Blue Cross Blue Shield of Michigan will be increasing rates 22% on individual policies. The good news is that these staggering increases are less than half of the rate hikes Michigan Blue proposed. The Michigan Attorney General, Mike Cox, tried to force the non-profit to reach into its $2.4bn reserve fund to pay for $133mn of losses it incurred last year, but wasn’t able to get his courts to help the beleaguered citizens he represents.
Unlike some of the Blues (I’m looking at you, Arkansas), Michigan Blue puts its financial statements on the internet. Let’s see what happened in 2008. On the surface, the company reported an operating loss of $118.3mn, but that includes an increase in premium reserves of $187.3. Michigan Blue explains that it records an increase when it becomes
… probable [that] expected claim losses and allocable administrative expenses will exceed future premiums on existing health and other contracts without consideration of investment income.
In other words, Michigan Blue records its guess about future costs, and doesn’t consider investment income. Management says the major factor causing this projected loss is that it is the only health insurer which accepts everyone, without regard to health status. Other private insurance companies are cherry-picking applicants. As people lose their jobs and their health insurance, other companies can refuse to insure, leaving Michigan Blue as the only insurer for those with pre-existing conditions. This is one thing that everyone, except a group of Neanderthal congressionals, agrees must be changed.
The other big problem was losses on the investment portfolio. Michigan Blue has total investments of $5.6bn, down from $5.95bn at the end of 2007. Michigan Blue recognized a loss of $284.2mn on its trading portfolio, leaving a balance of $857.2mn at the end of 2008. Absent these losses, Michigan Blue was profitable, even with the increase in premium reserves. The trading portfolio is managed by third parties. I wonder who was doing the trading, and how much they were paid.
Michigan Blue projects losses over the next four years of $544mn, before investment income. Even assuming this materializes, the losses are reserved. Subscriber balances at 12/31/08 were $2.33bn. so, it wouldn’t be that big a deal if the losses occurred. Why then does Michigan Blue insist on a huge increase in premiums? One plausible reason is that it is looking at serious losses in its portfolio, which for whatever reason it hasn’t publicly disclosed. The Portfolio includes asset-backed securities and collateralized mortgage obligations of $1.17bn, with a net unrealized loss of only $25mn. I’m thinking maybe that’s light, and it may be one reason for the concerns.
The second possibility is that like a lot of people, Michigan Blue is afraid to dip into savings to cover losses. The Attorney General correctly tried to force that outcome, but the Courts refused to make management do the right thing. A third possibility is that Michigan Blue thinks it won’t make as much in the future from self-funded plans, like those of the automobile companies, for which Michigan Blue receives an administrative fee.
Its cost structure is comparable to for-profit health insurance companies. Operating expenses are about 18.4% of gross revenues, which for Michigan Blue is premiums plus net revenues from operating self-funded health plans. That is about the same as Aetna, at 18.5% (total revenue/operating expenses, p. 5). Given its market dominance, Michigan Blue should be able to handle a lower cost structure. Again that is an argument for forcing Michigan Blue to reach into its reserves to accommodate potential losses.
Another reason is that projected premium deficits are calculated without accounting for investment income, which in 2008, a bad year, was over $300mn. There are also policy considerations. What is the purpose of allowing the accumulation of reserves far beyond foreseeable needs?
There are two problems with the regulatory structure in Michigan. First, it allows private companies to cherry-pick the people it will insure, at the expense of Michigan Blue. The second is that it doesn’t control the accumulation of cash by the non-profit Michigan Blue.
There’s a lesson for national health care reform in both of these problems.
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I believe that Blue Cross of CT also put in a request for a 22% rate raise in the past few weeks; and also possibly Empire Blue (NY).
Is there any chance that uncertainty over which health plan will go through is playing a part in their desire to hold onto reserves? It seems possible. These people can only guess what the basic business model will look like five years from now.
SaltinWound, I doubt that is their concern. If the model fails, they will have plenty to run off their book of business and close down in an orderly way. The money left over will be distributed under the laws of Michigan for non-profits, typically to a company or business similar to the health insurance business.
What is the reserve fund for if not for when they have a loss?
Also, a non profit invests in stocks, how ironic.
Helpful post, mas- . I assumed in an earlier post that Michigan had some type of insurance regulator with the authority to approve/disapprove rate increases by the regulated insurers. Is this correct? If so, then did the regulator approve the 22% rate request? And then the AG appealed the final order to the Michigan courts, on the grounds the regulator was wrong in considering the AG’s additional arguments for considering unregulated profits and the size of the reserves?
The other thing the article tells us, I think, that the market for insurance for those with prior conditions, and who do not have insurance at work, consists of one company — BCBS — it’s a monopoly, able to set prices without competition, unless the regulator disapproves.
under the “reform” bills, only those insurers offering plans through the exchange would be required in the initial years to ignore prior conditions. If that’s true, then there’s no reason to expect that other insurers would join the exchange and offer plans that met that condition. In other words, even though the “exchange” is intended to facilitate ”competition” by standardizing products and reducing information costs, there could still be only one “competitor” in the exchange in Michigan — hence zero competition, since there would probably not even be a public option. Does this sound correct?
That makes sense, thanks.
Does this corporate entity file a IRS 990 form? As a “non profit” is this corporation also “tax exempt” as a result of a IRS determination? Is this “corporation” considered a Public charity in any way for state of federal tax law purposes?
Nice post!
I think they’re boosting revenue now in anticipation of having lower revenues in three or four years when they’ll have to reduce premiums to compete with a public option. 22% is shocking considering the current rate of inflation. Unconscionable. Insurance companies are morally bankrupt.
I generally stay out of these posts because you folks know so much. My problem, and that of most people I know, is that I don’t understand all the health care stuff and when I think I am getting a grip someone comes along and say “that’s wrong too”. For example, people point to medicare as a well run program and then I read is all fucked up too. How the hell is anyone supposed to know what the deal is?
They do have a public regulator, which is still considering the outrageous increase in medi-gap rates of 31% sought by Michigan Blue. It appears that the Michigan Attorney General filed a suit to require Michigan Blue to use reserves. He lost.
I can’t evaluate that decision, except to say it makes no sense, given the impact on citizens in a state with major economic problems. As Sunshine says, what in the world is the point of reserves if not to take care of losses. And what in the heck does “make contributions from the fund” mean? It’s not like the reserves are an endowment. They are an integral part of the business.
As to your second point, it is ludicrous to think that insurance companies will participate in the exchange if it means they have to change their practices. That means there are two insurance pools, one for healthy people, and one for sick people.
Just imagine if Michigan had a law requiring “”people”" to purchase insurance from a corporation like BCBS, while BCBS was the largest state and municipal employee health insurer? A racket @ 22% increase in premiums, by let me guess… ” a tax exempt corporation considered a public charity for state and federal tax law purposes?” A scam….
I think that Medicare has some problems with speed of payment (and lack of resources due to the desires to starve the beast) but the easiest way to find out if it is successful is to find out how many folks receiving it would drop it.
The next test would be to check with doctors that are not bought and paid for to determine where they see the Medicare problems and how they would propose fixing them.
To me, it all comes down to the resources (or lack of them) which seems to be the crux of all the “Medicare sux” pieces.
But as always, I might be an idiot.
The government should ban all health insurance companies and make people insure themselves for a year. Patients can only be changed for the cost of what was done or used. The cost of others who fail to pay for their care willingly or unwillingly is left out. People would then all have to operate like companies who have to keep large reserve funds in order to be ready to pay if something goes wrong in their own life. Of course I’m being sarcastic but I’m pretty thankful that their are companies out their willing to go through all the work in order to provide myself and others with 1. piece of mind. and 2. affordable coverage for many thing should something go wrong in my life.
sunshine- as far as a company making investments in things like stocks and bonds!?!? I think that is a great idea. Yes there is risk but just like for your personal life it is important. Our school systems, local all the way to federal government makes investments as well as many many companies so this really isn’t wierd or foolish. Imagine how much of a better place our country would be in if the government would have invested in the an appropriate mix of stocks and bonds with money from social security…. We sure as hell would have a hell of a lot more than us spending it right away!!
Yep. It looks like there is market for employer-based insurance. Then, for uninsured or self-insured, there is another market in which there are two categories: (1) plans that can exclude for prior conditions and (2) one plan — BCBS — that doesn’t exclude for prior conditions. And the articles are about that second category.
I’m wondering whether BCBS was required to provide plan 2 as a condition for being allowed to market plans in the other categories. Or did they just volunteer, in which case they can withdraw from that market if they find the regulators don’t approve sufficient rate increases. If that’s possible, then we could have an exchange in Michigan but no plans would offer in the exchange.
Raven, Medicare isn’t screwed up. It could use some improvements, but it provides good coverage for all kinds of people who would die in the streets without it. It does so at an excellent price, notwithstanding the claims of the Lewin Group and its even less savory competition.
It has been a goal of the right since adoption to defund Medicare. The Scaifes and the Viguries of the right wing noise machine have been trying to destroy the social compact represented by New Deal programs like Social Security and Medicare. Steve Forbes is the new generation of haters, continuing the war begun by his grandfather, BC Forbes, against the New Deal. These people are the ones who believe that FDR was a traitor to his class.
These are the real haters, and their rage and their language infect the teabaggers and the militias today.
Private health insurance companies accumulate assets to pay for future claims. The income from those investments can be used to lower premiums in good times.
Once upon a time, insurance companies were tightly regulated, and their investments were extremely conservative. Of late, we see that is not the case. As I noted in the post, Michigan Blue has a huge pile of CDOs and CMOs, and other asset backed securities. Why? These things are not conservative, and the imbalance in the portfolio may be good in bubble days, but sucks today. One giant insurance company has a bunch of auction rate securities, which are now frozen. Why is that a good idea? In trying to pick up a few basis points, they locked up a big chunk of money, which I hope they don’t need any time soon.
If these companies were investing money in productive activities your argument would have more force.
obama said yesterday in colorado, I believe, that the biggest costs on the deficit are social security and medicare and medicade. And that these would be really hard to unwind That is the same thing FDR said when he implemented social security, it may not work financially but they will never be able to get rid of it. FDR did some good things and comforted a troubled nation for he had a way with words. He was also not a trader to his class but the nation. He, even before his election, was a horrific businessman and through many of his policies hurt our economy and damaged our people. People need to understand how money works so our elected officials can understand how money works and get our nation back on track!!
Bad typing. Medicare is the last flower of the New Deal, the last tax-funded social programs.
So does it not under pay MD’s?
MCLE Inc has great stuff on not for profits and tax exempt corporate status, available at law libraries. The interaction of federal tax law and state tax law with public charity law at the state level as applied to corporations in health care is unknown to most Americans. The reason we can’t buy “health insurance” over state lines is that, health insurance is a “state regulated issue,” like the battle cry of slave owners under the guise of “states right.” Interstate commerce triggers federal jurisdiction under interstate commerce clause which is last thing corporations want, who exploit openings in law to practice legalized discrimination?
I did examine the numbers. I linked to the financial statements, and I have carefully explained them as I understand them. Are you saying that Michigan Blue should be allowed to increase its rates as they are given their financial position?
As to the other programs, you apparently haven’t read anything we have posted here on Social Security or funding for health care. I understand these costs clearly, and have pointed them out repeatedly.
I have repeatedly pointed out the outlandish profits that the rich expect as a condition to their willingness to invest. All of those stupefying profits come out of your wallet. Or, in the case of those without health insurance, in untreated disease.
This is the basic point you need to think about before you lecture me about finances.
That is a very hard question. I think we could use a commission to reexamine rates, and to adjust them to conform to actual costs, to the extent we can do it reasonably. Even so, the costs of dealing with insurance companies are enormously higher in time and personnel than Medicare. The certainty of payment, even if delayed, is a real benefit as well. And remember that this is a population that for the most part can’t pay for itself. Medicare pays much better than nothing.
501 c(4) A tax exempt public charity with Total revenue of $ 1,813,206,171 for just year 2007?
Name of organization
BLUE CARE NETWORK OF MICHIGAN
D Employer identification number
38-2359234
label or
Cut and pasted from 990 tax form available here: http://nccsdataweb.urban.org/nccsTools.php
12 Total revenue Add lines le, 2, 3, 4, 5, 6c, 7, 8d, 9c, 10c, and 11 12 1,813,206,171
13 Program services (from line 44, column (B)) . . . . . . . . . . . . . 13 1,574,794,924
14 Management and general (from line 44, column (C)) . . . . . . . . . . . 14 194,873,862
F 15 Fundraising (from line 44, column (D)) . . . . . . . . . . . . . . . 15
w 16 Payments to affiliates (attach schedule) 16
17 Total expenses Add lines 16 and 44, column (A) . 17 1,769,668,786
,A 18 Excess or (deficit) for the year Subtract line 17 from line 12 . 18 43,537,385
19 Net assets or fund balances at beginning of year (from line 73, column (A)) 19 290,683,564
20 Other changes in net assets or fund balances (attach explanation) . . 20 -22,819,283
21 Net assets or fund balances at end of year Combine lines 18, 19, and 20 21 311,401,666
2007 – Blue Care Network of Michigan (382359234)
2007 – Blue Care of Michigan Inc (382536979)
2007 – Blue Cross and Blue Shield of Michigan Foundation (382338506)
21) Net assets or fund balances at end of year Combine lines 18, 19, and 20 21: $311,401,666
Right from the 2007 IRS form 990
The returns are all available for viewing @ http://nccsdataweb.urban.org/nccsTools.php. To see some staggering numbers query the 990 forms of your public charity tax exempt health insurer? Corps like Kaiser health of the mid atlantic states! We can add up the premiums extracted from the population via 990 forms by law! Who looks at the for profit health insurance tax forms to determine the premiums extracted from America?
I think it was HIPPA that required each state to set up a high risk pool or designate an insurer of last resort that had to take all comers who could pay the premium. Michigan Blues are the insurer of last resort in Michigan, for which they get very significant public subsidies. And Blues agreed to this arrangement. So don’t cry too hard for them about their “everybody else is cherry picking the good health risks” agruement. Ask them if they would be willing to give up the subsidies, in return for being able to medically underwrite applicants.
Does anyone know the salaries/bonuses paid to the tope executives? With +18% administrative expenses, the money must be going somewhere.
http://74.125.95.132/search?q=…..#038;gl=us
I think if you lose money while running a company you should lose part of your salary, at least equal to the percentage of losses. Out of control salaries and CEO’s!
http://www.gather.com/viewArti…..Groupspace