Blue Cross sale means higher rates and taxpayers out billions
By Dizzy Warren
Consumer groups, led by Michigan Consumers for Healthcare (MCH), have been urging state officials to move slowly in providing the legal mechanism for Blue Cross Blue Shield of Michigan (BCBSM) to shed its charitable mission and be sold to a newly formed BCBSM mutual insurance company. Unfortunately, many lawmakers are instead pushing to fast-track this risky proposal despite it meaning higher insurance rates for consumers, billions of dollars in lost charitable assets and eventual denials of Medigap coverage to potentially thousands of older adults and persons with disabilities.
Consumer groups argued that the magnitude of this proposal necessitates a thoughtful and transparent stakeholder process. We strongly recommend, for example, that such a process include an independent valuation of BCBSM assets, a community impact study to determine how this proposal will impact healthcare in our state and tough new consumer protections. Unfortunately, all of these common sense proposals have been ignored so far.
Lobbyists working in the interest of the new BCBSM Mutual are telling lawmakers there is simply no time to allow for a public stakeholder process. They claim BCBSM can’t survive in its current form once the new healthcare reform law goes fully into effect on Jan. 1, 2014. However, there are 25 other charitable mission Blue Cross Blue Shield organizations throughout America, none of which are making a similar claim. Federal officials have also confirmed for MCH that BCBSM claims are unwarranted.
At the center of the controversy is the need for fair market valuation of BCBSM prior to sale. If you were selling your home or business, wouldn’t you want to know its market value before agreeing to a final price?
BCBSM is a charitable asset owned by the people of Michigan and worth, in the opinion of many experts, between $6 billion and $10 billion. But the mutual insurance company that is buying it is only offering $1.5 billion. Recent analysis by the Center for Insurance Research indicates the current deal could really be worth less than $500 million.
The proceeds of any sale would go toward a new foundation that would provide improved access to healthcare for citizens. But the current deal could amount to a giveaway of over $8 billion. That is the equivalent of Michigan giving away the fifth-largest community foundation in America.
Independent valuations are important because it is in the self-interest of the Blue Cross organization to undervalue itself when negotiating such deals. For example, when Blue Cross of California wanted to end its nonprofit status it offered taxpayers only $100 million initially. But after a proper valuation was completed, their offer increased to $3.2 billion — an increase 32 times greater than the initial offer!
A community health impact study should also be conducted as it is the best tool for assessing the sale’s likely impact on public health. A comprehensive and independent health impact study can provide a more complete picture of the effects of this deal on a community’s access to quality, affordable healthcare both for lawmakers and stakeholders.
Blue Cross Blue Shield of Michigan is an important state asset that, under its charitable mission, has served a vital role in our state as the insurer of last resort. But it is also important to remember that BCBSM is also a functional monopoly that controls 70 percent of the insurance market in our state. Despite that fact, the current deal would allow all future BCBSM Mutual rate increases to go through automatically with no more attorney general rate-review oversight.
Finally, this deal would eventually make it legal in Michigan for every insurer in the state, including the new BCBSM Mutual, to deny Medigap coverage to anyone with a pre-existing condition. The new healthcare law, the Affordable Care Act, does not apply to secondary insurance like Medigap. This means thousands of older adults and people with disabilities will not be able to access affordable secondary coverage in our state.
At Michigan Consumers for Healthcare we strongly recommended that policymakers exercise caution and not attempt to fast-track such an important decision. As that has not happened, we now strongly urge the public to engage on this issue at every level. In as little as 30 days, taxpayers may have lost ownership of BSBSM forever and the unregulated monopoly that replaces it could be a threat to consumers and business alike.
Dizzy Warren is outreach manager for Michigan Consumers for Healthcare, which provides advocacy for the healthcare consumer.