Michigan Blue Cross: Health Reform Villain or Health System Victim?

Amid the controversy of insurance plans seeking large rate hikes, one company stands out, and that's Michigan Blue Cross Blue Shield (MBCBS). It stands out because it had the largest proposed increase for the individual market—56%—mentioned by HHS Secretary Kathleen Sebelius as an example of why health reform is needed.

A few days later, in his Saturday radio address, President Obama clarified the MBCBS situation, noting that the company raised rates by 22% after unsuccessfully seeking the 56% rate hike. (MBCBS had complained to Sebelius that she focused on the 56% proposal.)

I'm not going to be an apologist for MBCBS, but like everything else, there's a lot more behind the curtain of political statements and instant numbing number tallying, whether it's about proposed rate hikes or actual.

MBCBS is an interesting case study because nearly everyone agrees it's fiscal situation has been a mess for years, and it's only going to get worse, unless the state acts, with or without healthcare reform from Washington, DC. Only facts truly provide transparency, the point that politicians of all stripes say they want.

When Michigan Blue Cross Blue Shield was proclaimed by the state as the "insurer of last resort" several decades ago, the Cadillac was king of cars and General Motors ruled Detroit. From the company standpoint, you could almost look at the nonprofit MBCBS as a corporate Statue of Liberty, standing on the edge of the Great Lakes. Give me your tired, your poor, your uninsured.

And it was fairly smooth in the beginning for MBCB taking in all the unwanted, all the uninsured, because there weren't that many people who needed help, generally speaking, not during the relative boom times.

Specifically, since 1980, BCBSM has been the designated nonprofit insurer in Michigan selling residents insurance despite their medical histories, even if the people are the costliest to insure, and are regularly rejected by for profit companies.

BCBSM runs under the state Nonprofit Health Care Corporation Reform Act, better known in Michigan as Public Act 350. Within the past decade, however, the economics and demographics changed, as the recession grew, cutting down factories and automakers, sending people to the unemployment line, and seeking their own individual insurance. In the process, more people were forced to buy the BCBSM "last resort" insurance, and the cost of healthcare services soared, reflecting what is occurring nationwide.

As of last year, some 400,000 people in Michigan purchased their own individual health coverage through BCBS. It seems the more people bought, the more BCBSM lost.

When Michigan Blue Cross Blue Shield initially asked for the 56% rate hike, the company announced it would lose $1 billion on individual health plans from 2009 through 2011. The state eventually rejected the proposed rate hike and agreed on a 22% figure. The losses still stand.

"The broken system at the heart of Michigan's individual health insurance market guarantees no winners," says Andrew Hetzel, vice president for corporate communications for Blue Cross Blue Shield of Michigan. In part, he blames the "practices of profit insurance companies who routinely deny coverage to people with medical conditions—without having to accept any financial responsibility for the full-time cost of their medical care."

As MBCBS's debts mounted, the company strongly supported a measure in the Michigan legislature to spread some of its burden to other insurers by creating a pool among insurers to take on some of the uninsured. The measure, which was debated in December 2008, failed.

"What's going on is the need to create a fair and balanced and equitable situation where all insurance [companies] in the state are held to the same standard," Hetzel says. "Here, the problem is a fundamentally unsustained, bifurcated system, where one carrier [MBCBS] takes on high costs."

Some critics say MBCBS shouldn't have stayed nonprofit all these years, and that has hurt state residents.

Frank Webster, a healthcare advisor for the Mackinac Center for Public Policy, suggested several years ago that the legislature should strip BCBSM of its government protection, and then it would have the same advantages that other plans have, namely more access to capital and flexibility.

In the long run, that would benefit consumers, he wrote. But Hetzel insists the corporation wants to stay as a nonprofit, so it can spend millions for charitable activities, such as subsidizing premiums for senior citizens.

"Blue Cross Blue Shield of Michigan stands at a crossroad. Continuation of the status quo will threaten the affordability of an access to healthcare coverage in Michigan," then-state Insurance Commissioner Frank Fitzgerald told the legislature in 2002. "Indeed, the status quo will threaten the ability of the corporation … to act as the insurer of last resort for individuals who cannot find insurance elsewhere."

"Nothing has changed" since Fitzgerald made that statement, Hetzel says.

For now, MBCBS is one unhappy insurer, blaming what it terms a lousy antiquated system in Michigan for its large rate hikes. MBCBS doesn't see the end of seeking increases for individual insurers.

"We cannot continue to sustain the losses," Hetzel says.