Blue Cross Blue Shield of Michigan to raise individual health insurance rates and to cut up to 1,000 jobs
20 01 09 - 12:22
Blue Cross wants to cut up to 1,000 jobs, raise rates
Hikes to be sought on individual health policies
BY PATRICIA ANSTETT and TOM WALSH • FREE PRESS BUSINESS WRITERS
Facing what it says could be losses of more than $1 billion through 2011, Blue Cross Blue Shield of Michigan said Friday it will cut as many as 1,000 jobs and seek state approval to raise rates on its individual health insurance products.
The average rate hikes to be sought by Blue Cross are 55% for nongroup plans; 32% for Medicare Supplemental, or Medigap, products, and 42% for those with group conversion plans that carry over prior workplace coverage.
About 418,000 Michiganders -- half of them senior citizens -- are covered by those policies.
Blue Cross said it did not know Friday if it would seek rate hikes for all of its individual products. In 2006, it sought increases for some of them, and froze enrollment on others.
Blue Cross expects to file a request soon to raise monthly premiums.
Increases are subject to approval by Michigan's Office of Financial Insurance and Regulation. Blue Cross is Michigan's largest insurer, covering 7 of every 10 insured people in the state. It is Michigan's only insurer of last resort and as a nonprofit gets about $80 million a year in tax breaks.
Dan Loepp, president and CEO of Blue Cross, said he wants to talk to Gov. Jennifer Granholm, Attorney General Mike Cox and leaders of the Michigan House and Senate to overhaul what he called a broken market for individual health care insurance coverage.
Despite a costly 18-month lobbying and advertising campaign by Blue Cross, the Legislature declined in December to act on legislation that would let Blue Cross immediately raise rates, as commercial insurers do, and require all health plans to do more to broaden coverage for uninsured people, though it would be costlier.
As more people lose jobs and more companies cut health benefits in a weak economy, Blue Cross is dealing with an influx of new subscribers, including many who have been rejected by for-profit insurers, Loepp said.
"This thing's exploding," Loepp said, "and what you're seeing, for example, is people that are waiting for transplants are being put into the system. Our competitors have figured it out, physicians have figured it out, that high-cost cases you can dump on the Blues."
Cox, however, said Blue Cross needs to "engage in a real spirit of reform" by being more transparent and involving consumer groups and other interested parties in the discussion. Cox opposed passage of the Blue Cross-backed insurance bills in the Legislature's lame-duck session last fall, accusing Blue Cross of trying to "cram things through the Legislature."
Cox said he met with Loepp Thursday and wasn't surprised by the Blue Cross cost cuts announced Friday.
"As an insurer in a state going through hard times, I expect they're going to share in the hard times," Cox said.
The job cuts announced by Blue Cross are "across all divisions" of Blue Cross and Blue Care Network, its HMO, but do not affect other subsidiaries, such as the Lansing-based Accident Fund, said Andrew Hetzel, vice president of communications for Blue Cross, in a telephone briefing.
The first 400 job cuts will be made in the first three months of this year, and the rest could follow later this year. About 8,064 people work at the two companies; 3,237 are unionized.
The reductions are expected to save $300 million to $400 million over three years, Hetzel said. They include:
• Cuts in the number of executives, 5% salary reductions for senior executives and a freeze on other executive pay for the second time in three years. Blue Cross has 49 vice presidents, of whom eight are senior vice presidents.
• Salary freeze for nonunion workers.
• Request to the UAW to delay a 3% pay increase for workers.
• 25% cut in community programs funded by Blue Cross.
• A 25% cut in lobbying and advertising costs. Blue Cross said it would not disclose how much it spends on those items.
• 25% cut in other spending, including money for presidential inauguration tickets and lodging and tickets for Detroit Tigers and Red Wings games and other sporting events.
Hetzel said the company considers its spending on those items legitimate business costs that are in line with what other insurers spend.
He called spending on these items small and said that reducing them beyond what Blue Cross plans would "take money out of the Michigan economy."
Other reductions could occur if legislative changes sought by Blue Cross aren't passed, Hetzel said, including the possible sale of some 20 Blue Cross sites around the state.
Hetzel said Blue Cross had no choice but make the reductions because the Michigan Legislature failed to pass bills that would allow it to make more money on its money-losing individual market.
The cuts are "the direct and predictable results of a regulatory system that no longer works," he said. "Until policymakers reform Michigan's broken individual health market, Blue Cross will do what is necessary as a private business to preserve our financial stability."
Blue Cross said it lost $140 million on individual policies last year and expects to lose $320 million this year on those plans.
But the company is expected to make money for 2008 from earnings on its group and other health insurance products, as well as from its subsidiaries.
It reported $130 million in earnings as of Sept. 30. Last year, it reported $152.2 million in consolidated earnings for its parent and subsidiary companies. Individual policies are "the only drag on what is otherwise a financially healthy and stable business," Hetzel said.
The losses break down to a projected $210 million to reimburse for care that costs more than the money Blue Cross collected from monthly premiums, and another $110 million in premium deficiency reserves -- an industry term that factors in future losses.
Critics opposing legislation sought by Blue Cross say the company has a bloated administrative structure; spends too much on lobbying, advertising and executive salaries; and failed to charge many employers with group coverage a 1% subsidy, as allowed by state law, to reduce costs for Medigap and group conversion coverage.
The uncollected subsidy amounted to $51 million in 2006, state records show. Blue Cross said some employers do not pay the subsidy because they consider themselves exempted by federal law, but critics say Blue Cross never has challenged them for not paying money to help offset losses.
Joe Aoun, an Ann Arbor attorney who filed a challenge in 2006 against rate hikes for the Blue Cross nongroup market, said that the proposed rate hike would bring in as much as $225 million a year and $1 billion over four years to Blue Cross. His case is pending in Ingham County Circuit Court.
"The proposed rate increases are exorbitant particularly given the need of the people for affordable coverage and the fact that Blue Cross is sitting on more than a $2-billion surplus," Aoun said.
Dave Waymire, a spokesman for the Put Michigan People First Coalition, representing more than 40 commercial insurers, disability and senior citizen groups and unions opposed the Blue Cross legislation, said many other factors affect Blue Cross' earnings, including large losses on its investments.
"What Blue Cross is doing is what other insurers are doing," he said. "Reserves are down because of the stock market. For the Blues to blame" losses on failure to enact legislation "is disingenuous at best."
Contact PATRICIA ANSTETT at 313-222-5021 or panstett@freepress.com.