Insurance commissioner ruling on Medigap rates clarifies that Blue Cross Blue Shield of Michigan does pay taxes
Michigan Blues will remain nonprofit, but a state-mandated assessment equals twice the value of Blues' state tax exemption
December 7, 2009
DETROIT - Today's ruling by the Michigan Insurance Commissioner — that Blue Cross Blue Shield of Michigan must discount its premiums on Medicare Supplemental policies by an amount equal to 1% of the company's total revenue — makes clear that BCBSM is liable for paying a state-imposed annual assessment of about $181.5 million based on 2008 revenue.
This amount is double the value of $90 million in tax exemptions the Blues are provided as a nonprofit health care corporation regulated under Public Act 350 of 1980.
"Blue Cross can no longer be considered the beneficiary of favorable tax status under its regulatory structure," said Andrew Hetzel, BCBSM vice president for corporate communications.
The ruling requires the BCBSM to apply the 1% charge against the health plan's total revenue. Commercial insurance carriers, on the other hand, are exempt from paying state taxes on revenue from their self-insured customers.
"The nonprofit Blues' state tax burden is at least double that of commercial carriers that are allowed to reject people with pre-existing conditions," Hetzel said. "Michigan's system rewards for-profit insurance companies for doing the wrong thing."
In addition, Blue Cross remains subject to all the regulatory requirements of state law that commercial carriers and HMOs are not. Public Act 350 — the 30-year-old law that regulates BCBSM alone — requires additional financial costs to be paid by BCBSM that go well beyond the $181.5 million the company is now required to provide to discount Medigap:
- "Insurer of last resort" — BCBSM remains the only Michigan health insurance carrier that insures everyone who applies, including people with pre-existing conditions who are rejected by for-profit health insurance companies.
- Rate setting — BCBSM must submit its rates to a unique regulatory review process that plays out over an extended period of time if hearings, like the one concluded today, are called.
- Rating factors — In the individual market, BCBSM cannot differentiate rates based on an individual's health status or personal choices, such as smoking. This prevents BCBSM from offering lower rates for people who keep themselves healthy. Commercial carriers and HMOs can design rates that reflect an individual's potential health risk.
"Blue Cross remains committed to our nonprofit status and mission," Hetzel said. "But the serious financial burdens of an antiquated regulatory system and unfair competitive playing field are undermining our ability to deliver guaranteed access to affordable coverage for customers over the long term."
Blue Cross Blue Shield of Michigan is a nonprofit corporation and independent licensee of the Blue Cross and Blue Shield Association.