SpectrumBlues Deal Is Cost-Neutral

September 6, 2002
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GRAND RAPIDS — Blue Cross Blue Shield of Michigan policyholders in the Grand Rapids area will continue to get hit with large premium increases in the months ahead, although the primary cause isn’t the new participating agreement with Spectrum Health.

While executives from both organizations are keeping specifics about their new financial arrangement private, the deal between the Blues and Spectrum is “as close to cost-neutral as it can be” for Blues subscribers, said Rich Cole, the insurer’s senior vice president of corporate communications.

“The resolution is not going to be responsible for any specific increases in the rates,” Cole said. “The forces that are driving up rates are so massive and so large, this specific resolution is not going to be responsible for increasing the rates.”

The high costs of pharmaceuticals and medical technology, as well as rising utilization rates for health care and an aging population, are largely the drivers behind escalating insurance premiums. BCBSM also blames an imbalance in the insurance market in Michigan that leaves it with the most costly employee pools to insure, pushing annual premium increases into the 20-plus percent range.

BCBSM and Spectrum reached a new reimbursement agreement Aug. 29 that kept Spectrum in the Blues provider network and allowed policyholders to avoid having to incur deep out-out-pocket expenses if they received care at a Spectrum facility.

The dispute began when Spectrum, seeking to erase a $30 million loss to provide care for Medicaid recipients and uninsured persons, demanded higher reimbursement rates from the Blues for its Grand Rapids hospitals and Hackley Hospital in Muskegon. Without an increase, Spectrum planned to drop participation in three of the Blues’ health plans.

BCBSM publicly rejected Spectrum’s demand, saying that such a large reimbursement increase would only add to the double-digit premium increases employers already are struggling to handle.

The Blues pegged the rate demand at 15 percent for the Grand Rapids facilities and 30 percent for Hackley. Spectrum put the increases 12.5 percent and 25 percent. Acting “in the interests of compromise and negotiation,” Spectrum lowered its demand “a few percentage points” the day prior to reaching the agreement, according to spokesman Bruce Rossman.

The dispute caused considerable angst among employers in the Grand Rapids area, where Spectrum holds dominant position in the health care market and a monopoly on some specialty services. With the agreement, the worries over a major disruption in the local care network for employees turned to the potential effect it would have on health premiums.

“Blue Cross told us ‘we did not compromise our principles’ and there was no way they were going to pay a double-digit increase,” said Dana Sommers, president and CEO of The Grotenhuis Group in Grand Rapids, which represents the Blues to independent agents serving the small business market in the area.

Sommers, who serves as a director at Saint Mary’s Mercy Medical Center, spoke last week to a group of Grand Rapids businessmen about the Spectrum-Blues dispute. Though complimentary of the health system’s directors for reaching a resolution with the Blues, he was critical of Spectrum’s efforts to offset its indigent care loss by securing higher reimbursement rates.

“That’s really not Blue Cross’ issue,” Sommers said. “Blue Cross had to draw a line in the sand and say ‘no.’”

Natonwide, the cost of employer-sponsored health plans rose by 12.7 percent from the spring of 2001 to the spring of 2002, the largest increase in 12 years, according to a newly published study by the Kaiser Family Foundation, a national health care philanthropy, and the Health Research and Educational Trust, a not-for-profit health care research and education organization.

Data in the study suggests employers can expect to see similar increases “for the foreseeable future.”           

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