HEALTH INSURANCE:

Blue Cross Blue Shield of Michigan (BCBSM) is defined by statute as a nonprofit, charitable, and benevolent organization. In exchange for an exemption from state and local taxes, BCBSM acts as the state's "insurer of last resort," meaning that it must offer coverage to all state residents. Not coincidentally, BCBSM is also the largest insurer in the state. In 2001 alone, BCBSM paid $5.8 billion in benefits for services provided to over 4.8 million members. About 95 percent of the state's allopathic and osteopathic physicians, 99 percent of the state's pharmacies, and all of the state's hospitals "participate" with BCBSM, meaning that they have contracts binding them to accept BCBSM payment as full payment (except for copays and deductibles) for covered services.

Since World War II, Americans have come to rely on their employers for access to health insurance. While BCBSM acts as an insurer of last resort in Michigan, and thus any individual who wants coverage can get it, employers are in a better position to negotiate rates with carriers because they represent a number of potential members among whom risk can be shared. One factor affecting employers' ability to purchase health insurance is the number of workers in their group: because health insurance involves spreading risk and costs among members of a group, the larger and more diverse the group, the better the group is able to absorb the costs incurred by any given member. Generally speaking, larger employer groups are less likely to be financially affected by the occurrence of unexpected catastrophic illnesses than smaller employer groups, and thus large employers enjoy a distinct advantage when shopping for health insurance. They are usually in a better position to negotiate rates with insurers and HMOs, and they are in a better position to opt out of the insurance market and self-insure.

Federal law has relieved BCBSM of its role as insurer of last resort in the small group health insurance market. The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") helps guarantee small employers-defined as having 2-50 employees--the right to purchase group health insurance coverage for their employees by (generally speaking) requiring insurers that sell such coverage to any small employer to offer coverage to all small employers. Yet HIPAA's guarantee of access to health insurance does not include a guarantee that the health insurance itself will be affordable. Though it restricts the use of pre-existing conditions in determining premium rates and prohibits the issuer of a health benefit plan from charging individual employees of a given employer different premiums based on their health status, HIPAA does not place any restrictions on what a carrier may charge for coverage offered to a small employer group as a whole. Finally, it must be noted that the extent to which carriers in the state are complying with HIPAA remains unclear: because Michigan had certain HIPAA-like requirements on the books prior to HIPAA's enactment, federal regulators have given the state some flexibility with regard to the timeline for enacting state HIPAA legislation.

According to information provided by the Office of Financial and Insurance Services, 57 percent of the 1.9 million Michiganians covered in the small employer group health insurance market during 2000 were covered by BCBSM and another 14 percent were covered by Blue Care Network of Michigan, a health maintenance organization (HMO) owned by BCBSM. Gerber Life Insurance Company had 11 percent of the small group market, and other commercial insurers and HMOs accounted for the remaining 18 percent, with none of these entities having a market share greater than 5 percent. While having a large market share is generally desirable, BCBSM has had difficulties in the small employer health insurance market in recent years: a 2001 audit of BCBSM revealed that the company had lost over $400 million in the small group market between 1995 and 2000.

How did this happen? Explanations differ widely. Critics argue that antiquated information systems, inadequate returns on investments, mismanagement, and an oversized and inefficient board structure contributed to BCBSM's problems. Some have accused BCBSM of selling group plans at artificially low prices and then writing off its debt as an asset (albeit legally), allowing it to maintain the appearance of fiscal soundness until a commissioner's audit revealed otherwise. As long as rates were low, small businesses were happy, but as soon as their BCBSM rates started reflecting market realities, they started complaining. Critics believe that BCBSM is a relic of times past, a state-supported monopoly whose tax exemptions and enormous market share give it little incentive to reform. They suggest that the real test for BCBSM would be to see how long the company would stand if the state were to take away the tax exemptions propping it up.

Defenders of BCBSM argue that restrictions on its ability to set rates, in conjunction with the lack of any comparable restrictions on commercial carriers, make it easy for the commercial carriers to engage in "adverse risk selection" or "cherry picking", where they charge higher rates than BCBSM can charge for the oldest, least healthy groups and lower rates than BCBSM can charge for the younger and healthier groups. Commercial insurers are able to do this by using factors such as age and health status when determining their rates. BCBSM uses "adjusted community rating," meaning that its rates vary based on geography, family composition, industry, and benefit plan. While commercial carriers may also use these characteristics, the use of age and health status has not been approved for BCBSM, leaving them with few tools to attract the young and healthy groups that they need to offset the costs of their older and sicker groups.

A different type of "cherry picking" occurs when a commercial insurer splits an employer's group, offering two options to an employer: a lower premium per employee option for a subset consisting of the employer's most (actuarially) desirable employees and a higher premium per employee option for the entire group. This gives the employer the option and the incentive to steer certain employees to the commercial plan and other (usually older and sicker) employees to BCBSM. Until 1998, BCBSM was allowed to apply participation rules requiring that an employer insure a certain number or percentage of its employees with BCBSM as a condition of offering coverage. This gave BCBSM some leverage when a small business tried to send its older, sicker employees to BCBSM and its younger, healthier employees to a commercial carrier that could cover those employees inexpensively. But regulators no longer allow the corporation to do this.

According to some people, these disparities between BCBSM and the commercial insurers creates a "death spiral": When commercial insurers offer relatively young and healthy groups significantly lower rates and (relatively) old and unhealthy groups significantly higher rates than BCBSM can offer, the younger, healthier groups choose commercial insurance, and the older, unhealthier groups stay with BCBSM. Because the older, unhealthier groups tend to have greater health care needs, and because BCBSM cannot use age and health status in setting its rates, over time BCBSM must raise its premium rates for all small employer groups. This gives those relatively young and healthy groups still insured by BCBSM added incentive to seek a better deal in the commercial market and increases the likelihood that some small employers will stop offering insurance to their employees. When small employers stop offering insurance to their employees, health insurance becomes a problem not just for small employers but also for the state.

The Small Business Association of Michigan has been one of the most vocal proponents of the "death spiral" account of the Blues' small group market problems. Many small businesses have insurance through BCBSM. According to the SBAM Health Care Task Force's January 2003 "Final Report and Recommendations", premiums for small businesses have risen between 20 and 25 percent per year on average for the past five years. The report cites an EPIC/MRA poll suggesting that 40 percent of small business owners have had to increase the price of goods and services to compensate for the increased cost of health care and that nearly a quarter of all small businesses in the state fear that the cost of health insurance will drive them out of business. Other small businesses have stopped offering coverage, hindering their ability to attract and retain employees for whom health insurance is often a critical benefit and contributing to the ranks of the uninsured.

What is the solution? While many small businesses are currently insured by BCBSM, SBAM argues that small businesses would prefer a competitive health insurance market in which they have a number of different health care options. One way to increase competition would be to require all carriers to play by the same rules: require commercial carriers, HMOs, and BCBSM to use adjusted community rating; or allow them all to use health status, age, and the other characteristics that commercial carriers can use currently; or else find some middle ground. Critics of this possibility suggest that it fails to acknowledge the very real differences between the historic missions of each type of carrier and, perhaps more to the point, fails to acknowledge the very real tax benefits that BCBSM receives as the state's only nonprofit health care corporation. They argue that different rating characteristics and rules should be instituted for the different types of carriers. SBAM argues that while this approach would be inappropriate in a "pure public policy context", it "recognizes that each of the carrier groups has advantages and disadvantages in the marketplace currently and that some 'texturing' of the rules may serve the goal of creating a competitive market."

Legislation has been introduced to establish rate bands that will "compress" commercial carriers premium rates and "decompress" BCBSM's premium rates for health benefit plans, to ease certain statutory restrictions on BCBSM, and to bring Michigan's small group health insurance market into compliance with HIPAA requirements.

THE CONTENT OF THE BILLS:

House Bill 4553 would add a new chapter to the Insurance Code of 1956 to regulate health coverage made available to small employers by commercial insurers, Blue Cross Blue Shield of Michigan, and health maintenance organizations (HMO's). The bill is tie-barred to House Bill 4279, which is the main bill in a related package of bills that would amend the Nonprofit Health Care Corporation Act to provide a series of changes in the regulation of Blue Cross Blue Shield of Michigan. The provisions of House Bill 4553 would take effect six months after the bill was enacted.

House Bills 4279-4282 would amend the Nonprofit Health Care Corporation Act, also known as the Blue Cross Blue Shield Act, to ease certain statutory restrictions on Blue Cross Blue Shield of Michigan. House Bill 4279, the primary bill in the package, is tie-barred to House Bill 4553.

A summary of the two main bills, House Bill 4553 and House Bill 4279, follows. The bills are described in greater detail later.

House Bill 4553 would amend the Insurance Code of 1956 (MCL 500.3406q and 500.3701 et al.) to add a new chapter (Chapter 37 - Small Employer Group Health Coverage) to do all of the following:

· allow small employer carriers to establish up to ten geographic areas in the state for use in establishing rates;

· specify which characteristics different types of carriers could use in determining rates;

· establish rate bands limiting the amount by which the premiums charged for a health benefit plan in a geographic area could deviate from the "index rate" for that plan, with the rate bands to be phased in for policies issued before the bill's effective date and later renewed, up until March 1, 2008, when the rate bands would apply equally to all plans;

· allow a carrier to charge a sole proprietor an additional premium of up to 25 percent;

· allow a carrier to charge a sole proprietor or small employer who had previously been self-insured an additional premium of up to 33 percent for two years;

· limit the percentage increase that could be charged to a small employer in a geographic area for a new rating period for plans issued on or after the bill's effective date and, as of March 1, 2008, for renewals of plans originally issued before that date;

· allow carriers to establish premiums based on plan options, number of family members covered, and Medicare eligibility;

· require carriers to apply rating factors consistently to all small employers and sole proprietors in a geographic area;

· require small employer carriers to bill with a composite rate;

· require BCBSM to cover sole proprietors and require any other carrier offering coverage to sole proprietors to offer all sole proprietors in a geographic area the same plans;

· allow carriers to apply open enrollment periods for sole proprietors, require a carrier applying such a period to offer it annually, and require that the period be at least one month long;

· allow carriers to exclude or limit coverage to sole proprietors for pre-existing conditions, subject to certain constraints;

· require all small employer carriers to make available to all small employers all health benefit plans they market to small employers in the state;

· allow carriers to impose an "affiliation period" for new and late enrollees as long as the period is applied uniformly and without regard to health-status;

· prohibit carriers from offering or selling plans that contain "waiting periods" applicable to new or late enrollees;

· require carriers to accept late enrollees according to the provisions of Chapter 37;

· provide for special enrollment of employees and their dependents under certain conditions;

· require carriers to apply requirements uniformly when determining whether to provide coverage to a small employer;

· permit carriers to apply participation rules, which require a small employer to enroll a certain number or percentage of employees with the small employer carrier as a condition of coverage;

· require carriers to guarantee renewability for all small employer groups, with certain exceptions;

· establish a notification framework and restrict future activity of a carrier who ceases to renew all plans in a geographic area;

· require marketing disclosure notifications and maintenance of information on rating and renewal practices;

· require the commissioner to annually determine whether a reasonable degree of competition exists in the small employer health insurance market and to issue a report delineating his or her findings if there is not sufficient competition (and again if those findings are disputed); and

· authorize the commissioner to suspend rate bands based on the financial impact to the carrier or the overall impact the bands are having on the market.

House Bill 4279 would amend the Nonprofit Health Care Corporation Reform Act (MCL 550.1107 et al.) to do the following:

· provide that BCBSM would be subject to a new Chapter 37 of the Insurance Code (as proposed by House Bill 4553) dealing with health coverage for small employer groups, and specify that when there was a conflict between the BCBSM act and Chapter 37, Chapter 37 would supersede the BCBSM act;

· exempt BCBSM from state and local utility usage taxes and fees;

· require BCBSM to maintain unimpaired surplus in an amount determined adequate by the Commissioner of the Office of Financial and Insurance Services (OFIS), but not greater than 200 percent of the authorized control level under risk based capital requirements multiplied by five;

· allow BCBSM to remedy a deficiency in surplus with planwide viability contributions by subscribers at rates prescribed by the bill;

· require BCBSM to report financial information using statutory accounting principles;

· provide that BCBSM could include age as a factor when determining nongroup and group conversion rates for a certificate that included prescription drug coverage, under certain conditions (House Bill 4281, described later, addresses a proposed prescription drug pilot program);

· permit BCBSM to own or control an insurance company that was authorized only to sell long-term care insurance (House Bill 4280, described later, also addresses this);

· permit BCBSM to condition the granting of long-term care insurance coverage on an applicant's health history;

· permit BCBSM to enter into contracts with health care providers practicing legally in another jurisdiction (House Bill 4282, described later, also addresses this);

· require BCBSM to wait 60 days before a new certificate, a change to an existing certificate, or a rate charge change could take effect, unless approved by the commissioner before the 60-day period expired;

· allow BCBSM to request that the commissioner hold a hearing on a proposed certificate or rate, and allow the attorney general to request a hearing on a rate filing;

· apply current rate filing and approval requirements to nongroup Medicare supplemental coverage; and

· expand the authority of the attorney general to include enforcement of Chapter 37 of the Insurance Code (which would be created by House Bill 4553), and allow local units of government, state agencies, and other persons to bring actions to ensure enforcement of Chapter 37.

A more detailed description of the bills in this package follows.

House Bill 4553.

Applicability. The bill would add a new chapter to the Insurance Code (Chapter 37: Small Employer Group Health Coverage) applying to "health benefit plans" that provided coverage to a "small employer" and that met one of the following two conditions:

· any portion of the premium or benefits was paid by or on behalf of the small employer or through salary deductions by the small employer;

· an eligible employee or dependent was reimbursed for any portion of the premium, through wage adjustments or otherwise, by or on behalf of the small employer.

Unless the policy met the above criteria, Chapter 37 would not apply to an individual health insurance policy that was subject to policy form and premium approval by the commissioner.

Chapter 37 would apply to each health benefit plan for a small employer or sole proprietor that was delivered, issued for delivery, renewed, or continued in Michigan on or after the (proposed) act's effective date. The continuation date of a health benefit plan would be the first rating period--presumably, the first date of the first rating period--that began on or after that date. (BCBSM would have to make a health benefit plan available to a sole proprietor upon request, and other carriers could do so.)

Definitions. "Health benefit plan" or "plan" would mean an expense-incurred hospital, medical, or surgical policy or certificate, BCBSM certificate, or HMO contract, and would not include any of the following: accident-only, credit, dental, or disability income insurance; long-term care insurance; coverage issued as a supplement to liability insurance; coverage only for a specified disease or illness; worker's compensation or similar insurance; or automobile medical-payment insurance.

"Small employer" would be defined as a person, firm, corporation, partnership, limited liability company, or association actively engaged in business who, on at least 50 percent of its working days during the preceding or current calendar year, employed at least two but not more than 50 "eligible employees". (Companies that were affiliated or eligible to file a combined state tax return would be considered one employer.)

"Eligible employee" would mean an employee who worked on a full-time basis with a normal workweek of 30 or more hours. Additionally, eligible employee could include an employee who worked on a full-time basis with a normal workweek of 20 to 30 hours, if an employer so chose and if the employer applied this eligibility criterion uniformly among all of the employer's employees, without regard to health status-related factors.

A "carrier" would be defined as a person that provided health benefits, coverage, or insurance in the state, including BCBSM, for-profit insurers, HMOs, and multiple employer welfare arrangements, as well as any other person providing a plan of health benefits, coverage, or insurance subject to insurance regulation in Michigan.

A "small employer carrier" would mean a carrier that offered health benefit plans covering employees of a small employer or a carrier that provided health benefit plans to sole proprietors. (As mentioned above, BCBSM would be required to provide a plan to a sole proprietor who requested coverage, and other carriers could provide a plan to a sole proprietor.)

Geographic areas, rating characteristics, and rate bands. A carrier could establish up to ten "geographic areas" in the state for the purpose of adjusting rates for health benefit plans subject to Chapter 37. A "geographic area" would have to include at least one entire county. If a geographic area included one entire county and additional counties or portions of counties, the counties or portions of counties would have to be contiguous with at least one other county or portion of another county in that geographic area. BCBSM would be required to establish geographic areas covering all counties in Michigan

The bill would allow different types of carriers to use different types of characteristics in determining premiums. In addition, the bill would establish rate bands for each type of carrier. In general, a rate band limits the spread between a carrier's highest and lowest premium rates due to characteristics within the band. Specifically, the bill would limit the amount that a carrier's rates could deviate from its "index rate" and would specify which characteristics fall within the band for each type of carrier.

"Index rate" would be defined as the average (during a rating period) of the base premium and the highest premium charged or that could be charged for each health benefit plan offered by each small employer carrier in a geographic area. "Base premium" would be defined as the lowest premium charged or that could be charged under a rating system by a small group carrier to small employers for a health benefit plan in a geographic area.

Different rate bands would be phased in between the date the (proposed) act took effect and February 29, 2008, after which date small employer carriers would be subject to final rate bands. The allowable characteristics, rate bands, and various phases of implementation are described below.

Different types of carriers could use the following characteristics for determining the premiums in a geographic area for sole employers and sole proprietors as follows:

· BCBSM could use only industry and age, both of which would fall within BCBSM's rate band.

· HMOs could use only industry, age, gender, group size, and duration of coverage, all of which would fall within an HMO's rate band.

· Small employer carriers other than BCBSM or an HMO-e.g., commercial insurers-could use three sets of characteristics: (1) industry, gender, and group size; (2) age; and (3) claims experience, health status, and duration of coverage. The third set of characteristics would be subject to a rate band. The first set of characteristics would fall outside of the rate band. The use of age would fall outside of the rate band initially but eventually would be subject to a maximum premium differential.

Rate bands. The following rate bands would apply to carriers for health benefit plans issued on or after the (proposed) act's effective date. These bands would also eventually apply to a health benefit plan issued before the (proposed) act's effective date, but not until the beginning of the next renewal period for the plan following February 29, 2008:

· for BCBSM, only industry and age could be used for determining the premiums charged during a rating period to small employers and sole proprietors in the same geographic area with the same or similar coverage, and the premiums could not vary from the index rate by more than 35 percent;

· for HMOs, only industry, age, gender, and group size could be used for determining the premiums charged during a rating period to small employers and sole proprietors in the same geographic area with the same or similar coverage, and the premiums could not vary from the index rate by more than 35 percent; and

· for other small employer carriers, industry, age, gender, and group size could be used for determining the premiums in a geographic area for a small employer or sole proprietor located in that area without rating band limitations. However, effective March 1, 2008, the maximum premium differential for age for a health benefit plan in a geographic area would be five to one. Further, claims experience, health status, and duration of coverage could also be used for determining the premiums in a geographic area, but the premiums charged during a rating period to small employers and sole proprietors located in that geographic area with the same or similar coverage for claims experience, health status, and duration of coverage characteristics could not vary from the index rate by more than 35 percent of the index rate.

BCBSM Renewal period ending before March 1, 2005. For a health benefit plan renewal period that ended before March 1, 2005, BCBSM could only use industry and age if the result was to lower the premium in a geographic area for a small employer or sole proprietor located in that geographic area.

Renewals of previously issued plans occurring March 1, 2005 through February 28, 2006. For a health benefit plan issued before the (proposed) act's effective date, the different types of small employer carriers would be subject to the following rate bands for renewals occurring on or after March 1, 2005 and through February 28, 2006:

· for BCBSM, premiums charged during a rating period to small employers and sole proprietors in a geographic area with the same or similar coverage could not be higher than 10 percent above the index rate nor lower than 20 percent below the index rate;

· for HMOs, premiums charged during a rating period to small employers and sole proprietors in a geographic area with the same or similar coverage could not vary from the index rate by more than 70 percent of the index rate; and

· for small employer carriers other than BCBSM and HMOs, premiums charged during a rating period to small employers and small proprietors with the same or similar coverage, for claims experience, health status, and duration of coverage characteristics, could not vary from the index rate by more than 70 percent of the index rate. (Industry, age, gender, and group size could be used for determining the premiums and would not be subject to the rate band.)

Renewals of previously issued plans occurring March 1, 2006 through February 28, 2007. For a health benefit plan issued before the (proposed) act's effective date, the different types of small employer carriers would be subject to the following rate bands for renewals occurring on or after March 1, 2006 and through February 28, 2007:

· for BCBSM, premiums charged during a rating period to small employers and sole proprietors in a geographic area with the same or similar coverage could not be higher than 20 percent above the index rate nor lower than 30 percent below the index rate;

· for small employer carriers other than BCBSM and HMOs, premiums charged during a rating period to small employers and small proprietors with the same or similar coverage, for claims experience, health status, and duration of coverage characteristics, could not vary from the index rate by more than 60 percent of the index rate. (Again, industry, age, gender, and group size could be used for determining the premiums and would not be subject to the rate band.)

Renewals of previously issued plans occurring March 1, 2007 through February 28, 2008. For a health benefit plan issued before the (proposed) act's effective date, the different types of small employer carriers would be subject to the following rate bands for renewals occurring on or after March 1, 2007 and through February 28, 2008:

· for BCBSM, premiums charged during a rating period to small employers and sole proprietors in a geographic area with the same or similar coverage could not be higher than 30 percent above the index rate nor lower than 35 percent below the index rate;

· for small employer carriers other than BCBSM and HMOs, premiums charged during a rating period to small employers and small proprietors with the same or similar coverage, for claims experience, health status, and duration of coverage characteristics, could not vary from the index rate by more than 50 percent of the index rate. (Again, industry, age, gender, and group size could be used for determining the premiums and would not be subject to the rate band.)

Exceptions to rate bands. For a sole proprietor, a small employer carrier could charge an additional amount of up to 25 percent above the otherwise allowed premium.

Beginning one year after the (proposed) act's effective date, if a small employer or sole proprietor had been self-insured for health benefits immediately before applying for a health benefit plan under Chapter 37, a carrier could charge an additional premium of up to 33 percent above the otherwise allowed premium for up to two years.

Increase in premium from one rating period to the next. The bill would limit the amount that a premium could increase from one rating period to the next both for health benefit plans issued on or after the (proposed) act's effective date, and after February 29, 2008, for renewals of health benefit plans issued before that date. The percentage increase in the premium charged to a small employer for a new rating period could not exceed the sum of the following: any adjustment due to change in coverage; the percentage change in the base premium for the health benefit plan; and any adjustment due to change in the characteristics of the group. Adjustments due to a change in the characteristics of the small employer or sole proprietor group would be subject to the following constraints:

· for BCBSM, up to 35 percent annually (and adjusted pro rata for rating periods of less than one year), due to industry and age of the group's members (i.e., the small employer's employees or employees' dependents or of the sole proprietor or the sole proprietor's dependents);

· for an HMO, up to 35 percent annually, due to industry, age, gender, group size and duration of coverage of the group's members;

· for any other small employer carrier, up to 15 percent annually, due to claims experience, health status, and duration of coverage of the group's members.

Rates - other. A small employer carrier would have to apply all rating factors consistently with respect to all small employers and sole proprietors in a geographic area. A small employer carrier could bill a small employer group only with a composite rate and could not bill so that one or more employees in a small employer group were charged a higher premium than another employee in that small employer group. However, health benefit plan options, number of family members, and Medicare eligibility could be used in establishing a small employer or sole proprietor's premium (notwithstanding the general limitations on the amount a carrier could charge different employers for the same coverage.)

Sole proprietors. A small employer carrier could offer an open enrollment period for sole proprietors, and if the carrier did so, the open enrollment period would have to be offered at least annually and would have to be at least one month long. Small employer carriers would not have to offer or provide to sole proprietors all plans available to non-sole proprietor small employers, but would have to offer to all sole proprietors in a geographic area all plans that are available to any sole proprietor in that area.

Small employer carriers could exclude or limit coverage for a sole proprietor for a condition only if the exclusion or limitation related to a condition for which medical advice, diagnosis, care, or treatment was recommended or received within six months before enrollment, and the exclusion or limitation did not extend for more than six months after plan took effect.

A small employer carrier could not impose a preexisting condition exclusion for a sole proprietor that related to pregnancy as a preexisting condition or with regard to a child who was covered under any "creditable coverage" (see below) within 30 days of birth, adoption, or placement for adoption, as long as the child did not experience a significant break in coverage and the child was adopted or placed for adoption before attaining 18 years of age. The period of creditable coverage could not be counted for enrollment of an individual under a health benefit plan if, after this period and before the enrollment date, there was a 63-day period during all of which the individual was not covered under any creditable coverage. For purposes of calculating periods of creditable coverage, a "waiting period" would not be considered a gap in coverage. (See below for the definition of "waiting period".)

"Creditable coverage" would be defined as health benefits, coverage, or insurance provided to an individual under any of the following: a "group health plan" (that is, an employee welfare benefit plan as defined in the federal Employee Retirement Income Security Act); a health benefit plan; Medicare (Parts A or B); Medicaid (with the exception of benefits provided under a section of the Social Security Act dealing with home and community care for functionally disabled elderly individuals); medical and dental plans for personnel of the U.S. Armed Forces, the commissioned corps of the National Oceanic and Atmospheric Administration, and the Public Health Service; a medical care program of the Indian Health Service or of a tribal organization; a state health benefits risk pool; a health plan offered under the (federal government) Employees Health Benefits Program; a plan established or maintained by a state, county, or other political subdivision of a state providing health insurance coverage to individuals enrolled in the plan; and a health benefit plan for U.S. Peace Corps volunteers.

Offer to one, offer to all (or "guaranteed issue"). As a condition of doing business in Michigan with small employers, every small employer carrier would be required to make available to small employers all plans that it "marketed" to small employers in the state. A small employer carrier would be considered to be marketing a plan if it offered the plan to a small employer not currently receiving a plan from that small employer carrier. A small employer carrier would be required to issue any health benefit plan to any small employer that applied for the plan and agreed both to make the required premium payments and to satisfy any other provisions of the plan that were reasonable and consistent with Chapter 37.

Affiliation period/waiting period. In general, a small employer carrier could not offer or sell to small employers a health benefit plan that contained a "waiting period" applicable to new or late enrollees. "Waiting period" would mean, with respect to a health benefit plan and a potential enrollee in the plan, a period that must pass with respect to the individual before the individual was eligible to be covered for benefits under the terms of the plan.

However, a small employer carrier could offer or sell to small employers other than sole proprietors a health benefit plan that provided for an "affiliation period" that had to expire before coverage became effective for a new or late enrollee. "Affiliation period" would be defined as a period of time required by a small employer carrier that had to expire before health coverage became effective. A small employer carrier could only offer or sell a plan providing for an affiliation period if the following conditions were met:

· the affiliation period was applied uniformly to all new and late enrollees (and their dependents) of the small employer, without regard to any health status-related factor;

· the affiliation period did not exceed 60 days for new enrollees and did not exceed 90 days for late enrollees;

· the small employer carrier did not charge any premiums for the enrollee during the affiliation period; and

· the coverage issued was not effective for the enrollee during the affiliation period.

Late enrollees. A health benefit plan offered to a small employer by a small employer carrier would have to provide for the acceptance of late enrollees. A small employer carrier would have to permit an employee or a dependent of the employee, who was eligible but not enrolled, to enroll for coverage under the terms of the small employer health benefit plan during a special enrollment period if all of the following applied:

· the employee or dependent was covered under a group health plan or had coverage under a plan at the time coverage was previously offered to the employee or dependent;

· the employee stated in writing at the time coverage was previously offered that coverage under a group health plan or other plan was the reason for declining enrollment (but only if the small employer or carrier required such a statement at the time coverage was previously offered and provided notice to the employee of the requirement and the consequences of the requirement at that time); and

· the employee or dependent's (other) coverage was either (a) under a COBRA (see below) continuation provision and that coverage had been exhausted or (b) was not under a COBRA continuation provision and that other coverage had been terminated as a result of loss of eligibility for coverage, for reasons that could include legal separation, divorce, death, termination of employment, reduction in the number of hours of employment or termination of employer contributions toward that other coverage. (Whether or not the employee or dependent's other coverage was under a COBRA continuation provision, the employee could not request enrollment later than 30 days after the date of exhaustion or termination of coverage or termination of employer contributions.)

"Dependent special enrollment period". A small employer carrier that made dependent coverage available under a plan would have to provide for a dependent special enrollment period during which a person could be enrolled under the plan as a dependent of the individual or, if not otherwise enrolled, the individual could be enrolled under the plan. For a child's birth or adoption, the spouse of the individual could be enrolled as a dependent of the individual if the spouse was otherwise eligible for coverage. To be eligible to enroll during this dependent special enrollment period both of the following criteria would have to be met:

· the individual was a participant under the plan or had met any affiliation period applicable to becoming a participant under the plan and was eligible to be enrolled under the plan (except for a failure to enroll during a previous enrollment period); and

· the person became a dependent of the individual through marriage, birth, or adoption or placement for adoption.

The dependent special enrollment period could not be less than 30 days long, beginning on the later of the date dependent coverage was made available or the date of the marriage, birth, or adoption or placement for adoption. If an individual sought to enroll a dependent during the first 30 days of the period, the dependent's coverage would be effective as follows:

· for marriage, not later than the first day of the first month beginning after the date the completed request for enrollment was received;

· for a dependent's birth, as of the date of birth; and

· for a dependent's adoption or placement for adoption, the date of adoption or placement.

Uniform requirements and participation rules. Requirements used by a small employer carrier in determining whether to provide coverage to a small employer would have to be applied uniformly among all small employers applying for coverage or receiving coverage from the small employer carrier. However, a small employer carrier could deny coverage to a small employer if the small employer failed to enroll enough of its employees (either as a number or percentage) to meet the carrier's minimum participation rules. If a small employer carrier waived a minimum participation rule for a small employer, the carrier could not later enforce that minimum participation rule for that small employer.

Carriers would have to establish minimum participation rules according to sound underwriting requirements, and the rules would be subject to the following limitations:

· for a small employer of 10 or fewer eligible employees, a rule could require enrollment of up to 100 percent of the small employer's employees seeking health care coverage through the small employer;

· for a small employer of 11 to 25 eligible employees, a rule could require enrollment of up to 75 percent of the small employer's employees seeking health care coverage through the small employer;

· for a small employer of 26 to 40 eligible employees, a rule could require enrollment of up to 65 percent of the small employer's employees seeking health care coverage through the small employer; and

· for a small employer of 40 to 50 eligible employees, a rule could require enrollment of up to 50 percent of the small employer's employees seeking health care coverage through the small employer.

Guaranteed renewal. A small employer carrier that offered health coverage in the small employer group market in connection with a health benefit plan would have to renew the plan or continue the plan in force at the option of the small employer or sole proprietor, with certain exceptions. Specifically, guaranteed renewal would not be required in cases of fraud or intentional misrepresentation of the small employer or, for coverage of an insured individual, fraud or misrepresentation by an insured individual or his or her representative; lack of payment; or noncompliance with minimum participation or employer contribution requirements. Also, guaranteed renewal would not be required if the small employer carrier no longer offered that particular type of coverage in the market or if the sole proprietor or small employer moved outside the geographic area.

Discontinuation of plans in geographic area. BCBSM could not cease to renew all health benefit plans in a geographic area, but other carriers could. A small employer carrier that decided to discontinue offering all health benefit plans in a geographic area would have to do all of the following:

· provide notice of the discontinuation to the commissioner and to each small employer that it covered in the discontinued area at least 180 days before the discontinuation of coverage;

· discontinue all plans issued or delivered for issuance in the area and not renew any current health plan in the area;

· refrain from issuing or delivering for issuance any small employer health benefit plans in the area for a five-year period beginning on the date of the discontinuation of the last health coverage not renewed; and

· refrain for five years from issuing any health coverage in any area that was not one of its geographic areas on the date of the notice of the discontinuation of health coverage.

Information from carrier to employer. Each small employer carrier would have to provide all of the following to a small employer upon request and upon entering into a contract with the small employer:

· the extent to which premium rates for a specific small employer were established or adjusted due to any permitted characteristic and rating factors of the employees of a small employer and dependents;

· the provisions concerning the carrier's right to change premiums, permitted characteristics, and any rating factors that would cause changes in premiums; and

· provisions relating to the renewability of coverage.

Actuarially sound methods and practices. Each small employer carrier would have to maintain at its principal place of business a complete and detailed description of its rating practices and renewal underwriting practices, including information and documentation demonstrating that its rating methods and practices were based on commonly accepted actuarial assumptions and were in accordance with sound actuarial principles. Small employer carriers would have to make this information and documentation available to the commissioner upon request, but it would not be subject to disclosure under the Freedom of Information Act to persons outside of OFIS, unless agreed to by the small employer carrier or ordered by a court of competent jurisdiction.

Further, on March 1 of each year, each small employer carrier would have to file with the commissioner an actuarial certification that the carrier was in compliance with these requirements and that the rating methods of the carrier were actuarially sound. A copy of this actuarial certification would also have to be retained by the carrier at its principal place of business. These requirements would not replace requirements of the applicable filing provision in the insurance code or in the BCBSM act.

Suspension of requirements by commissioner and attorney general. Upon a filing for suspension by the small employer carrier and a finding by the commissioner, after consulting with the attorney general, that either the suspension was reasonable in light of the financial condition of the carrier or that the suspension would enhance the efficiency of the marketplace for small employer health insurance, the commissioner could suspend the following requirements: all or any part of the provisions governing rates; and the provisions requiring small employer carriers that discontinue all plans in a geographic area to refrain from issuing plans in either that area or any area that were not served by the carrier for a period of five years.

BCBSM. The bill would specify that BCBSM is subject to Section 619 of the Nonprofit Health Care Corporation Act, which deals with civil actions and relief. (While BCBSM is generally subject to all provisions of that act, House Bill 4279 proposes to add a provision stating that Chapter 37 supersedes the provisions of the Nonprofit Health Care Corporation Act in case of a conflict.)

Evaluation of market competitiveness. By March 1, 2006, and by each March 1 thereafter, the commissioner would have to determine whether a reasonable degree of competition in the small employer carrier health market existed on a statewide basis. If the commissioner determined that there was not sufficient competition, he or she would have to hold a public hearing and issue a report delineating specific classifications and kinds of types of insurance, if any, where competition did not exist, as well as any suggested statutory or other changes necessary to increase or encourage competition. The report would have to be based on relevant economic tests and would have to give appropriate weight to all measures of competition rather than focusing exclusively on a single measure.

If the results of the report were disputed or if the commissioner determined that relevant circumstances had changed, the commissioner would have to issue a supplemental report that included a certification of whether or not a reasonable degree of competition existed in the market. The supplemental report certification would have to be supported by substantial evidence and would have to be issued by the December 15 of the year the original report was issued.

These reports and certifications would have to be forwarded to the governor, the clerk of the House, the secretary of the Senate, and all the members of the Senate and House of Representatives' standing committees on insurance and health issues.

In making her or his determinations, the commissioner would have to consider all of the following:

· the extent to which any carrier controlled all or a portion of the small employer carrier health benefit plan market;

· whether there were enough small employer carriers writing small employer health benefit plan coverage in the state to provide multiple options to employers;

· the disparity among small employer health benefit plan rates and classifications to the extent that those classifications resulted in rate differentials;

· the availability of small employer health benefit plan coverage to employers in all geographic areas and all types of business;

· the overall rate level that was not excessive, inadequate, or unfairly discriminatory; and

· any other factors the commissioner considered relevant.

HMO contracts: "off-label" drug coverage. Public Act 538 of 2002 amended the Insurance Code to specify that policies and certificates that provide pharmaceutical coverage must cover "off-label" uses of FDA-approved drugs and the costs of supplies that are medically necessary to administer the drugs. The act imposed a similar requirement on HMO contracts, but did not restrict this requirement to HMO contracts that provide pharmaceutical coverage.

The bill would amend the HMO requirement so that only HMO contracts that provide pharmaceutical coverage would have to cover off-label uses of FDA-approved drugs and the costs of medically necessary supplies.

House Bill 4279

Exemption from utility usage taxes and fees. The act declares that BCBSM is a charitable and benevolent institution and exempts its funds and property from state and local taxes. The bill would exempt BCBSM from utility usage taxes and utility usage fees imposed by the state or by any political subdivision of the state.

Adequate and unimpaired surplus. Section 205 requires BCBSM to maintain a contingency reserve of 65-150 percent of the target contingency reserve level. The target contingency reserve level is established by the commissioner each year according to a methodology set forth in the act. The contingency reserve is funded by subscribers' contributions for risk and contributions for planwide viability. While contributions for risk are determined as part of the normal rate-making process, rates for contributions for planwide viablility depend on the actual level of the contingency reserve and the type of subscriber. (Small group and nongroup subscribers stop making contributions for planwide viability once the actual contingency reserve exceeds 95 percent of the target level, and medium group and large group subscribers make contributions until the reserve exceeds 105 percent of the target level.) If the contingency reserve exceeds 150 percent of the target level, BCBSM must make adjustments to reduce its reserves. If the contingency reserve exceeds the required range at the end of a calendar year, BCBSM must make adjustments to achieve the require range and must file with the commissioner a description of the adjustments.

Also, the commissioner is required to examine BCBSM's annual financial statement to determine whether the contingency reserve is outside the required range, and if it is outside the required range at the end of two successive calendar years, BCBSM must file a plan, with the commissioner, to adjust the contingency reserve to a level within the required range. If the commissioner disapproves the plan, he or she must formulate a plan and forward the plan to BCBSM, which then must implement it.

The bill would replace the act's contingency reserve provisions with a requirement that BCBSM possess and maintain "unimpaired surplus" in an amount determined adequate by the commissioner. Specifically, the commissioner would have to determine that BCBSM's unimpaired surplus was sufficient to put it in compliance with a section of the Insurance Code (Section 403) requiring insurers to be "safe, reliable, and entitled to public confidence". In making this determination, the commissioner would have to follow the risk-based capital requirements as developed by the National Association of Insurance Commissioners (NAIC).

If BCBSM filed a risk-based capital report that indicated that its surplus was less than the amount determined to be adequate, it would have to prepare and submit a plan for remedying the deficiency in accordance with risk-based capital requirements adopted by the commissioner. As part of its plan, BCBSM could propose that subscribers be required to make planwide viability contributions to surplus. The commissioner would have to approve the actual contribution rate for planwide viability contributions, subject to the following limits:

· If BCBSM's surplus was less than 200 percent but more than 150 percent of the "authorized control level" under risk-base capital requirements--i.e., the number determined under the risk-based capital formula in accordance with the instructions developed by the NAIC and adopted by the commissioner--the maximum contribution rate would be one-half of one percent of the rate charged to subscribers for the benefits provided.

· If BCBSM's surplus was 150 percent or less than the authorized control level under risk-based capital requirements, the maximum contribution rate would be one percent of the rate charged to subscribers for the benefits provided.

In any event, BCBSM could not maintain surplus in an amount that equaled or exceeded 200 percent of the authorized control level under risk-based capital requirements multiplied by five. If BCBSM filed a risk-based capital report indicating that its surplus exceeded this maximum allowable surplus for two successive calendar years, it would have to file a plan for approval by the commissioner to adjust its surplus to a level below the maximum allowable surplus. If the commissioner disapproved BCBSM's plan, the commissioner would be required to formulate an alternate plan and forward that alternate plan to BCBSM. BCBSM would have to begin implementation of the plan immediately upon receipt of approval of its plan by the commissioner or upon receipt of the commissioner's alternate plan.

The bill would replace various references to the act's current contingency reserve requirements with references to the proposed unimpaired surplus requirements.

Lines of business. Section 205 requires BCBSM to define at least five lines of business and to assign a risk factor to each line of business. The bill would eliminate these requirements.

Statutory accounting principles. Section 205 of the act requires BCBSM to record or estimate its liabilities at reasonable values "neither excessive nor inadequate, and in accordance with sound actuarial practices and generally accepted accounting principles to provide for the payment of all debts of the corporation."

The bill would repeal Section 205 and replace the requirement that BCBSM use "generally accepted accounting principles" with a requirement that it report financial information in conformity with sound actuarial practices and "statutory accounting principles" in the same manner designated by the commissioner for other carriers as specified in the Insurance Code. In addition, the bill would permit BCBSM to use approved permitted practices until January 1, 2007 to effectuate the transfer to statutory accounting principles. (For other changes relating to the repeal of Section 205 see "Adequate and unimpaired surplus" and "Lines of business" earlier in the analysis.)

Investment of funds. Under current law, BCBSM may invest and reinvest its funds in, and engage in a variety of other investment-related activities with, entities other than domestic, foreign, or alien insurers. The bill would specify that BCBSM was subject to Chapter 9 (Investments) of the insurance code when investing in such entities.

Also, currently BCBSM may invest in domestic, foreign, and alien insurance companies under certain conditions, but such investments cannot result in BCBSM's owning or controlling ten percent or more of the voting securities of any insurance company. The bill would create an exception allowing BCBSM to own or control part or all of an insurance company authorized only to sell long-term care insurance. In that case, the long-term care insurer could not be exempt from taxation after the acquisition, would need to have a governing board separate from BCBSM's board of directors, and would have to transfer its domicile to Michigan as soon as possible after the acquisition (assuming it was not already domiciled here). The transaction would also have to satisfy the requirements of Chapter 13 of the Insurance Code, which regulates insurance holding companies.

Prohibit conditioning sale of one product on another. The bill would prohibit BCBSM from conditioning the sale or varying the terms or conditions of any product sold by BCBSM or a person controlled by BCBSM, by requiring the purchase of any other product from BCBSM or a person controlled by BCBSM.

Small group market requirements. Under the bill, BCBSM would be subject to Chapter 37 of the insurance code. (House Bill 4553 proposes to add Chapter 37, which would regulate small employer group health care coverage. For more see "House Bill 4553" later in this analysis.) The bill would state that to the extent that a provision of the BCBSM act concerning health coverage, including, but not limited to premiums, rates, filings, and coverages, conflicted with Chapter 37 of the Insurance Code, Chapter 37 would supersede the BCBSM act.

Prescription drug coverage for nongroup and group conversion subscribers. The rates charged to nongroup and group conversion subscribers for a certificate that included prescription drug coverage under House Bill 4281 could include rate differentials based on age, but could have no more than eight separate age bands. BCBSM would have to file its rates for such coverage in accordance with the requirements for other rate filings. (See "Rate filing and approval/disapproval" later in the analysis.)

Conditions for long-term care coverage. The bill would allow BCBSM to condition the granting of long-term care coverage based on answers given on a required application and according to BCBSM's underwriting standards. (For more on the application and conditions under which BCBSM could charge different rates based on age for the same long-term care coverage, see the summary of House Bill 4280 later in the analysis.)

Contracts for reimbursement. Under current law, BCBSM may enter into participating contracts for reimbursement with professional health care providers practicing legally in Michigan for health care services that the professional health care providers may legally perform. Contracts are subject to Part 5 of the act.

The bill would allow BCBSM to enter into contracts with health practitioners practicing legally in any other jurisdiction as well, as long as it did not do so "for the purpose of disadvantaging a Michigan health care provider or replacing a participating contract with a Michigan health care provider." The bill would specify that contracts with health practitioners practicing legally in Michigan were subject to Part 5.

Rate filing and approval/disapproval. Currently, BCBSM must submit a copy of any new or revised certificate to the commissioner along with applicable proposed rates and a rate rationale. Certificates and applicable proposed rates are considered approved and effective 30 days after filing with the commissioner, unless the commissioner disapproves them or approves them with modifications, according to conditions set forth in the act. The commissioner may subsequently disapprove any certificate that previously had been deemed approved. Finally, upon request, the commissioner may allow certificates and rates to be implemented prior to filing to allow implementation of a new certificate on the date requested.

The bill would specify instead that if BCBSM wanted to offer a new certificate, change an existing certificate, or change a rate charge, a copy of the proposed certificate, proposed revised certificate, or proposed rate would have to be filed with the commissioner and could not take effect until 60 days after the filing unless the commissioner approved the change in writing before the expiration of the 60-day period. (These requirements would not apply to rates and certificates for nongroup Medicare supplemental subscribers; see "Nongroup Medicare supplemental rates and timelines" later.) The commissioner could still disapprove the certificates or rates or approve them with modifications, according to the conditions currently set forth in the act, but the bill would specify that notices of approval, approval with modifications, or disapproval must be written notices. Also, the bill would specify that the commissioner could subsequently disapprove any certificate or rate charge. The commissioner could still allow certificates and rates to be implemented prior to filing to allow timely implementation of a new certificate.

Commissioner - hearing. The bill would require the commissioner to schedule a hearing not more than 30 days after receipt of a written request from BCBSM. A revised certificate, revised proposed certificate, or proposed rate could not take effect until approved by the commissioner after the hearing. Within 30 days after the hearing, the commissioner would have to notify BCBSM in writing of the disposition of the revised certificate, revised proposed certificate, or proposed rate, together with the commissioner's findings of fact and conclusions.

Attorney general - hearing. The bill would add a requirement that, upon receipt of a rate filing, the commissioner notify the attorney general and provide to the attorney general a copy of the proposed rate revision. Upon making a written request for a hearing within 30 days after receiving notice of the rate filing, the attorney general would have an opportunity for an evidentiary hearing to determine whether the proposed rates met the requirements of the act. The request would have to identify the issues that he or she asserted were involved and what portion of the rate filing was to be heard. If the attorney general requested an evidentiary hearing, the commissioner could not approve, approve with modifications, or disapprove a filing until the hearing had been completed and an order had been issued.

Prior approval and review of rating methodologies and definitions. Currently, the methodology and definitions of each rating system, formula, component, and factor used to calculate rates for BCBSM's group subscribers for each certificate must be filed with the commissioner and are subject to the commissioner's prior approval. The commissioner must approve, disapprove, or modify and approve the methodologies and definitions of each rating system, formula, component, and factor for each certificate, subject to the standard that the resulting rates for group subscribers must be equitable, adequate, and not excessive. Also, the commissioner may from time to time review BCBSM's records to determine proper application of a rating system, formula, component, or factor with respect to any group. BCBSM must refile for approval every three years. The bill would eliminate these provisions.

Section 619 - civil actions and relief. Currently, Section 619 of the act allows the attorney general to bring an action, or apply to the circuit court for a court order, to enjoin BCBSM from transacting business, receiving, collecting, or disbursing money, or acquiring, holding, protecting, or conveying property if that corporate activity was not authorized under the act. In addition, Section 619 allows the attorney general to apply to the circuit court for a court order enjoining an alleged violation of the act or other equitable or extraordinary relief to enforce the act. The bill would specify instead that the attorney general could bring an action, or apply to the circuit court for a court order to enjoin BCBSM from engaging in a corporate activity not authorized under the act or under Chapter 37 of the Insurance Code. Likewise, the attorney general could apply to the circuit court for a court order enjoining an alleged violation of the act or Chapter 37 of the Insurance Code or other equitable or e