Michigan lawmakers are transitioning Blue Cross Blue Shield of Michigan into a member-owned nonprofit, as the organization's historic mission as a tax-exempt "insurer of last resort" becomes unnecessary under the Affordable Care Act.
With proposals from Michigan's governor and attorney general, the state senate passed a bill that transitions Blue Cross into a nonprofit mutual company and brings the 73-year-old insurer under the same regulations governing all other health plans. The legislation ends Blue Cross' tax exemptions and requires the company to contribute $1.5 billion over 18 years to help cover supplemental Medigap insurance and to fund a public-private health and wellness foundation.
Blue Cross Blue Shield CEO Daniel Loepp has said that the legislation "is not exactly what Blue Cross would have proposed, but it does create a fair and balanced set of rules for health insurance." Blue Cross is supporting the bill, hoping it passes in time for the new organization to participate in the state health insurance exchange.
The Detroit Free Press recently endorsed the bill, and the Michigan house is set to vote on the bill by the end of the year. At a house insurance committee hearing before Thanksgiving, some consumer groups and trade associations lobbied for changes to the senate legislation. The Michigan Association of Health Plans (MAHP) fears that Blue Cross might have unfair market control through "most favored nation" pricing arrangements, which the senate bill permits only with approval from state insurance regulators.
[See also: OIG finds admin judges overturn most Medicare claims denials]
Along with the Michigan Primary Care Association, MAHP wants to ban "most favored nation" clauses outright. MAHP executive director Rick Murdock argued that the clauses can end up shifting the costs around the market, to providers and other health plans, especially when hospitals deal with Medicare and Medicaid loses.
Blue Cross has a 70 percent share of Michigan's commercial insurance market, and defends the most favored nation clauses as a natural and common business contract and also because its plans have larger proportions of high risk members.
The committee hearings included testimony from several agencies and organizations, and its also revived some previous business acrimony involving Blue Cross.
Employees from Alcona Health Center, a Federally Qualified Health Clinic (FQHC) in rural northern Michigan, told lawmakers that after an audit, Blue Cross sought to receive discounted rates on drug contracts, following the health center buying drugs at a wholesale price under a federal subsidy programs. The owner of the center eventually paid Blue Cross $374,000 after a year-long legal battle, involving the FBI and accusations of fraud.
The Blue Cross transition has the attorney general and Consumers Union lobbying for tighter requirements on how Blue Cross spends the $1.5 billion. About 60 percent of the annual payments into the fund are used for Medigap coverage for seniors with limited income.
State Attorney General Bill Schuette, a Republican, told lawmakers that the "amount of money devoted to senior citizens is not adequate."
The Michigan Insurance Commissioner has estimated that 70 percent of the 210,000 seniors receiving Medigap insurance through Blue Cross would fail a means test to show a financial need for the subsidy, and may have to buy supplemental insurance.
Blue Cross Blue Shield says it spends about $200 million annually subsidizing Medigap through a 1 percent premium surcharge on all their members, and the company told lawmakers that seniors who won't meet eligibility requirements can find similar and perhaps better supplemental insurance like Medicare Advantage.
The attorney general and and consumer groups are also recommending that the the board overseeing the fund be subject to open records laws.