Insurers, hospitals could take hit from Detroit bankruptcy

Healthcare insurers and hospitals under contracts or that provide services to city of Detroit employees and retirees could be on the hook for unpaid bills depending on how the city's bankruptcy proceedings go.

Sources tell Crain's that Detroit is notoriously slow and often delinquent in paying premiums and that millions of dollars are owed to several payers.

At deadline Friday, Crain's was able to confirm that local insurers Health Alliance Plan, Blue Cross Blue Shield of Michigan and Total Health Care have contracts with the city.

In a statement, HAP said: “HAP provides health insurance to 7,000 city of Detroit employees, retirees, and family members, and the city has been a valued HAP customer for more than 40 years.

“Although we do not know the outcome that the Chapter 9 filing will have on the city's business and financial relationship with HAP, we will continue to be supportive of the city of Detroit. We will continue to work with city leaders to find solutions to providing health care benefits during this transitional time."

In 2011, HAP was paid $26 million by the city, according to a 2012 Detroit budget document. No further information was available. HAP officials did not respond to questions whether they are owed money from Detroit.

Helen Stojic, director of corporate affairs with Blue Cross, said the state's largest insurer continues to provide customer service and claims processing for the Detroit group.

“We don't have information about future actions. We will continue to monitor the situation,” said Stojic, noting that Blue Cross is a vendor under contract.

Blue Cross was paid $208.1 million by the city in 2011.

Overall in 2011, Detroit paid $262.1 million in health care payments to Blue Cross, Blue Care Network, HAP, Total Health Care and U.S. Health, according to a 2012 report from the city of Detroit.

Earlier this month, a plan proposed by Pontiac's emergency manager, Louis Schimmel, was approved to suspend health coverage for city retirees. Instead, retirees will receive a $400 monthly increase in pension payments to purchase health insurance.

In a news conference after the bankruptcy filing, Detroit Emergency Manager Kevyn Orr said there will be no changes to health care benefits for the next six months for Detroit active workers and retirees.

Earlier, Orr proposed in union negotiations to move Detroit city workers and employees into the health insurance exchange the federal government is setting up in Michigan. Open enrollment for the exchange, which will offer at least 14 different health insurance plans, begins Oct. 1

Despite Orr's statement that Detroit has $3.5 billion in unfunded health care obligations to active employees and retirees the city cannot pay, officials for several hospital systems said they did not expect bankruptcy to affect their operations.

“We will do everything we can to help the city to reduce its health care costs,” Jim Connelly, CFO at Henry Ford Health System, said in a statement. “We're all in this together, and we're confident that this process will result in a stronger Detroit.”

At Dearborn-based Oakwood Healthcare, CEO Brian Connolly said no immediate impact is expected from the city's bankruptcy filing.

“We are concerned about the potential effects a bankruptcy may have on our bond rating,” Connolly said. “We are hopeful the bankruptcy will provide the city an opportunity to reorganize without permanently damaging the many jewels, programs and services we Detroiters have all come to appreciate and love.”

Beaumont Health System, a three-hospital system based in Royal Oak, said the Detroit bankruptcy does not appear to have any direct impact on the health system.

Colette Stimmell, Beaumont's director of corporate communications, said Beaumont could be affected if Detroit fails to pay health plans.

St. John Providence Health System, a five-hospital system based in Warren, is evaluating the impact to its operations from Detroit's bankruptcy filing, said Pat McGuire, St. John CFO.

Insurers, hospitals could take hit from Detroit bankruptcy originally appeared on the Crain's Detroit Business website.