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Blues Will Push For Reforms In Wake Of State Audit
GRAND RAPIDS — Already well aware of the issues it has been facing, Blue Cross Blue Shield of Michigan (BCBSM) plans to reach out to its client base to help it respond to a state audit that shows the insurer facing serious financial problems over the next decade if present trends continue.
While the Blues does not agree with some of the specifics outlined in the state audit from the Michigan Office of Financial and Insurance Services, which found “disturbing trends,” it does view it as helpful in bringing problems to light and initiating required reforms.
“We’re used to having a lot of discussion about these issues,” said Helen Stojic, media relations manager for Blue Cross Blue Shield of Michigan. “What we’re saying is, this is an issue we’d like to bring more attention to and the commissioner has said just that — there needs to be some changes.”
In response to the audit, BCBSM said it’s forming a coalition that will involve as many as 150 labor, business and civic organizations, trade associations and professional and provider groups that will work with the state to assure the insurer’s long-term viability.
The nation’s largest independent non-profit health plan, Blue Cross Blue Shield of Michigan provides health coverage for more than 4.8 million people in Michigan, about half the state’s population. Created through special legislation, the Blues is heavily regulated and considered the “insurer of last resort” in Michigan. It must provide insurance at a “reasonable cost” and accept any group or person who applies for coverage, regardless of his or her age or health.
Among the issues the coalition will address is how to bring younger workers into the Blues’ insurance pool, which would result in lower risk and help to contain rising rates, as well as the present system used to establish rates.
Even before the audit, BCBSM was seeking legislative approval to set insurance premiums based on the age of customer groups, a practice used by commercial insurers, replacing the present system that requires a single rate for regions of the state.
Blue Cross Blue Shield of Michigan President and CEO Richard Whitmer indicated the audit could help the insurer’s case.
“We are very grateful that the commissioner has helped us to put a spotlight on the erosion of the community rating system that is the backbone of Michigan’s non-profit health-care system,” Whitmer said in a prepared statement announcing creation of the coalition. “Our ability to provide affordable coverage to small businesses in Michigan is getting increasingly challenging. We are anxious to begin a comprehensive statewide review of this subject.”
Julie Smith, communications coordinator for the state Office of Financial and Insurance Services, called the Blue’s formation of the coalition an “interesting reaction” to the audit, since most of the questions raised pertain to internal operations.
“That’s encouraging and certainly something that is going to allow us to make some progress on the issues in the coming years,” Smith said.
The triennial audit found that while BCBSM is financially stable and solvent for now, it “shows disturbing trends and symptoms” that threaten the affordability of and access to health coverage, Financial and Insurance Services Commissioner Frank Fitzgerald said.
“If we ignore these symptoms today, we are creating the distinct possibility that BCBSM as we depend on it will not exist at decade’s end,” Fitzgerald said. “There are no quick or easy fixes. BCBSM must leverage its strengths in a competitive health-care coverage marketplace.”
Among the concerns Fitzgerald has with the Blues:
- More than $400 million in losses incurred over five years in the small group market that provides health insurance to 1.3 million employees at small businesses with a workforce of 100 or less. The small group market represents more than a quarter of BCBSM’s business mix.
- Deficient information systems that require upgrading at a cost of $300 million or more. Stojic says the Blues already has begun replacing outdated systems.
- $134.3 million in losses from 1998 to 2000 at Blue Care Network, the Blues’ HMO subsidiary. Losses for 2001 to date have totaled $18.2 million, according to Fitzgerald. Stojic says Blue Care Network is on track to post a $15 million loss in 2001 and either lower that amount or move into the black in 2002. The losses are on top of the $54 million it cost the Blues to merge four regional HMOs in 1997 to form Blue Care Network. Blue Care Network also saw its net worth fall from $190.7 million in 1996 to $60.2 million in 2001.
- What Fitzgerald considers an inadequate 1.8 percent return on investments by the Blues, largely due to the 12 percent real estate stake in its investment portfolio that offers no return.
Gov. John Engler quickly followed Fitzgerald’s Sept. 14 audit report with an announcement that he will ask the Legislature to provide the Office of Financial and Insurance Services more authority to oversee nonprofit health-care corporations.
“The financial warnings in the audit are disturbing news to me and to every Michigan family,” Engler said. “Acting responsibly today will prevent a crisis tomorrow.”