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Michigan Senate sends Blue Cross overhaul to House

JEFF KAROUB, Associated Press
Wednesday, 17 Oct 2012 | 7:03 PM ET

LANSING, Mich. -- The state Senate moved Michigan's largest health insurer one step closer to an overhaul Wednesday, approving a proposal that includes ending Blue Cross Blue Shield of Michigan's tax-exempt status and aiming to level the playing field between the nonprofit and its rivals.

The Senate passed two related measures by 33-4 votes and the legislation now goes to the House for consideration. The measures are expected to be taken up when the chamber returns after the election.

In exchange for operating as the state's so-called insurer of last resort _ meaning it must provide insurance coverage regardless of a customer's health status _ Blue Cross has been exempt from paying several local and state taxes. The measures proposed by Republican Gov. Rick Snyder and endorsed by Blue Cross require the company to begin to pay those taxes, which Blue Cross estimates will average $100 million annually, as well as contribute up to $1.5 billion over 18 years to a nonprofit foundation that would take on some of Blue Cross' "social mission" work _ improving public health and health care access, particularly for children and the elderly.

Backers say the overhaul is designed to modernize Blue Cross, which is governed by a separate state law from other insurers. They also note the federal health care law scheduled to take effect on Jan. 1, 2014, requires that every insurer offer health insurance regardless of health status.

Blue Cross in Michigan, which serves about 4.4 million residents, wouldn't be sold or lose its nonprofit status but would be regulated in the same way as its competitors. It would join 11 other Blue Cross Blue Shield companies nationwide structured as mutual insurers. Those companies operate in 18 states.

"We had two guiding principles: We remain nonprofit, and the legislation should create a fair and balanced regulatory system where all insurers play by the same rules," Blue Cross spokesman Andy Hetzel said. "This legislation accomplishes that."

Blue Cross officials say the $1.5 billion contribution is an "unprecedented commitment" and one that should provide sufficient funds for the charitable work. But critics including the Consumers Union, the advocacy arm of Consumer Reports, say there is no way to know if it's adequate without performing a more thorough financial evaluation of the deal.

"That's the only way you're going to know how much your charitable organization is worth," Laurie Sobel, a Consumers Union senior attorney, said Tuesday during testimony before the Senate Insurance Committee. "You're at risk of losing billions of dollars or getting it wrong."

Senior advocacy group AARP Michigan said in a statement that it opposes the legislation and wants to work with lawmakers on issues including providing better protections against excessive rate increases.

The legislation deals with some concerns raised earlier by Michigan Attorney General Bill Schuette, who last year negotiated with Blue Cross a five-year rate freeze on the Medigap program, which fills the gap in Medicare coverage for seniors. Lawmakers added language that directs the charitable foundation to subsidize Medigap coverage for an additional five years in an effort to prevent rates from significantly rising.

The measures also added language that stipulates if Blue Cross converts to a for-profit company or is sold to one, a full financial evaluation would be conducted and Michigan taxpayers would be the beneficiaries of any proceeds of that sale or conversion. The legislation already prohibits Blue Cross from becoming a for-profit entity.

Schuette said in a statement Wednesday that he's pleased by the added financial protection language but still doesn't support the legislation as amended and passed.

"The legislation approved today is a step in the right direction, but broader, more long-term protections for Michigan's most vulnerable are still needed," he said.

State Rep. Pete Lund, a Shelby Township Republican and chairman of the House Insurance Committee, said before the Senate vote that he has "a lot of questions" about the Blue Cross legislation but expects it to be at the top of the list when the House reconvenes.

"It's a high priority postelection," he said. "We want to get it done by the end of the year."

The plan requires approval by the Legislature and Blue Cross' board of directors.