Employers, individuals and other claimants insured by Blue Cross Blue Shield of Michigan over the last decade stand to split up to $125 million as part of a $2.67 billion proposed antitrust settlement agreement that the national Blue Cross association and its 36 member plans have signed off on.
While admitting no wrongdoing, the Blues were alleged in an 8-year-old antitrust lawsuit filed in Alabama by more than 1 million plaintiffs to have overcharged self-funded company plans, fully insured company plans and individuals based on national association membership licensing rules that prohibited plans from competing in others' territories or states.
The preliminary agreement, which was approved last October by U.S. District Judge David Proctor in Birmingham, is the first step to settle claims the Blues allegedly suppressed competition in the insurance market as a way to fix prices and drive up premiums. Blue companies provide health insurance to more than 100 million people, including 6 million members covered by the Michigan Blues.
The next step, which began earlier this month, allows all claimants to register to receive a settlement notice. Once received, a notice will be mailed to eligible class members this spring to start the claims process.
Proctor is expected to issue a final ruling this fall after hearing from claimants. Payments from the settlement are expected to go into effect early next year, when claimants could start to receive their payouts and the prohibitions against certain anticompetitive Blues practices begin. Self-funded employers with more than 5,000 workers could request a bid from a competing Blues plan with the effective date of benefits beginning most likely in the 2023 plan year. In this way, the settlement could bring more competition into Michigan from out-of-state Blues plans.
As part of the settlement, the Michigan Blues could be responsible for claims by employers, individuals and other eligible parties of sums that range between $100 million to $125 million, according to an analysis conducted for Crain's by Joe Aoun, a health care attorney with Aoun Advisors in Ann Arbor.
Aoun said he estimated the possible payouts based on the settlement document, the share of the Michigan Blues' premiums in relation to all the other Blue Cross plans as well as the $594 million that Indianapolis-based Anthem reported in its 2020 10-K annual report. Anthem is the Blues' largest plan that operates in 14 states, including Indiana, Ohio, Kentucky, Wisconsin, Virginia and California.
Based on the Michigan Blues 2020 financial statement, Aoun said Blue Cross has set aside $141 million for 2021 to pay for all "pending claims that can reasonably be estimated."
It's unclear where the settlement money will come from, but Blues plans have substantial cash reserves and surpluses. In 2020, the Michigan Blues recorded a $6 billion surplus and $8 billion in cash and asset investments.
Some Blues' companies most likely will pass along those costs to their customers unless the final settlement prohibits them, Aoun said.
Like other settlements, "these costs will be passed on to Blue Cross customers in the form of higher fees and premiums," he said. "Blue Cross has been setting aside money for this in reserves for years and has built this cost in to premiums they charge every year."
Experts who testified in the lawsuit said the lack of competition could have cost consumers tens of billions of dollars in inflated premiums when multiplied across the country over the last decade.
A spokesman for the Blue Cross Blue Shield Association denied any wrongdoing. A Michigan Blues spokesperson declined comment.
"We reject claims plaintiffs made in the lawsuit," according to the national Blues statement. "However, to reach a settlement, we've agreed to make some operational changes and provide payment to members of the class involved in the case.
"Settling now is the right action at the right time because it allows us to remain focused on the goal we've had for more than 90 years: improving access to quality health care for all Americans and the health of our local communities."
Blue Cross Michigan spokesperson Helen Stojic told Crain's that the company, which controls more than 70 percent of the state's health insurance market, declined comment on several questions related to the settlement.
Over the past six years, Blue Cross of Michigan has paid out $743.5 million in legal fees and settlements, averaging about $123 million per year, according to the Crain's analysis. The total payouts only include Blue Cross' parent company and does not include settlements and defense costs incurred by Blue Care Network, the Accident Fund of America and other subsidiaries, Aoun said.
"The cost of this litigation, as well as the other antitrust (most favored nation) litigation, has been nothing short of extraordinary over the years," Aoun said.
For example, the Michigan Blues has settled major antitrust lawsuits over the past six years that include "most favored nation provisions" in contracts where hospitals were required to charge competing health insurers higher rates than Blue Cross. Blue Cross also has settled a number of lawsuits filed by local governmental bodies and other self-funded clients over hidden access fees.
Elaine Coffman, Michigan market president for Kansas City-based Lockton Benefits, said employers and individuals stand to benefit in many ways from the settlement.
"There is a big pot of money (for employers and individuals), but because it's a national class action lawsuit that goes back to 2008, what amount of money is actually going to be due to any single party, we don't know," Coffman said.
Proctor ordered in his preliminary approval that an appointed settlement administrator will determine how dollars will be divvied up among the defined classes. For each employer or claimant, the administrator will make a determination of an employer's settlement amount, subject to appeal, the settlement document said.
After nearly $800 million in lawyer fees and expenses, the net settlement fund is expected to be $1.9 billion.
Even though large in terms of antitrust settlements, legal experts say it is a bargain for Blue Cross because more than $20 billion in damages were originally being sought by plaintiff attorneys, including famed lawyer David Boies of Boies Schiller Flexner LLP.
Coffman said the biggest subclass of potential settlement claimants are self-funded Blues customers, but only 6.5 percent of the net settlement fund, or about $120 million, will be paid to those groups. Coverage dates for those eligible employers are Sept. 1, 2015, and Oct. 16, 2020.
"On the self-funded side, people are going to just get a fraction of their administrative fees back," Coffman said. "They will benefit more in the long term" by Blue Cross plans dropping anti-competitive business actions that could lead to cost savings, she said.
The bulk of the settlement, $1.8 billion, will be split among the members in the fully insured market, many small and medium-sized businesses that paid inflated premiums to the Blues.
About 93.5 percent of the net settlement fund will be paid to fully insured groups, including employees and individual policyholders that had coverage with a Blues plan between Feb. 7, 2008, and Oct. 16, 2020.
Michigan companies and other claimants have three choices once they receive a notice of the settlement: They can file a claim, object to the settlement or ask to be excluded from the settlement.
"If you opt out of the settlement, obviously this means you won't get any benefit, but you have a right to file your own lawsuit," said Sheldon Klein, an antitrust attorney in Bloomfield Hills with Butzel Long.
"It doesn't make sense to do that if you are an individual or a small company," Klein said. "Theoretically, if you are (big like) General Motors, you might think you have a better claim and do better on your own."
Next year, Coffman said larger employers with 5,000 or more workers will be able to go to bid with the Michigan Blues, a state-based insurer, or with another competing Blues plan. Those health benefit plans would go into effect in January 2023.
"It's going to be an interesting evaluation process because the networks (Michigan Blues and the competing Blues plan) are going to be the same," Coffman said. "(Employers) will evaluate the care management, the administration of the plan and the fees. If employers can bring the Blue Cross network to their employees (with an out-state Blues plan) at a lower administrative cost, they will."
Smaller employers, Coffman said, will be focused on the settlement and the amount of dollars that can be recouped.
"If employers are taking the default method, it should be fairly straightforward process," she said. "If they are not, they're going to have to do all that work themselves."
Coffman said employers should soon begin to communicate with employees about the settlement.
"They have to decide how to respond to current employees," she said. "They are not required to do the same for old employees, but HR likely will get calls from them."
Joel Clark, president of J.S. Clark Agency in Southfield, said he already has advised his fully insured Blues clients how to file a claim.
"We sent them the website on how to register to participate, but you take my 50-life group at $10,000 a year per member, nine years in the settlement ... (and the claim) you are looking at is $4,500," Clark said.
Coffman said employers also are likely to get calls from law firms or settlement vendors offering to represent them in discussions with Blue Cross.
"We saw that back when there was the lawsuit around hidden fees. We are going to see attorneys and vendors approaching employers and groups," Coffman said. "They have to decide whether to use a settlement vendor to take the calls from past and current employees, (but) I don't know why somebody would pay 20 percent to 30 percent for settlement work."
Besides the more immediate financial payouts, Blue Cross plans also have pledged to make significant changes in how they conduct business to address anti-competitive allegations.
For example, the settlement requires competing Blues plans — such as Anthem, Pittsburgh-based Highmark or Chicago-based Health Services Corp. — to be allowed to bid for self-funded business with companies that have 5,000 or more employees in Michigan and other states where they currently do not do business.
Dominick Pallone, executive director of the Michigan Association of Health Plans, said the Blues antitrust decision should increase competition, reduce consumer costs, reduce anticompetitive practices and allow for more plans to compete against the Michigan Blues. MAHP represents 12 non-Blues health plans.
"We think (the settlement is) a positive development, definitely," Pallone said. "Any time there's an action here to break up some of the anti-competitive actions and to stop some of the things that have been going on, it is a good thing."
Pallone said he hopes employers and individuals will pay more attention on the quality of the network and benefit design instead of just defaulting to Blue Cross year after year.
"We do hope this helps to create a more competitive environment in Michigan, but I don't think this is going to be the game changer and all of a sudden we have a level playing field," Pallone said. "We are so far behind in being a competitive market."
Pallone cited the recent rankings of competitive health insurance markets conducted every few years by the American Medical Association. In a 2020 report, the AMA ranked Michigan third least competitive in the nation behind Alabama and Hawaii.
"For small employers, we've got the ninth-highest health insurance premiums," Pallone said.
Scott Lyon, senior vice president of the Small Business Association of Michigan, said it is too early to know what effect the settlement might have on small business premiums or payouts to companies on settlement claims.
"We haven't told (member companies) anything at this point," Lyon said. "It's my understanding that this is still a proposal that the antitrust attorneys need to accept. So it's not a done deal. We are waiting on that."
SBAM does business with the Michigan Blues through an association health plan contract members can access through a newly formed company called TranscendAHP, a partnership with the Michigan Business and Professional Association.
Even with the potential claims, Lyon said he doesn't believe the potential payouts will be that significant for small businesses.
"You do the math and look at the average company that's enrolled in our sponsor, Blue Cross, and you are talking about $200. It's not a windfall," Lyon said. "It's really small dollars when you get down right down to it."
But Lyon said SBAM supports a free market and welcomes more competition in Michigan.
"There is an impact that competition has on quality and costs, the old supply and demand equations," he said. "We also know that health care and health insurance are strange markets that don't always follow normal economics. So, additional competition doesn't necessarily result in lower prices, or better quality. We are always looking to take costs out of the equation."
In terms of antitrust settlement proposals, Klein, who has tried many antitrust lawsuits, including the most favored nation litigation against Blue Cross that began in the early 2010s, said nearly $2 billion is a significant settlement amount.
"I'm old-fashioned, but I find it hard to say $2 billion is not a lot of money no matter how you split it," he said.
Klein said there is no downside to submitting a claim if an employer or individual qualifies.
"You are simply walking away from money to not submit a claim unless the cost of claim submission is greater than your potential recovery," Klein said. "It's going to take you a month and a half to assemble the data that you need to submit a claim. However, the actual data is largely in the hands of the administrator and Blue Cross."
While some Michigan Blues practices, such as most favored nation provisions, already have been disallowed by state law several years ago, experts say the Michigan Blues will need to take drastic steps to reduce administrative fees to become more competitive to competing Blues plans and other health insurers.
General Motors Co., one of the Michigan Blues' largest self-funded customers, has threatened for years to take their business elsewhere because of the Blues' high administrative costs. In 2018, for example, GM signed a direct health benefit contract with Henry Ford Health System.
GM declined comment for this story, but sources tell Crain's that GM is one self-funded company that will most likely be taking third-party administration bids from competing Blues plans in Michigan.
Mike Cox, the former Michigan attorney general from 2003 to 2011, said the Michigan Blues were protected from competition as the "insurer of last resort" since 1939 until they became a mutual in 2014.
"We will soon find out whether they are well run or not with other Blues plans coming here. They were more a political machine than an efficient business," said Cox, who now heads the Mike Cox Law Firm PLLC in Livonia.
"The low hanging fruit (to cut costs) is administrative costs. They have to be more transparent than they have been with local municipalities suing over hidden costs," Cox said. "As other market players come in, they will explain all the hidden costs and product deficiencies to GM and Ford. It will open up competition."
Cox said the court's requirement that Blues plans stop anticompetitive conduct is even more important than the monetary damages to companies and individuals.
"The $2.7 billion settlement catches the eye, but to me, the money damages are not as much important as the injunctive relief," Cox said. "The most important remedy is to ensure plans don't do this again. It will be up to the judge to make sure there is compliance and monitoring of the agreement so they don't carve out regions for the various associations."
Under the proposed settlement, the court would require the creation of a five-person "monitoring committee" that would oversee compliance with the terms of the settlement for a period of five years.
Pallone said regulators and court-appointment monitors should pay close attention to how the Michigan Blues uses the settlement dollars to pay out claims.
"We have seen in the past they used the dollars as incentives to resign or re-up some of those employer contracts," he said. "They will settle and then strike agreements with the employer to just lower premiums in the future, or give them some kind of a premium credit or discount."