Blue Cross under fire again; Property-casualty insurance bills called unfair
18 02 08 - 11:42
By Jay Greene
A newly formed coalition of seven property-casualty insurance companies contends that two of four insurance-related bills sponsored by Blue Cross Blue Shield of Michigan would grant Blue Cross an unfair competitive advantage due to its deep pockets and tax-exempt status.
The Coalition for a Fair & Competitive Insurance Market opposes the two property-casualty bills, House Bills 5284 and 5285, because they would allow the Blues' for-profit subsidiary, Accident Fund Insurance Co. of America, now limited to selling workers' compensation coverage, to sell other insurance lines, including automotive, life and property casualty.
The coalition comprises Amerisure Corp., Citizens Insurance, AAA Michigan, American Physicians Assurance Corp., Auto Owners Insurance, Frankenmuth Mutual Insurance Co. and American Community Mutual Insurance Co.
"I have drafted a complete set of amendments to fix all these things, but the Blues haven't responded to the draft," said Kurt Gallinger, vice president and counsel of government relations with Amerisure, a Farmington Hills-based property-casualty insurer. "They declined our invitation to meet."
The coalition said the bills also could allow the Blues to own subsidiaries that have purposes other than health care or insurance - a point disputed by the Blues.
The result would be the Blues could use its nonprofit reserves and buying power to undercut premiums and siphon off customers with lower prices, said Gallinger.
"We have a level playing field now, but we won't if Blue Cross is allowed to leverage its ($2.8 billion in reserves and $5.2 billion in assets) to buy other companies and use its (provider) network and make it available to its workers' compensation fund," Gallinger said. "They could overwhelm the market."
The Blues, because of their large health-insurance market share, are able to negotiate larger discounts than other insurers. Those discounts, the coalition contends, would create an unfair competitive advantage if the Blues were able to pass them along to the Accident Fund or other insurance subsidiaries.
The Accident Fund currently holds 26 percent of the workers' compensation market in Michigan, up from 12 percent in 1996.
Elizabeth Haar, president and CEO of the Accident Fund, said HB 5284 specifically prohibits the Accident Fund from using the Blue Cross provider network for workers' compensation. However, Gallinger said the legislation provides only that Blue Cross cannot subsidize the Accident Fund. However, if the Blues are willing to put specific language in the bill "to prohibit network use, that removes one of our problems with it."
The coalition also opposes Blue Cross using its untaxed profits to buy additional companies for the Accident Fund, Gallinger said.
Haar said the Accident Fund will not rely on Blue Cross' reserves or surpluses to purchase new companies. However, she said there has been at least one instance in which Blue Cross has bought a company for the Accident Fund - the 2007 acquisition of CompWest Insurance Co., San Francisco.
So far, both bills have flown under the radar in hearings in the state House and Senate, said Teri Morante, assistant vice president in the office of the general counsel with Citizens Insurance in Howell. The bills are part of a package that also includes HB 5282 and 5283, the two individual-market health care reform bills that have been the subject of heavy media coverage and legislative attention.
One of the provisions of HB 5284 would allow Blue Cross to create subsidiaries that could purchase any type of existing business or start new ventures not related to health care, said Gary Wolfram, an economics professor at Hillsdale College and president of the Hillsdale Policy Group. Wolfram prepared a report on the impact of the bills for the coalition.
"Blue Cross could use their tax-exempt dollars to play with and buy hospitals, clinics, auto repair shops, and set up networks to do things we can't compete with," Morante said.
However, Mark Cook, Blue Cross vice president of governmental affairs, said HB 5284 only allows Blue Cross to purchase or start health care or insurance-related companies. "It has to be related to our purpose," he said. "Blue Cross cannot buy just any type of company."
Wolfram said his reading of the bill is that it does not limit Blue Cross from acquiring or operating any type of business. "They can buy any company for any purpose," he said.
The second bill, HB 5285, would allow the Accident Fund to branch off into other such insurance lines.
In the coalition-sponsored study, Wolfram concluded that allowing Blue Cross to use its tax-exempt status to purchase or start additional companies could lessen competition and negatively affect Michigan's economy.
"As companies leave the Michigan market because of the unfair advantage granted the Blues, there will be fewer jobs, less economic growth and increased prices, all of which result from a lack of a fair competitive market," Wolfram wrote.
But Cook said the bills would enable the Blues to expand employment opportunities in Lansing, where the Accident Fund is building a new headquarters for its 675 employees, and ultimately help keep health care premiums as low as possible.
Haar said entering other lines of insurance could increase competition by allowing the Accident Fund to compete more effectively against other property-casualty companies. "Our competitors can offer businesses a variety of insurance products and bundle them together for a better package pricing," she said.