Working Together For Michigan Consumers To be Healthy

Consumers Experts to Preview Blue Cross Deregulation Debate

Michigan Consumers for Healthcare held their first virtual Google + Event to preview Blue Cross Deregulation

Posted by: Chelsea Lewis, social media coordinator for Michigan Consumers for Healthcare

With new legislation to deregulate Blue Cross Blue Shield of Michigan expected to be introduced in the Michigan Senate as early as Wednesday, state and national consumer experts held a virtual discussion on the dangers of deregulation and the threats to various communities under this proposal. Nationally respected experts from groups like Consumers Union were joined by leading state experts from Michigan Consumers for Healthcare to break down the legislation for policymakers, the public and the media.


Don Hazaert, Michigan Consumers for Healthcare

Laurie Sobel, Consumers Union

Jason Adkins, Center for Insurance Research

Also featured:

Ryan Sullivan, Michigan Consumers for Healthcare

The following is a transcript featuring important quotes and talking points from all of our presenters that joined the event yesterday during the virtual Google + hangout.

Chelsea Lewis: We would like to welcome everyone to our virtual event; we will be getting underway shortly. Thank you for your patience and understanding.

Don Hazaert: Welcome everyone, thank you for attending. We are privileged to have Laurie Sobel from Consumers Union on the line with us. I would like to turn it over to her and have her discuss the rate review process in Michigan and where she believes it needs to go to be a meaning rate review process in Michigan.

Laurie Sobel: Good Morning, my name is Laurie Sobel and I am a senior attorney with Consumers Union and I would like to go through some of the provisions of rate review that are currently in place and what would happen if these bills went through and this deregulation happened, so right now in Michigan BCBS of Michigan has requirements to file specific documents to the commissioner, there is notice giving to the policy holder and to the public when they ask for a rate increase and there is a right to and there is a right to a hearing by either the policy holder, attorney general or the commissioner or BCBS of Michigan can also ask for a hearing. The standard is quite clear; premium must be equitable, reasonable and not excessive and the burden of proof is on BCBS and this oversight includes Medigap rates.

We have seen a history of public act 350, which is the act currently (that BCBS) where the oversight comes from. This is the act currently where there the system works, rates have been able to be kept down, just as one example in 2007, BCBS of Michigan filed for a 50.3% increase in Medigap rates after oppression by the AG, BCBS of Michigan agreed to reduce the increase of 19% that was a saving of over $600,000 a year for Michigan consumers. Contrast that with what is purposed under the bills, it would go from a strong oversight to basically no oversight. There is a thirty day demur, which means if the insurance commissioner does nothing the rates are approved, the standard of the review is not clear, only states that the commissioner may disapprove the form, so basically insurance companies including BCBS of Michigan would file a rate filing form and then there would be no standard for which the commissioner would review that form.

Again, It is very one sided, only the insurance company can request a hearing. So, we have cut out the AG rights to a hearing and the consumer right. It is very unclear to see how the insurance commissioner did a good job because there is no standard to judge who has the burden of proof.

This is the opposite of the direction that the rest of the country has been going towards, the rest of the country has been going towards strong rate reviews.

There needs to be a time frame to allow the public to engage and a meaningful way for the public to engage. The insurance commissioner has to have the authority and time to request more information. We are far away from that in the bills; it is not possible to get there we have proposed language that would get us to a place of strong prior approval and it wouldn’t be burdensome on the plans but it needs to be balanced so that consumers have the ability to engage and are protected against unreasonable and excessive rates.

Don Hazaert: Thank you Laurie, let’s now welcome Jason Adkins, Center for Insurance Research.

Jason Adkins: One of the problems is that the way the language is drafted and we have been working with Don, provided alternative language, is that it states the only time a evaluation will happen is if 50% of the voting power either directly or indirectly shifts to a group of owners who have an ownership stake, not defined, if they are acting collectivity. The problem here is, that the structure plans for setting up a number of stock subsidiaries, which the business can be operated. So let’s step back. This legislation allows for evaluation and payment to a non-profit fund only in the event that 50% of the main control is shifted to outside interests but that only applies to the mutual parent. So, the vast majority of business and voting control could be transferred to stock subsidiaries, in-state, out of state and stock can even be disturbed to outside share holders in those entities and it would not trigger a requirement to compensate that tax payers of Michigan, which is baffling.

One of the other problems is standard corporate law, black letter law. If you have issued any amount of stock in a company to outside shareholders, the fiduciary duty shifts from the majority entity to the minority stockholder, so in this case, although the parent mutual would still be run as a “non-profit mutual,” all of the business could be in stock subsidiaries, there could be outside stock holders and under black letter law, the majority share holder, that is the parent mutual would have to run those stocks subsidiaries for the best interest of the minority stockholder. So even if the interest of the minority stockholders were different from the policy owners’ interest, the stockholder interests would have to come first.

That is one of the issues with this whole structure, not changing anything in ownership, not changing anything in terms of charitable mission, but in fact in reality changing everything in terms of the ability to operate the BCBS plan as a for profit entity and service to shareholders.

There is also a particular irony because there is a ready solution to this problem. That is when mutuals are typically created there is something called guarantee stock which is issued, guarantee stock is not traded in the marketplace, it is just a paper representation that reflects a private party to finance a mutual, because mutuals don’t have stockholders. So here in this scenario, the state of the Michigan health endowment fund, would receive guarantee stock representing all of its current interest in the mutual fund in the non-profit, whether that is worth six billion dollars or ten billion dollars that doesn’t have to be determined now. The interest would be fully reflected and embodied in the guarantee stock that the fund would receive and then in order to allow it to do ongoing activities in the charitable domain that is anticipated it would receive a regular annual flow of income either as interest or dividend payment. So for Blue Cross, it’s interest is in maintaining it’s current capital so it can operate, under this scenario with guaranteed stock it keeps all of its current capital. It can continue to operate as a business; fully capital as it is now, but the ownership interested is fully reflected in the tax payers by virtue of the guarantee stock.

So it’s a win, win. Blue Cross continues to operate and taxpayers continue to own its interest reflective of their historic contributions and the non-profit gets a flow of capital to continue their wellness work. Why this has not become the centerpiece of this debate, is frankly beyond us.

Ryan Sullivan: As Don indicated, we brought these concerns directly to the Governor’s office and his health policy staff and we continue to try to educate them about what the alternatives are to this course of action, we have laid out more consumer friendly alternatives that still allow Blue Cross to move forward and that is what we are pushing for.

I just want to add a comment before we open it up to questions. This goes to what Laurie was saying earlier about the direction the country is going in, in respect to rate review and I think what is interesting is that it is difficult for consumers to understand the rate review issue, it is intimidating and it is something that people are confused by and quite frankly feel powerless or unable to control and what is interesting, and we had this conversation with the Governor’s staff is creating a consumer friendly climate and a different mentality that is consumers centric and one only needs to look at states that have really blazed a trail on rate review, such as Oregon. That have made their process very consumer friendly compared to what it was. It is interesting to hear the comments of the insurance commissioner in Oregon who did not believe that consumers would engage with the system. Consumers will engage with the system if you give them the right tools and platform to do that.

Don Hazaert: I think Ryan gets to a very important point, people fundamentally don’t understand rate review and how the ACA did not resolve these issues, really at all. There are no teeth in the federal law in regards to rate review, the federal law requires states to do to reviews if insurances come in above ten percent but there is really no penalty if insurers are found to ask for excessive rate increases, there is no penalty. The only penalty in federal law is somewhere on the insurance website they have to say that they were found to be charging excessive rates, but they just hide that information in their website, good luck finding. As a practical matter, there is no penalty. So the federal law, the ACA leaves it up to individual states to do rate review and states can either chose to do a bad job or a good job and the bill before us chooses to do a bad job. It takes away the only meaningful rate review process in Michigan, or BCBS which controls 71% of the market and puts them into a ceremonial process where their rate increases are going to go into effect automatically and that should be a large concern for us and also keep in mind the federal law allows all the insurers to come in at 9.9% and not even have to face any kind of rate review because again the threshold is 10% under the ACA. Our household incomes do not go up 9.9% year after year, go back and see how long it is had been since we have seen household incomes increase like that in Michigan, so even allowing insurers to come in year after year at 9.9% is still going to bankrupt us fundamentally. So as Ryan indicated, there are some states that are doing a good job, New York for example.

There needs to be a meaningful process in place.