BCBS Michigan finally becoming a nonprofit mutual
Blue Cross Blue Shield of Michigan, the state's largest insurer, formerly tax-exempt and serving as a guaranteed issuer since 1980, is now subject to the same market rules as its competitors as it becomes a nonprofit mutual company -- with a 70 percent share of the state's commercial market -- under a law signed by the governor Monday.
After months of debate in the state legislature, in which some rivalries were rekindled over practices like "most-favored nation" contractual requirements, a bipartisan bill was passed that Blue Cross Blue Shield of Michigan (BCBSM) says modernizes regulations of the 75-year-old company for the post-reform market while also continuing its public service mission.
The law bans all most-favored nation clauses as of January 2014 and requires existing ones to be approved by the state insurance commissioner (the practices are still the subject of a pending antitrust lawsuit filed by the Justice Department in 2010). BCBSM now has greater flexibility in determining rate increases, ending the previous months-long process that involved public hearings, to one that allows rate increases unless objected to by the insurance commissioner, in a process that would take roughly 60 days.
Under the law, BCBSM will continue covering subsidies for its Medicare Medigap supplemental plans at current rates through July 2016, and the company will also pay an estimated $90 million in state and local taxes annually. Over the next 18 years, it's set to pay about $1.5 billion to fund a state endowment for youth and senior wellness programs.
BCBSM CEO Daniel Loepp, who joined the company in 2000 and became CEO in 2005, said in a media statement that the changes involved in becoming a mutual insurance company "will be small in scope compared to the changes we have been and will be implementing to conform to the federal health reform law... health reform is impacting every aspect of our industry and will continue to be the driving force behind changes our customers and stakeholders will experience throughout 2013 and 2014."
The company's board -- chaired by Gregory Sudderth, the president of Executive Labor-Management Services Inc. -- is expected to approve a transition process in the summer, including incorporating as a new nonprofit mutual insurance company and submitting a merger and restructuring that would be effective by January 2014.
In it's 2012 financial report, the company reported a $2.5 million loss on $20.9 billion in revenue, amid underwriting losses in the individual market, while also reporting a 7 percent growth in its reserve fund, to $3 billion. Over the next few years, at least some of its individual plan members will be purchasing insurance in Michigan's state-federal partnership insurance exchange. October 2013 enrollment in this new marketplace is one of the reasons why BCBSM had been urging lawmakers to pass modernization legislation for close to a year.
