LANSING – Without some change that will stem the losses in the individual coverage market, Blue Cross Blue Shield of Michigan risks losing it franchise, company officials said on Monday. But Attorney General Mike Cox said any changes to the individual market had to include full hearings on the insurer’s rates.
Blue Cross Chief Financial Officer Mark Bartlett said the time to complete rate hearings is only one of the factors driving up the Blues’ losses in the individual market. He said the insurer needs to be able to implement rate changes more quickly, it needs to be able to attract more healthy customers and it needs to have some market protection for being the insurer of last resort.
Bartlett said those changes need to be made quickly to stem the tide of losses the Blues is projecting into the coming years.
Cox acknowledged there would have to be some changes to the current individual health insurance market. “I think that we need to preserve a strong Blue Cross and I believe there’s going to have to be some changes in the regulation of the individual market,” he said.
But Cox urged legislators to hold off any action on HB 5282 and HB 5283 , or any other Blue Cross bills, until his staff can complete its review of the financial information the insurer provided last week.
“There’s no reason why this can’t be done in February or March or April and be done right,” he said.
Cox said his key concern about the legislation continues to be the lack of oversight it would provide to his office, which has been disputed by House Speaker Andy Dillon (D-Redford Twp.).
Though Blue Cross officials have said most recent drafts of the legislation do provide oversight, Mr. Cox said the bills would still allow a 75.4 percent increase in Medigap rates and a 37.7 percent increase in traditional individual coverage without a hearing. “The most I could do is ask for an actuarial review,” he said. “There would be no hearings, no calling of witnesses.”
Cox argued the current rate filing system has not been as hard on Blue Cross as the company maintains, and he said he would be open to a system similar to that just approved for electric utilities that would allow the rate to go into effect in six months but to be corrected if it is later found excessive.
Bartlett said, given the rapid cost increases in the market, Blue Cross needs to be able to file and implement rates more quickly and he said the current legislative proposals would do that.
That certainty of quick rate increases is one of the things the company needs to protect itself from credit downgrades and potentially the loss of its Blue Cross affiliation.
While current law requires the Blues to maintain a minimum 200 percent ratio of capital to risk, he said the Blue Cross Blue Shield Association requires a minimum of 350 percent and begins a review of any affiliate that drops below 450 percent.
The Blues is currently at 627 percent, but Bartlett said current projections would bring that below 450 percent in 2011.
That dropping reserve also could put the Blues’ credit rating at risk, which could also harm its for-profit subsidiaries.
Bartlett said those subsidiaries have actually helped to boost the Blues’ credit rating and reserve levels, not harm them as he said Mr. Cox has asserted in a lawsuit filed over the issue.
Cox said the concern over the subsidiaries, primarily the Accident Fund Company, is not what the purchases did to Blue Cross’ bottom line, but whether the non-profit insurer had the legal right to purchase the for-profit companies.
But Cox said he did still question Blue Cross’ arguments of financial doom considering the whole of its financial filings.
“They already made $110 million profit this fiscal year,” he said. “That is not a company going in the tank.”
Bartlett acknowledged the company has added to its reserves (it does not technically make a profit) the past several years, but he said that has been on the strength of group insurance business that has been flagging the last two to three years.
The individual market, he said, is expected to lose $166.5 million for 2008 after a $130.9 million subsidy from the group policies.
As the individual market grows, that loss also grows, he said.
And Blue Cross spokesperson Andy Hetzel argued provisions in the legislation that would have other insurers contribute to covering that loss are not designed simply to transfer revenue. “The assessment on private carriers is not just designed to raise money; it’s designed to change behavior,” he said. The assessments would not apply to companies that use a community rate similar to that used by the Blues.
Whether that fee goes directly to Blue Cross or into some sort of high-risk pool Hetzel said is up to the Legislature. The Blues does not have a preference on that outcome, he said.
“We would like to see the Legislature finish work on a package that strengthens regulation on the non-group market and that contains a mechanism to address the financial problems in the market,” he said. “We would prefer that the Legislature not wait for this to escalate into a crisis situation.”
But Cox still questioned that the issue was not about increasing the Blues’ bottom line. He noted the current version of the bills would reduce the waiting period for preexisting conditions for all carriers, he argued that the original versions changed Blue Cross’ waiting period to 12 months like most private carriers uses shows the underlying plan to boost revenue.
He argued that he and his office should have been included in the discussions on creating customer protections in the bills. “If they want a consumer protection bill we can draft one if they let us in the room,” he said.
Other groups continued to join Cox in raising concerns over the bills, including Michigan AFSCME Council 25, which objected to the potential for rate increases without hearings as well as to the provisions allowing Blue Cross to consider age and health in setting rates.
Bartlett indicated, as have others, that Blue Cross needed a product that would attract younger, healthier individuals to reduce overall risk.
Rep. Marc Corriveau (D-Northville), who has been shepherding the legislation, could not be reached for comment on when the bills might be addressed in conference committee.
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