Major Reform May Help Businesses

January 9, 2004
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Last year was the year that Michigan lawmakers finally succeeded in instituting major changes to regulations governing the small group insurance market.

Backers of the regulations argued that the measures would make the state’s largest health insurer better able to compete. Opponents said the regulations would give Blue Cross Blue Shield of Michigan even more market clout and thwart competition.

However it works out, the legislation that lawmakers passed and Gov. Jennifer Granholm signed in mid-year was designed to lure more insurers to the state and to increase competition.

It also was designed to aid Blue Cross Blue Shield of Michigan by preventing competitors from the alleged practice of cherry-picking or adverse selection: choosing to cover only younger, healthier employee groups that are less costly to insure.

For those reasons, small market insurance reform was one of the finalists for the Business Journal’s Newsmaker of the Year Award. On Monday, the award went to DeVos Place.

Blues executives — after successfully fending off market and internal reforms first pushed two years ago by former Gov. John Engler — hailed passage of the legislative package.

They said it would “even the playing field” with commercial carriers and begin making a dent in the double-digit increases in health premiums experienced in recent years by Blues clients.

“For the thousands of Michigan small businesses and their employees who supported this reform effort together with Blue Cross Blue Shield of Michigan, this is a happy day,” Blues CEO Richard Whitmer said in July, following the governor’s signing of the reform package.

“This won’t solve every problem in health care, but it will help stabilize the small business market and bring Michigan more in line with other states,” Whitmer said.

Blue Cross Blue Shield of Michigan controls some 70 percent of the small group market, covering employees at more than 70,000 small businesses statewide.

The reform package created rate bands that provide parameters on how health plans can alter premiums in a given period.

In a measure aimed at addressing adverse selection against the Blues, the law enables an insurer to require a set percentage of eligible employees to enroll with a health plan in order for that company to receive coverage.

As passed, the legislation affects small businesses with two to 50 employees and sole proprietors.

The law, which began phasing in Jan. 1, allows insurers to impose enrollment requirements of 100 percent for employers with 10 or fewer eligible employees, 75 percent for those with 11 to 25 eligible employees, and 50 percent for companies with 26 to 50 employees.

In offering coverage, Blue Cross Blue Shield may now use an employer’s industry group and the age of employees to determine premiums, a mechanism that will replace the former community-rating system that based Blues’ rates solely on geographic regions of the state.

HMOs can use age, industry and group size to set premiums for employers and sole proprietors in a region.

Commercial carriers may use age, industry, group size and health status to set rates.

The rate bands imposed under the new law impose a limit on rate adjustments by Blue Cross Blue Shield.

During 2004 the limits are to no more than 15 percent above or 35 percent below the index rate.

Adjustments are limited to 35 percent above the set rate during 2005 and thereafter.

Commercial carriers cannot adjust rates by more than 70 percent in a rating period during 2004, 55 percent in 2005 and 45 percent in 2006 and the years after.

Rates for HMOs cannot change by more than 35 percent during any rating period.

Passage of the legislation ended a struggle that began in January 2002 when Engler called for insurance market reforms. He wanted to prop up Blue Cross Blue Shield, which had lost hundreds of millions of dollars on the small groups market since the late 1990s.

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