Blue Cross Blue Shield of Michigan Answers Attorney General
Basic Financial Facts Confirm Mounting Losses in Individual Products; BCBS Association Warning Heightens Urgency of Financial Situation
Data Underscores Need for Legislature to Pass Comprehensive Market Reform
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DETROIT, Dec. 1, 2008 - Blue Cross Blue Shield of Michigan provided more than 300 pages of detailed financial and membership information today to Michigan Attorney General Mike Cox to answer his request for further information about Michigan’s individual health insurance market. The information confirms growth of Michigan’s individual health insurance market and escalating financial losses suffered by BCBSM, the state’s last-resort insurance carrier, in its individual line of business.
The BCBSM data shows:
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Financial losses in individual lines of business — BCBSM lost $111 million on its individual lines of business in the first nine months of 2008, and expects losses to grow to $166 million by year end. The company projects to lose nearly $264 million on individual policies in 2009.
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Risk-Based Capital position lower — BCBSM reserves are deteriorating as measured by Risk Based Capital, fueled by the growing losses in the individual market. RBC is projected to fall from 627% in 2008 to below 450% by 2011. When RBC rapidly deteriorates below 600%, the Blue Cross and Blue Shield Association — the licensing authority that owns the Cross and Shield brands — may begin a warning and intensive monitoring process. If RBC continues to drop, this process may conclude with the revocation of the company's ability to operate as a licensed Blues Plan.
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Membership growth in individual line of business — BCBSM membership numbers substantiate dramatic growth in BCBSM’s nongroup (under 65) line of business since 2006. Average BCBSM membership from January through June 2008 was 109,707 members, up 95 percent from 56,324 average membership from January through December 2006.
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Investment portfolio conservative — BCBSM’s investment portfolio contributed to its financial health through September, due to the conservative, high-quality nature of investments which have collectively remained above market benchmarks for return. While BCBSM’s investment portfolio—like most others nationally—is experiencing fourth quarter losses, those results were not factored into results that warn of the company’s falling RBC position. If investment losses are not reversed, the projected RBC will be worse than forecasted.
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Alternative tax burden — The value of BCBSM’s state and local tax exemption was $80 million in 2007, a slight increase from $77.9 million in 2003. However, the financial value to the taxpayers of Michigan of BCBSM’s nonprofit social mission contributions, which extends beyond serving as the state’s insurer of last resort, amounts to an alternative tax burden on BCBSM of $311 million.
In providing the information, BCBSM complied with a data request included in the Attorney General’s Nov. 13, 2008, letter to Blue Cross President and CEO Daniel J. Loepp.
BCBSM has warned policy makers and regulators over the past 16 months that because of Michigan’s 30-year-old regulatory structure — which allows all other carriers to dump high-risk individuals into BCBSM’s insurance pool without limit or regulation — uncontrollable financial losses on individual policies will escalate and lead to BCBSM’s entire business becoming financially unstable in the near future.
“Michigan’s individual health insurance market is set up to fail financially,” said Mark Bartlett, BCBSM executive vice president and chief financial officer. “It’s a hard truth, especially if you oppose reforming the market, but it is the truth. Unless comprehensive reform is achieved this year, the financial situation will grow into a crisis that threatens health care, the economy and the health insurance safety net for millions of Michigan residents.”
BCBSM also released a letter from its licensing authority — the national Blue Cross and Blue Shield Association — that forewarns of the possibility of the company losing its ability to operate as a Blue Cross and Blue Shield health plan should its financial strength continue to deteriorate. The letter from BCBSA chief executive Scott Serota points to “rapidly growing and unmanageable losses in the individual market driven by a difficult legislative and regulatory structure” as key factors in BCBSM’s financial decline.
Blue Cross Blue Shield of Michigan is nonprofit and an independent licensee of the Blue Cross and Blue Shield Association.
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