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Business Review Western MI
Business Review Western MI
Blues Get OK for Experience Rating
(2007-01-02)
(wgvu) - Allowing Blue Cross Blue Shield of Michigan to initiate experience rating for mid-group employers under a two-year pilot could lead to similar requests by managed-care plans in the state.


The proposal from the state's largest health insurer, approved by state regulators late last month, could create a last-man-standing scenario, in which competitors seek to avoid getting left behind, asserted Jim Kenyon, a principal with the Grand Rapids agency Pinnacle Insurance Partners.


If the Blues can do it, they (other heath plans) won't be far behind, Kenyon said. It will definitely have a snowball effect.


Blue Cross, seeking a new way to combat adverse selection by commercial insurance carriers and HMOs, won approval late last month to initiate experience rating for employers with 50 to 99 employees, though not on a permanent basis.


Wanting to ensure that the practice works as intended and that there are no adverse competition effects as a result, the Michigan Office of Financial and Insurance Services approved the request for only a two-year period, through Dec. 31, 2008.


As approved, experience rating initially would affect only new Blue Cross customers seeking coverage in the mid-group market. (See Business Review's Dec. 21-27, 2006, edition.)
Blue Cross must report to the insurance commissioner within 60 days the initial effects the practice has on affected groups.


By Sept. 1, 2008, the insurer must detail the effects of experience rating on the 50-to-99 group as well as on existing subscribers that remain community rated. OFIS would then consider extending experience rating for the mid-group beyond the two-year pilot.


Speaking prior to the OFIS ruling, Michigan Association of Health Plans Executive Director Rick Murdock said he expected many of his members to pursue the practice if Blue Cross prevailed.


If they're going to get it, there needs to be a way for our members to receive the same treatment, Murdock said. The underlying issue is, let's be fair.' Let's have a fair and equitable environment.


The association represents 22 managed-care companies in the state that collectively have more than 1.1 million members.


HMOs are not allowed to use experience rating to set rates, unlike commercial insurance carriers that have used the practice for years. HMOs are permitted to use age in setting rates.


Blue Cross argued that experience rating using an employer group's medical claims data to determine future risk would allow it to set rates that more accurately account for the true cost of providing coverage to each group, Bob Kasperek, deputy general counsel of regulatory affairs, wrote in a June filing with state regulators.


Experience rating would result in many employers in the mid-group market receiving better rates, Kenyon said, though he worries about those who wouldn't benefit.


Kenyon is particularly concerned about companies that have an older work force or personnel on the payroll with chronic medical conditions and could get hit with rates they cannot afford. He believes the proposal violates the spirit of Blue Cross's mission as the insurer of last resort in Michigan.


The people that are with Blue Cross are there because they can't get it somewhere else, Kenyon said. That goes against the charter of why they were created in the first place.


The Michigan Association of Health Plans offers the same argument against the Blue Cross proposal.


The adverse selection the insurer faces is a trade-off for its tax-exempt status in Michigan and dominant statewide market position it has built up over several decades, Murdock said. He contends that experience rating for the mid-group could give the insurer a competitive advantage over others.


They already have special privilege. It would give them one more tool in their arsenal, said Murdock, who argues that the state insurance code already contains provisions that allow the insurer to address adverse selection.


The issue of experience rating comes down to a philosophical debate to Scott Lyon, vice president of small business services at the Small Business Association of Michigan, which backs the Blue Cross plan.


Lyon argues it creates equity in the rules for Blue Cross and commercial carriers. Provisions in the insurance code would prevent businesses from getting priced out of the market for coverage, he said.


Experience rating, Lyons said, is a question of spreading the risk more fairly and more equitably.


This is a leveling of the playing field, Lyon said.
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