Individual insurance reform dies in Michigan

January 15, 2009

As a compromise effort for individual insurance reform dies in Michigan, BCBSM is left with tough options.

A vocal minority of Michigan Senate Republicans prevented compromise health insurance legislation from being reported out of a bipartisan legislative committee on December 18.Blue Cross Blue Shield of Michigan (BCBSM) asked state lawmakers to reform the state’s individual insurance market because it is “broken” and “financially unsustainable.”

Losses in BCBSM’s individual lines of business are projected to be $264 million in 2009 and it reported financial losses over the first nine months of 2008 of $111 million for these individual lines of business.

“Losses in Blue Cross’ guaranteed-coverage individual pool are driven by the practices of for-profit insurance carriers who continue to reject people with medical histories and send them to the Michigan Blues,” says Andrew Hetzel, BCBSM vice president of corporate communications.

Because of commercial “cherry picking,” Hetzel says that Blue Cross covers 84% of all the unhealthy people in the individual market.

Over the last 14 months, the Michigan legislature has studied reforming the individual insurance market in the state to update laws that date back to 1980.

“The legislation would make changes in rate setting and regulatory practices in the individual health insurance market in Michigan,” says BCBSM spokeswoman Helen Stojic. “The individual purchase of health insurance is growing.”

The proposed changes would have changed the law covering the individual insurance market in Michigan, but would not affect laws in other states, according to Stojic, who adds that other states have already reformed their individual insurance markets.

“Most states do not regulate health insurance premiums in the way other insurance might be regulated where they set rates or rate bands,” says MHE Letter of the Law columnist Barry Senterfitt, managing shareholder in the insurance industry practice of Greenberg Traurig, Austin, Texas. “Some states however limit the amount by which rates may be increased upon renewal.”

“Nineteen states have enacted rate bands. In Michigan, we have two separate regulatory environments-a highly regulated Blue Cross and virtually no or very little regulation of for-profit commercial insurers,” says Stojic. “This type of environment is unsustainable in the long-run.”

Under the proposed compromise legislation in the committee report, BCBSM would have remained nonprofit and an insurer of last resort.

Opponents of the legislation feared premium hikes for Michigan consumers, which could mean an increase the number of uninsured.

“It sounds like [Michigan consumers] could be staring at significant premium increases soon,” Senterfitt says.Stojic says that the changes would have stabilized the individual market in the long-run by encouraging a better mix of healthy people and those who need medical services.

“Until the legislature acts to create a fair and balanced regulatory system that holds for-profit insurers more accountable for rejecting the sick and allow Blue Cross to better compete for younger and healthier individual subscribers, Blue Cross financial losses on individual insurance lines will continue to mount,” Hetzel says.