by Eric J. Schneidewind
May 16, 2009

Healthcare has emerged as a major economic and social problem throughout the United States. Nowhere is that more evident than in the Michigan market for healthcare services and products targeted to individual customers who are not part of a group.

In the past, it was thought that Blue Cross Blue Shield of Michigan would be able to serve the individual market through a grand bargain in which the Blues would offer guaranteed insurance, regardless of health status, at a rate that did not discriminate on the basis of age, health condition or geographic location. In return, the Blues were awarded tax exempt status and obtained significant discounts on the cost of medical services provided to their policyholders.

Recently, however, the Blues have claimed that this grand bargain is breaking down. They claim that private for-profit insurance companies often offer low rates to the youngest and healthiest individuals, leaving the Blues to serve the highest cost market: the elderly and the ill. The Blues complain that the Insurance Bureau process for setting rates takes too long and often does not award them enough money to break even on individual healthcare policies.

This issue has been considered vigorously in the Michigan Legislature, with the House looking at a package of reforms that focused on expediting the ratemaking process and ensuring that health carriers other than the Blues took up the burden of serving the older, less healthy parts of the market. In the Senate, reforms focused more on the use of wellness programs to reduce costs and measures to improve access to health coverage. Both chambers had legitimate points but were never able to combine the best features of each legislative package into one piece of legislation that would gain the critical 51 percent of votes.

So, by the end of the 2008 session, nothing had been done. But out of this detailed and difficult debate came a basic understanding: Michigan simply has to change the individual market so that every uninsured person will have access to health care services at an affordable cost.

Healthcare is one of the largest costs of doing business in Michigan. The cost of healthcare benefits in the typical automobile is greater than the cost of steel. Rapidly escalating healthcare costs are one reason for the current economic difficulties of Detroit auto manufacturers and the declining competitiveness of American manufacturing industries. This is because the U.S. spends far more as a percentage of its national wealth for healthcare than European or Asian countries, while by any measure our citizens are less healthy. We cannot continue on this path and remain competitive in world markets.

The Michigan individual market for healthcare (those not in group policies) would be a good place to start the changes needed to restore our competitiveness. There are over one million uninsured citizens in Michigan. When they are sick, they turn to hospitals and hospital emergency rooms — clearly the most expensive setting to receive medical care. Since the uninsured often cannot pay for the service they receive, Michigan hospitals are left with over $2 billion of uncompensated care costs, which are recovered by billing the individuals and insurance companies that do pay for medical care. In fact, the typical insured family in Michigan is paying about $1,000 per year to cover uncompensated costs of people without insurance and without the means to pay their medical bills.

Let’s look at the wasteful components of this dysfunctional medical care system. People with no insurance often do not have access to primary care physicians or clinics that could coordinate needed treatments to make sure there is no duplication and that the least expensive services are used. Without insurance, people with chronic health conditions, including heart disease and diabetes, as well as expectant mothers do not receive preventive care, counseling, or access to wellness programs and medications that could prevent disease or minimize the cost of treatment. These uncompensated care costs are literally bankrupting the hospital system and driving primary care physicians either out of business or to place restrictions on the services offered to low-income persons. The result is that healthcare for the uninsured is far more expensive than it would be if rendered in the offices of primary care physicians or in local clinics.

Put Michigan People First, a group of medical providers, labor and consumer advocates, and health insurance providers, believes there is a better way to offer individual healthcare services in Michigan. We believe that every healthcare insurer in the state ought to be required to offer a basic package of healthcare benefits to all Michigan citizens without regard to their age or health status. That package of benefits should provide basic care requirements, such as examinations, health maintenance medications, access to preventive, wellness health services and reasonable levels of needed hospitalization, all at an affordable price. Prevention would be emphasized by reducing or eliminating co-pays for annual examinations, wellness services and maintenance medications. Subsidies needed to make this basic package affordable to citizens who cannot pay the cost would come from existing State-funded programs or from providers who are relieved of the vast majority of uncompensated care costs.

Under this new system, Michigan’s current uninsured population would pay an affordable price for basic healthcare. They would receive services that could greatly reduce the billions of dollars of uncompensated costs that now add to the burden of businesses and individuals who do pay for their coverage. By using prevention and health management techniques, the medical costs for the entire state can be reduced, our competitiveness can be enhanced and our citizens will be healthier and happier as a result.

Eric J. Schneidewind is president of AARP Michigan and a partner in the Varnum law firm.