross will go directly to help Michigan's people.

The $4.1 billion includes $1.8 billion in state and local taxes over 18 years, $1.56 billion contribution to the foundation and $800 million in Medigap subsidies over the next 3 1/2 years.

Once the state Legislative approves the bills, which is expected as early as today, Gov. Rick Snyder, who has championed the Blues' conversion since early this year, is expected to sign the bills.

Hetzel said Blue Cross can now look forward to being regulated under the same rules as its competitors.

However, in a statement, Michigan Consumers for Healthcare said if the legislative package approved by the House becomes law, health insurance premiums will skyrocket for individuals and small businesses in Michigan.

"While the Michigan House should be applauded for making some substantive improvements, this deregulation scheme still reduces access to coverage and effectively guarantees skyrocketing insurance premiums for individuals and small businesses," said Don Hazaert, director of Michigan Consumers.

"This deal eliminates all meaningful rate review on Blue Cross going forward and effectively allows a monopoly to set insurance rates in Michigan. The public will not accept the Legislature abandoning the state's rate review responsibilities simply for the sake of political expediency."

Hazaert said Michigan Consumers will submit legislative language that would require a 40-day rate review process for all insurers, including Blue Cross.

The House Insurance Committee also changed the Senate's bills. The amendments include:

* A ban on "most favored nation" clauses in contracts between hospitals and health insurers.

* Blue Cross must contribute a "fair share" of reimbursement to hospitals to account for underfunded government programs and uncompensated care.

* Contributions to the nonprofit foundation must continue as long as the company's Risk Based Capital is above 375 percent, a number in which Blue Cross could be considered insolvent.

* At least $120 million must be spent by the foundation from 2016 to 2021 to subsidize Medigap policies.

"These bills give our competitors – many of which will remain tax-exempt nonprofits even though the Blues will pay taxes – significant wins," Hetzel said.

"We credit the committee and chairman Pete Lund for a process that preserved good legislation while including diverse viewpoints in the final product."

For 32 years, Blue Cross has been regulated under Public Act 350 as a "charitable and benevolent" company and held in trust for the people of Michigan.

But experts contended Blue Cross' mission had to change when the Patient Protection and Affordable Care Act goes into full effect on Jan. 1, 2014.

Under reform, all insurers – not just Blue Cross - must offer policies to people with pre-existing health conditions.


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