Compromise Health Insurance Reform Plan Nears Introduction

Legislation rises out of flames of 2007-08 standoff over Blues’ proposal

by John Foren
March 16, 2010

While health care reform remains on life support in Washington, key Michigan lawmakers are preparing to introduce a sweeping new health insurance package, perhaps before the end of March.

The legislation — being crafted by Sen. Tom George (R-Kalamazoo) and Rep. Marc Corriveau (D-Northville) — came out of the flames of the 2007-08 battle over the Blue Cross Blue Shield of Michigan market reform bills.

The powerful Blues lost that bitter fight, undone by well-coordinated lobbying from a coalition of groups and by opposition from key Republicans, such as Senate Majority Leader Mike Bishop and Attorney General Mike Cox.

But Blue Cross has been involved in discussions on the new package, joined at the table by its strongest competitors. The legislation appears to be aimed at a compromise that would extend some relief to the Blues in handling high-risk individual market cases while addressing competitors’ concerns that Blue Cross was being greedy and trying to squeeze them out.

George and Corriveau are key players because they head the health policy committees of their respective chambers. The pair largely put talks on hold a few months ago as President Barack Obama’s health care efforts gained steam. But discussions picked up after it was clear Obama’s program was in political quicksand.

“With federal health care reform on…shall we say…pause, it has re-energized folks not only in Michigan but other states that if reform is going to take place it’s going to be state by state,” said Rick Murdock, of the Association of Health Plans, which represents HMOs and aligns with other commercial carriers, such as Aetna.

Murdock, who helped lead opposition to the old Blues bills, predicts a new package any day now.

Others aren’t willing to put a date on an introduction, but they’re clearly feeling optimistic that something will happen soon. Corriveau says it will be in this legislative session.

“We’re looking for incremental changes that maybe will put Michigan out front of the country on things like consumer protection and [covering] pre-existing medical conditions,” Corriveau said.

So, there’s cause for celebration that two warring sides have come together, right? Not so fast.

The trouble is, the opposing sides in the legislature aren’t likely to forget their differences so easily. Given the election season — which means a shortened legislative session — and the gridlock already enveloping Lansing, chances of a complex health reform package sailing through are slim to none, said Bill Rustem, president and chief executive officer of Lansing’s Public Sector Consultants.

“There are all these issues out there and they can’t agree on any of them,” Rustem said. “Hyper partisanship has reigned the last several years, and now we’re into accelerated hyper partisanship.”

At the center of the insurance reform issue sits Blue Cross, vilified by many Republicans and seen as a friend to many Democrats.

Blue Cross has special status as the state’s “insurer of last resort” and is required to sell health insurance to anyone who can afford it, regardless of pre-existing medical conditions and other factors.

In return, the Blues gets non-profit status and tax exemptions worth tens of millions of dollars a year. Its standing also allows it such things as discounts on fees charged by medical providers.

One key component of the proposed plan appears to be forcing other insurers to relax their rules on accepting patients with pre-existing medical problems, such as cancer.

Some involved in the discussions say all companies also would have to offer an inexpensive basic benefits plan aimed at making insurance available for many more people, notably those uninsured and staggered by Michigan’s economy.

Corriveau says there also would be a ban on “reunderwriting,” in which rates are changed after an illness is diagnosed.

In return, Blue Cross would give up cold, hard cash, putting some or all of the money it saves through its tax exemptions into a fund that would help the other companies underwrite riskier cases.

Most of the changes are centered on insurance for individuals, the sector of the market that’s boomed as companies cut loose employees or cut benefits, forcing people to get their own health care.

That portion of customers used to be small back in the days of the Big Three (and Four), when benefits were lifetime and nary a concern. As a result, Blue Cross didn’t need to worry about being the insurer of last resort and picking up the relatively few individuals who weren’t covered by someone else.

In the past couple decades, though, Michigan’s economy has left many individuals out in the cold and fleeing to Blue Cross for coverage. And that’s caused the Blues to ask for help.

“Our biggest issue going forward is we see the individual marketplace growing by leaps and bounds,” said Mark Cook, Blue Cross vice president for governmental affairs. Losses on individuals mounted as out-of-state competitors “cherry picked” healthier customers, he said.

Blue Cross wants the expanding costs and higher-risk individuals spread among other companies and is willing to contribute to a pool to cover some of the expenses, Cook said. It still appears to be seeking changes in how it’s regulated by the state, however, a sore point in the previous legislative fight.

He said the company is happy that there no longer seems to be a debate about the need for insurance reform, only over how to do it.

But, Cook warns, it’s urgent that the legislature take action.

“The reason three years ago that we began pushing this is because we saw challenges on the horizon. Those challenges haven’t gone away. If anything, they’ve grown,” he said. “The marketplace changes that have been driving the need for reform are just increasing.”

Eric Schneidewind is president of the state AARP, which was part of the coalition fighting the original Blues package. Schneidewind, an attorney and former chair of the Michigan Public Service Commission, doesn’t view things with the same perspective as Blue Cross, but agrees the new package will distribute the insurance burden more equally.

“A person in our group said it best. Before, we were talking about making the Blues more like the private industry. Now, we’re talking about making the private industry more like the Blues,” Schneidewind said.

Even in Lansing, the bitterness in the previous Blues battle was striking. In an informal poll of two dozen capital insiders conducted by Dome magazine early in 2009, the campaign to stop the blues was most often cited as the best lobbying campaign of the 2007-08 session.

Blue Cross’s power is undeniable; it controls much of Michigan’s health insurance market, has ties to top business groups that sell its insurance, and doles out hundreds of thousands of dollars in political contributions.

The original package introduced in late 2007 would have allowed the Blues-owned Accident Fund to sell multiple insurance lines, taking in private insurers, and would have limited “cherry picking” by Blue Cross competitors.

Another component would have basically forced commercial carriers to help fund Blue Cross’s high-risk pool of customers.

Opponents called it a power play and said Blue Cross was trying to have it both ways, keeping its tax-exempt status while acting more and more like a for-profit behemoth. Blue Cross cited hundreds of millions of dollars in losses and said it was simply trying to level the insurance playing field.

The package sped through the Democratic-run House, but things slowed when it hit the Senate, then got really sticky.

Cox, flanked by representatives from AARP and Consumers Union, held a news conference in December 2007 to attack the package, contending it would allow the Blues to run rampant and jack up insurance rates with little oversight.

The UAW and Michigan Chamber of Commerce soon signaled their misgivings, too.

Both sides set up their own coalitions of supporters; Consumers for Fair and Affordable Insurance Reform backed the legislation, while Put Michigan People First opposed it.

Put Michigan People First — including Murdock’s and Schneidewind’s groups — used a media campaign and lobbying that put a populist spin on the opposition.

The campaign emphasized the need to expand coverage to the state’s uninsured, a hot button issue during the age of layoffs, and portrayed Blue Cross as money-hungry and trying to shirk its traditional responsibilities as insurer of last resort. It successfully hit that message hard in making the rounds of media editorial boards around the state.

Many newspapers followed by trumpeting the need to slow down and take measure of what Blue Cross was seeking. That gave already reluctant senators just enough pause to slow things to a crawl.

The effort worked.

The package met its death in December 2008 when Senate Republicans let it languish after numerous stabs at a compromise between the chambers.

“We felt the legislation ended up leaving them with all the advantages they had without the burdens,” said Schneidewind, summing up the opposition.

He said the intense work with the coalition — which also included groups representing the disabled and backing from some labor and business organizations — “was sort of fun, because you really felt like at the end of the day that [fighting the package] was a good thing to do.”

Schneidewind doesn’t remember a turning point in the efforts, just an increasing sense among lawmakers that the package wouldn’t lead to more Michigan citizens getting more affordable insurance.

“You’d go through all this agony and end up making the situation worse rather than better,” he said.

Organizers said the coalition’s strategy grew out of the need to join together multiple organizations who couldn’t win the fight on their own but could if they jointly battled Blue Cross’s huge resources and connections.

Opponents accused Blue Cross of overstating its financial woes and of simply pushing too hard, too fast. The Blues never recovered from opponents’ belief that it simply ramrodded legislation through the House without enough time to study the complexities, critics now say.

“They overreached,” said Sen. George, a key legislative figure in putting the brakes on the package. “They asked for too much…They do have a legitimate issue, but I think they overstated it and hurt their competitors too much.”

There also was simple partisan politics involved. As Rustem says, “For Republicans, Blue Cross is viewed as a haven for Democrats.”

For instance, Blue Cross CEO Daniel Loepp is well-known in the Capitol from his days as former Democratic House Speaker Curtis Hertel’s chief of staff.

“Blue Cross is looked at suspiciously,” said Sen. Ron Jelinek (R-Three Oaks), chair of the Senate Appropriations Committee. “They’re sitting there with large reserves, spending reserves to buy other insurance companies…Nobody is perfect in this world.”

Blues supporters say the criticism is misguided that Blue Cross tried to exert its strength and force the bills through.

“It’s hard to imagine that something that started in 2007 and was discussed in double digits of hearings and went all the way to the end of 2008 wasn’t aired sufficiently,” said Blue Cross’s Cook.

Supporters say it’s important not to overlook Blue Cross’s traditional role in Michigan in covering the poor and uninsured.

“They do provide an awful lot of public good to the state,” said Sen. Deb Cherry (D-Burton). She serves as chair of the Greater Flint Health Coalition and cites Blue Cross’s multi-million dollar contribution to the state’s MiChild program of uninsured children.

George says the new legislation seeks a middle ground between what Blue Cross and its competitors originally wanted. And, he said, he still feels it’s important to pursue the issue and not let it drop, especially to avoid a lame-duck effort at the end of the year.

“The timing would be good while there’s all this debate in Washington [right now],” he said.

He also praised, if in a limited way, Blue Cross’s part in negotiations. “I think Blue Cross spent a lot of money trying to get their way. They’re now reassessing. They’re now at the table working fairly. They are making a fair effort.”

Corriveau believes many of the problems that afflicted the original package have been corrected in the new plan.

“It’s interesting that two years later we’re here without any reform,” he said, “and we can’t keep going down the path we’re going on.”

John Foren is the former editor of The Flint Journal and spent years as a reporter for Booth Newspapers in Washington D.C., Lansing and Flint. He is an instructor at the Michigan State University School of Journalism.