Facing huge financial losses on individual policies, BCBSM requests rate increases on health plans purchased by individuals
Broken state regulatory system and failure of reform bills
force BCBSM to seek higher rates and cut jobs
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DETROIT, Jan. 30, 2009 - To partly offset projected losses on its individual health plans that could exceed a cumulative total of $1 billion from 2009 through 2011, Blue Cross Blue Shield of Michigan today filed a request with the Michigan Office of Financial and Insurance Regulation for rate increases on its individual health plans. The request follows a BCBSM Jan. 16 announcement that it would ask for increases and reduce its workforce by up to 1,000 jobs in 2009 to preserve its financial health as individual market losses mount.
More than 400,000 individuals purchase their own health care coverage through BCBSM and would be affected by the increases. The request does not affect BCBSM health plans purchased by employers. BCBSM covers more than 4 million members through employer-sponsored plans.
On January 16, BCBSM also announced job and spending reductions at BCBSM and Blue Care Network.
“We should not ask our individual subscribers to pay more, without first demanding sacrifices from ourselves,” Blues’ CEO Daniel J. Loepp told employees in an internal webcast. “Our goal is to move forward as a strong and financially stable nonprofit company, committed to fulfilling our mission and delivering the best value in health insurance products and services to our customers.”
In addition to a workforce reduction of between 400 and 1000 employees, the company’s cost-saving measures for 2009 include a salary reduction for senior executives, a freeze on executive pay for the second time in the past three years, a reduction in the number of executives employed at the company and a freeze on salaries for non-unionized workers.
“In this economy, it is a hard choice to raise rates and cut jobs,” said Andrew Hetzel, BCBSM vice president for corporate communications. “But with the individual market growing, losses mounting and the regulatory system not working, the only choices we have are hard choices.”
The requested average rate increases are 56 percent for Individual plans, 42 percent for Group Conversion plans and 31 percent for Medicare Supplemental plans. Blue Cross sells nine plan options each in Individual and Group Conversion policies, and three options in Medicare Supplemental policies.
BCBSM losses are driven by a broken and antiquated regulatory system that has not changed in nearly 30 years — despite huge growth in the number of individuals purchasing their own coverage and large increases in the cost of health care services. BCBSM is the state's insurer of last resort and offers coverage year-round to state residents despite medical history. These individuals are also often the costliest to insure and are regularly rejected by for-profit insurance carriers.
“We sympathize with our individual members — particularly those who live on fixed incomes or who have lost jobs,” Hetzel said. “Blue Cross wants to continue providing affordable coverage to the vulnerable. But we need a regulatory system that works.”
The projected BCBSM financial losses are for individual products only. The projections are based on actuarial models that consider the combined effects of a recessionary economy driving thousands of people into Michigan’s individual health insurance market, a broken regulatory system that requires BCBSM to cover virtually all of the state’s costliest-to-insure individuals, and the increasing cost of health services, among other factors.
BCBSM lost about $140 million on individual policies in 2008 and projects to lose as much as $320 million in 2009. The 2009 projection includes a $210 million underwriting loss on individual products and the required booking of $110 million in additional premium deficiency reserves to cover future losses. Projected losses are based on actuarial assumptions.
Individual losses are affecting BCBSM reserves, measured by Risk Based Capital, which have declined 25 percent over the past three years.
Blue Cross Blue Shield of Michigan is a nonprofit corporation and independent licensee of the Blue Cross and Blue Shield Association.
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