Story from the Detroit News
As more Michigan residents flock to Blue Cross Blue Shield of Michigan to buy their own health coverage, the state's largest insurer is replacing several types of individual policies with plans that will cost up to $600 a year more -- and come with higher co-payments and other out-of-pocket costs.
On March 27, Blue Cross stopped enrolling new consumers in several older plans, including Value Blue, a catastrophic coverage policy, and its no-deductible Individual Care Blue. The changes don't affect Blue Cross members enrolled in those plans. Instead, the new rates will apply to newly unemployed residents seeking to replace workplace coverage by buying their own insurance from Blue Cross. The new plans also differ from those for which Blue Cross is seeking state permission to raise rates and would not be affected if that request is approved.
With the rollout of these new plans, Blue Cross has introduced a lengthy application that includes optional health questions and ties insurance agents' commissions to the medical condition of new enrollees.
The changes are so drastic that some insurance agents say Blue Cross is deliberately making its money-losing individual policies less attractive to slow sales. Blue Cross contends that it's simply keeping up with market trends, as well as the rates and plan offerings of its private-sector competitors.
As the state's insurer of last resort -- a responsibility tied to its tax-exempt status -- Blue Cross must cover all Michigan residents, regardless of their medical history. But that arrangement, Blue Cross officials say, leaves them with the state's sickest and costliest members. Last year, Blue Cross lost $133.2 million on individual insurance policies, dragging its bottom line to a $144.9 million loss for 2008.
Insurance agents say the new rates will make it harder to sell the plans. New members aren't going to want to pay more in premiums for higher out-of-pocket costs, especially if there are better deals offered by other insurers.
"It's not good for the consumer," said Patrick Pennefather, president of the Michigan Association of Health Underwriters, which represents health insurance agents and buyers for employer groups. The new plans, he added, are going to slow down sales for Blue Cross, a move that could help stem the rising tide of losses on individual policies.
Some agents are likely to stop selling Blue Cross' individual policies altogether because the commission structure lowers incentives for enrolling sickly customers into its individual plans, Pennefather added.
Blue Cross's new incentive structure offers a 15 percent commission to agents who sign up healthy members and only 2 percent for signing new enrollees with severe medical problems. A 2 percent commission could translate into only a couple of dollars a month on some policies, say insurance agents, and is much lower than the 8 percent commissions previously offered by Blue Cross on all policies, regardless of the applicant's health status.
Blue Cross said the tiered commissions better match incentives offered by their rivals in the individual insurance market.
"It may drive a lot of agents out of the individual insurance business. In fact, many have said they plan to get out of it," Pennefather said, noting that agents can make 20 percent with other private insurers.
Some Blue Cross critics, including Michigan Attorney General Mike Cox, have questioned why Blue Cross is collecting health information, since that is at odds with the company's mission as the state's insurer of last resort. Cox's office has said it's investigating whether the changes are lawful.
Answering the questions about health status, however, is voluntary and won't affect consumer eligibility or rates, but will help applicants qualify for lower co-payments, Blue Cross officials said.
Blue Cross also points out that it still pays at least some portion of the commission to agents for all applicants. Most other insurers pay no commission if they end up rejecting the applicant, said Helen Stojic, a Blue Cross spokeswoman.
As for the new plan prices and coverage, Stojic said Blue Cross hopes to better reflect the marketplace, where deductibles and higher out-of-pocket maximums are common.
The insurer also contends its rates are still better than most plans for people with serious medical conditions.
"Our plans are aligned more closely with those in the market, with one important difference: We still don't medically underwrite and we are still the insurer of last resort," Stojic said.
Unlike rate hikes for existing customers, state regulators don't require Blue Cross to seek public input before introducing new plans or closing new enrollment in existing policies.
Blue Cross is seeking rate hikes on its existing individual policies that cover about 400,000 members. It's asking for an average rate hike on three types of policies: a 56 percent increase on individual plans, 42 percent on group conversion coverage (which extends benefits from a former employer) and 31 percent for Medigap plans.