Legislators To Try Insurance Reform

September 16, 2002
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The coming days could bring decisions on whether small businesses will see legislative action this fall on reforming the insurance market in Michigan in an effort stem the rapidly rising cost of providing employee health benefits.

As legislators return from summer recess this week, the issue appears to hinge on Gov. John Engler’s willingness to step away from his insistence to couple the passage this year of any market and regulatory reform with changes in the composition of Blue Cross Blue Shield of Michigan’s 35-member board of directors. It’s a move the insurer, which provides health coverage for nearly three-quarters of the small businesses in Michigan and has lost more than a half-billion dollars in that market since 1996, steadfastly opposes and appears to have the political clout to block.

In a volatile political environment in Lansing highlighted by the gubernatorial election and the subsequent lame-duck session of the Legislature, some parties are now trying to work out a compromise that would result in market reforms and the potential for much-needed rate relief for small businesses that have been hit hard in recent years by annual premium increases of more than 20 percent. With those kinds of increases expected to continue for the foreseeable future, the urgency is growing in Lansing to address the problem.

“Everybody understands what is necessary to get things done for employer groups,” said Rep. Judie Scranton, a Bright Republican who chairs the House Insurance Committee that was formed earlier this year to formulate a legislative reform package.

Rep. Scranton and her committee were essentially blindsided in May when two bills pushed by Gov. Engler were introduced in the Legislature to reform the insurance market, regulations governing the Blues and the Blues’ board of directors. With the two bills lacking the political support needed to proceed, Rep. Scranton has continued to meet with a work group tackling the issue and recently offered a compromise proposal to the governor and Blue Cross Blue Shield of Michigan.

“What we are proposing is what Michigan needs,” said Rep. Scranton, who declined to provide details of the compromise plan. “We have the legislation, we just need the agreement.”

That agreement would require Gov. Engler to partially back away changing the composition of the Blues board, a move the state’s insurance commissioner indicates isn’t going to occur anytime soon, although there is room for compromise.

Gov. Engler, who leaves office at the end of the year, “is very much holding firm” to his position, said Financial and Insurance Services Commissioner Frank Fitzgerald.

But given the political reality of the situation, the governor is willing to talk compromise.

“At this point it would be premature for anyone to say an issue is non-negotiable based on any component of an issue,” Fitzgerald said. “He’s very much open to discussions continuing.”

In his January State of the State address, Gov. Engler called the Blues’ board of directors “cumbersome” and “dominated and driven by special interests.”

Subsequent legislation introduced in May linked market and regulatory reforms with creation of smaller Blues board. One of the bills in the two-bill package would cut the number of slots set aside for representation by certain interest groups and completely eliminate seats for health care providers such as hospitals and physicians.

The Blues, which insures about half the people in the state and more than 70 percent of small businesses, has marshaled its political allies in opposition to the bills.

“These two bills are basically dead, said Richard Cole, senior vice president of corporate communications for Blue Cross Blue Shield of Michigan.

The Blues, which has lost more than $500 million in the past six years in the small business market, argues that the broad diversity among its directors is advantageous and that the only action needed to generate an improved rate environment is market reform that eliminates “adverse selection,” or the alleged cherry-picking of younger, healthier employee groups by commercial carriers that supposedly leaves the insurer with a pool that’s costlier to insure and results is large annual premium increases.

“People who advocate board reform are delaying relief for the small business community,” Cole said. “Our board has nothing to do with getting small businesses rate relief.”

“Any objective view says the board is working extremely well. What is not working well are the stifling regulations of the insurance industry.”

But like the Engler administration, the Blues is open to working out a compromise and formulating a package that can pass the Legislature this year.

“It is absolutely possible,” Cole said. “It is absolutely doable and it is absolutely criminal if it doesn’t happen.”

As the main parties position themselves for the coming debate, business groups are watching intently. The Blues face “quite a few problems” beyond the major losses in the small market group and escalating premiums, said Frank Cusmano, a lobbyist for the Michigan Association of Health Underwriters.

With 4.8 million subscribers, the Blues cover half of the state’s population. That’s far too large of a market share to allow the problems to go undressed, Cusmano said.

“The simple fact of the matter is they’ve got a whole bunch of people they’re providing service to,” he said during the recent Alliance for Health First Friday Forum. “The state can’t allow them to fold. It’s a disaster to allow them to.”

The push for reform picked up steam last fall when the state Office of Financial and Insurance Services issued its triennial audit of the Blues that identified “disturbing trends” that, in left unchecked, threatened its long-term viability.

Cusmano fears that even with market reform the Blues seeking, premiums will still increase at a sizeable level. Among the changes sought is the ability to set rates based on age, in the process doing away with a community-rating system that set premium based on where a subscriber lives.

Research data shows that so-called rate bands still contribute to rising health premiums, Cusmano said, although proponents argue the change could result in more health insurers entering the market and generating competition that would help to keep a lid on rates,

“Whenever I hear someone say market reform, I grab my wallet,” said Cusmano, who questions how Blue Cross Blue Shield of Michigan can control 71 percent of the small group market in Michigan and still manage to lose $500 million in six years.

“The Blues aren’t run very well,” Cusmano said. “There are a lot of other things involved but one is mismanagement.”

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