Blues Alters Rules For Sole Proprietors

May 14, 2002
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GRAND RAIPDS — Sole proprietors are facing new requirements when they seek to either subscribe to or renew their insurance coverage with Blue Cross Blue Shield of Michigan.

The matter has pitted what some see as the legitimate interests of Blue Cross Blue Shield of Michigan to make sure that sole proprietors seeking or renewing coverage are real businesses against concerns over the confidentiality of sensitive financial material.

Those concerns led the Blues to change the requirement that enables sole proprietors annually renewing their health coverage to avoid having to provide copies of tax records.

“We’re asking for more information than we did before and it upset some people,” said Ron Crofoot, sales manager for the Blues in southwest Michigan. “This seems to be a little easier to swallow.”

Prior to April 15, the Blues required all sole proprietors — new enrollees and those renewing their coverage — to submit copies of tax records.

Sole proprietors renewing their health insurance are now required to have their accountant or a licensed tax preparer fill out and sign a certification form with six questions designed to verify a business’s sole-proprietor status. If a sole proprietor doesn’t have an accountant or licensed tax preparer, then the Blues wants copies of their business tax records.

If the first two methods don’t work, the Blues will then request the first two pages of their personal tax returns before it will renew a policy.

New enrollees must still provide the insurer copies of the first two pages of state and federal income tax returns as a way to validate they are a legitimate business, Crofoot said. The tax records are kept confidential within the department handling sole proprietor coverage, he said.

The new requirements stem from a 2000 audit Blue Cross Blue Shield of Michigan conducted on its one-subscriber group. The audit found that up to half of the sole proprietors enrolled in the group are not eligible to participate in it, Crofoot said.

Quite often a business owner continues to renew his coverage each year, even though his company is no longer operating. Those business owners should instead receive health coverage as an individual policyholder, which costs a “little bit more” than sole proprietor coverage and does not include a coveted prescription drug card, Crofoot said.

The new eligibility requirements are designed to make sure subscribers participate in the proper insurance pool, he said. The sole proprietor coverage, he said, is designed for one-person businesses, not for individuals.

“All we’re trying to do is make sure they are a business,” Crofoot said. “If we are underwriting a book of business, we owe it to folks paying for it to do a proper job of making sure.”

“They’re not losing access to coverage. They may have to flip over to a different style (of coverage),” he said.

Most of the complaints about the new eligibility requirements, according to Crofoot and business groups who offer Blues coverage to their members, were over concerns of confidentiality and how the Blues handles the tax information.

“That’s confidential stuff — they don’t need it,” said Phyllis Jennings, a sole proprietor who owns Business Writing and PR Solutions LLC in Grand Rapids and has received coverage from the Blues for four years.

Jennings only recently learned that her coverage has been renewed, but not before going through four months of frustration trying to find out more about the reasoning behind the new requirements, and only after she filed the new “active business/owner certification” form with the Blues.

Jennings is bothered both by the previous requirement for tax records to continue coverage, and the fine print in an earlier form she was told she still had to fill out that would give the insurer the right to audit her financial books and records to validate information. She submitted that form without a signature.

“I don’t think small business should have to give away their lives to get health insurance. I shouldn’t have to fax over my tax returns to get health care,” Jennings said. “They’re going to have my financial information and my health care records. What’s next?

“This is not right,” she said.

But it is perfectly legal.

Federal tax disclosure laws that prohibit the U.S. Internal Revenue Service from releasing tax forms do not apply to private individuals or organizations requesting the information about somebody else.

“Anybody can ask for anything they want,” said Sarah Wreford, a spokeswoman with the IRS’s regional office in Detroit. “It’s coming from them, not us. If they asked us (for copies of tax returns), we’d say ‘No, good-bye.’”

The state agency that regulates the insurance industry in Michigan does not oppose the Blues asking sole proprietors for copies of tax records, although it’s not completely comfortable with the practice, either.

The Michigan Office of Financial and Insurance Services is “much more comfortable” with the Blues validating a sole proprietor’s eligibility for one-subscriber group coverage through means other than copies of tax records, spokeswoman Julie Smith said.

“That’s certainly more preferable for us than making requests for tax returns,” Smith said.

The Small Business Association of Michigan agrees and worked with Blue Cross Blue Shield of Michigan earlier this year to get the insurer to compromise and tweak eligibility requirements so sole proprietors can submit another form of documentation to verify their eligibility.

While Blue Cross Blue Shield of Michigan legitimately needs to clean up its book of business, simply requiring tax returns from sole proprietors was “absolutely not acceptable,” said Barry Cargill, SBAM’s vice president for government relations.

“It is not acceptable for an insurance company to require a small business to show proprietary data,” Cargill said.

But given the steep losses the Blues have incurred in recent years providing health coverage to small businesses, Cargill also sees the issue from the insurer’s perspective. He calls the present situation a “fair compromise” that came with assurances of confidentiality.

“We recognize that Blue Cross has a lot of fraud from illegal businesses and they need to do something to clean it up,” Cargill said.

John Brown, president of the Grand Rapids Area Chamber of Commerce, likens the situation to disclosure requirements when someone seeks a business loan from a bank or creates a business partnership.

Brown expects that a large majority of sole proprietors renewing their coverage meet the Blues’ new eligibility requirement without having to forward copies of tax records. He’s confident the Blues will maintain the confidentiality of the tax data.

“They understand the importance of that,” Brown said. “Clearly their motivation is to make sure applications are placed in the right (insurance) pools.”

That’s not enough for Jennings, though. She doesn’t accept the Blues’ arguments, considers it discriminatory because it does not apply to other businesses, and wants to see sole proprietors fight the requirement. She’s hopeful of winning the attention of lawmakers who will push for new legislation prohibiting the practice.

“They could come back next year and do the whole thing all over again,” she said.           

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