LANSING – Sen. Joe Hune on Wednesday introduced legislation heeding the call of Governor Rick Snyder to convert Blue Cross Blue Shield from a nonprofit, tax-exempt health care company to a nonprofit mutual corporation, but some critics said it lacks details.

Generally speaking, SB 1293 amends the Insurance Code, and SB 1294 changes the Public Act 350 of 1980, which mandates the way Blue Cross operates.

Financial and Insurance Regulation Commissioner Kevin Clinton began the discussion on the legislation Wednesday morning at a Senate Insurance Committee meeting, fielding what questions he could, but also at times deferring to say that he was not the expert for such a topic.

One of the biggest concerns from panel members and outside organizations is the oversight of the Blues’ $1.5 billion payout to a new, yet-to-be-determined nonprofit entity over 18 years to fund health care efforts in Michigan, as well as assuring Medigap coverage (a program that currently helps seniors pay medical costs not covered under Medicare). In addition, though early discussions had assured a board of some sort would be established to handle the multi-billion-dollar transaction, neither bill appears to address it.

Sen. Goeff Hansen (R-Hart), who sits on the committee, most adamantly inquired about both items. In response to the inquiries, Mr. Clinton said that he did not consider Medigap to be a social mission of Blue Cross Blue Shield as the company can charge its policyholders for the subsidy and that such a focus may be worth consideration from the “new entity” that develops from the multi-billion-dollar donation by Blue Cross.

“If I were to make a donation to a charity and then I have the ability to turn around and collect that donation from somebody else, it’s really not a mission of Blue Cross,” Mr. Clinton said. “The amounts that are going into the new public entity, I think the governor said he would like to see that used for children and seniors.”

Clinton said the Medigap rate freeze agreement negotiated with the Attorney General’s office would stay in effect for the remaining four years, but Hansen expressed concerned over whether a large increase in such insurance would come about once the agreement expires.

“If you’re looking at what happens after four years, I think a portion of that new funding could be used to support seniors,” Clinton responded, referencing the $1.5 billion Blue Cross must provide for another nonprofit entity. He said he is also hoping to be able to offer other products, such as MedAdvantage, and create more competition in the marketplace.

As for a board not associated with Blue Cross to handle the $1.5 billion transaction over 18 years, Clinton said that was still being determined. But, he noted, one “safeguard” is that the transaction would not be paid right up front.

“So if you spend the money unwisely in the first year, it’s not the entire amount,” he said. “You are still going to have money coming in, and that was part of the goal.”

Next came the issue of reviewing the deal more closely, for which Clinton said a “fairness opinion” would be administered before making everything official. That, he said, would involve an outside analyst looking over the deal from the perspective of whether or not it was a fair financial deal. Even so, he said, the legislation includes provisions that mandate that Blue Cross can’t “demutualize, at least for the 18-year period,” he said. “But laws could change … so we have an agreement that says if you do, all of the assets, all of the fair market value of Blue Cross at the time, will go over (to the state).”

Rick Murdock, executive director of the Michigan Association of Health Plans, said his association is still very concerned about many of the details that were part of the Snyder’s press conference last week, but do not appear to be in legislation. Those details dealt with the payouts over 18 years, Medigap coverage, “Most Favored Nation” clauses and provider class plans, he said.

“One can argue whether the amount is the right amount. That’s probably a negotiable item,” Murdock said, explaining his concern with the 18-year payout. “Then the second item is over those years, is that a reasonable approach to dealing with it? You’re looking at less than $100 million that can be accommodated over expectation of earnings.

“If all we’re doing is taking Blue Cross Blue Shield and converting it to a nonprofit mutual … and not doing anything to change the market to make it more competitive, we’re not doing anybody any favors,” Murdock said. “We expected to see a lot more detail and haven’t so it’s obviously now our obligation to raise those issues. As it stands now, it’s simply a bill that addresses the conversion. I think everyone is looking for a little more detail.”

Among the provisions in SB 1293 are that an insurer that offers a particular policy under certain circumstances “shall not discontinue offering a particular plan or product in the nongroup or group market” unless it meets multiple conditions. Among those conditions are to provide notice to OFIR and individuals covered by potential discontinued plan at least 90 days before the date of discontinuation; provide those covered with the option to purchase another plan without regard to pre-existing conditions; act uniformly without regard to the health status of those enrolled; and more.

The code already mandates that a carrier may establish up to 10 geographic areas for adjusting premiums, but the revised version also includes smoking as a determining factor subject to adjusting those premiums (in addition to factors such as age and group size). It also strikes out language addressing varying levels of the index rate of a plan.

But when Sen. Steve Bieda (D-Warren) attempted to address the issue of how this change would affect rate increases, Mr. Clinton said he did not think the office expected any rate increases due to this particular change. In fact, he said, a study done in 2003 (because most similar conversions happened in the late 1990s) found “no negative effects of the conversions of Blue Cross on the marketplace,” Clinton said.

Clinton did warn, however, that some provisions of the federal Affordable Care Act might cause rates to increase and that it may appear this mandate was cause as the two are both expected to take effect on January 1, 2014.

“The ACA is going to have some people paying significantly more than they pay now,” he said, attributing that to the fact that “young people are subsidizing older people, smokers subsidizing non-smokers, (and) certain people in geographic areas subsidizing others.”

SB 1294 essentially permits a health care corporation to “establish, own, operate, and merge with a nonprofit mutual disability insurer,” the bill states. It also effectively dissolves the health care corporation and allows the nonprofit mutual disability insurer to assume the performance of all contracts and policies of the merged health care corporation. The bill also solidifies the January 1, 2014, effective date and makes similar provisions as its predecessor with regard to discontinuing offering a particular plan or product.

The two-bill package will be heard at another Senate Insurance Committee meeting Thursday morning where Hune, chair of the committee, said that he did not anticipate a vote would take place. He does, however, hope to see the bills passed before the end of the year in accordance with the governor’s request.

“You can see the discomfort of my members in terms of this timeline,” Hune said. “But tomorrow will be the next hearing and we’ll see how it goes. We’ll do our thorough vetting and see what the outside groups have to say, and our committee members need to get up to speed as well.”

As for Murdock and his organization, that may be for the best.

“We want to be in a position to support this, b