State Audit Finds Blue Cross Blue Shield of Michigan Showing ‘Symptoms of Financial Malaise’
Blue Cross Blue Shield of Michigan, the state's largest not-for-profit health insurer, is showing "symptoms of financial malaise" that could "threaten" the future of the company, according to an audit conducted by the Michigan Office of Financial and Insurance Services. Although the insurer is "safe and entitled to public confidence," state OFIS Commissioner Frank Fitzgerald said that the audit found "some disturbing trends" at BCBSM, the Detroit Free Press reports. BCBSM has lost more than $400 million in the small group market, and Blue Care Network, BCBSM's HMO, lost $134.3 million from 1998 to 2000 and $18.2 million this year. In addition, the audit found that BCBSM's administrative services contract business, which represents half of the insurer's premium revenue, has "not been as lucrative as it should be" and that BCBSM has "inadequate" technology systems, which would cost more than $300 million to upgrade (Norris, Detroit Free Press, 9/15). The audit also found that BCBSM, with a 1.8% return rate on investments as a percentage of the firm's total assets, has not received an "adequate return" (Durbin, AP/Detroit News, 9/15). The Michigan OFIS conducts an audit of BCBSM every three years, but with BCBSM urging state lawmakers to modify a 1979 state law that regulates the company, Gov. John Engler (R) asked for a more "comprehensive" audit this year (Detroit Free Press, 9/15). Under the law, BCBSM must provide health care "at a reasonable cost" and "accept anyone" who applies for health insurance.
Modify the Law?
BSBSM Senior Vice President Richard Cole said the problems reported in the audit highlight the company's "unique status" as the state's "insurer of last resort," adding that modifying the 1979 law "would allow the company to better respond to the market" (AP/Detroit News, 9/15). He said that the law prevents the company from adjusting small group coverage based on age, a practice used by for-profit insurers, which leaves BCBSM with a "disproportionate number" of older enrollees who often use more health care services. "We want to be competitive. So let's level the playing field with the commercial insurance companies," Cole said (Detroit Free Press, 9/15). Engler, concerned by the findings in the audit, said that he would ask the state Legislature to provide Fitzgerald with "broader oversight" over BCBSM. He also expressed concern that BCBSM may "substantially" raise health insurance premiums (AP/Detroit News, 9/15). "The financial warnings in the audit are disturbing news to me and to every Michigan family," he said (Detroit Free Press, 9/15).
