“The Summit” and Bringing it Home

March 1, 2010

Much has already been written about President Obama’s Health Reform Summit and what we learned or didn’t learn (see in particular blog posts at the Wall Street Journal and the New York Times). On the same evening as the Summit, I had an opportunity to participate on a health reform panel sponsored by the University of Michigan college Democrats with my colleagues, Catherine McLaughlin, an economist with the U-M School of Public Health and Mathematica; and Matt Davis, a pediatrician and faculty at the Ford Policy School. The panel gave us the opportunity to reflect on the Summit in a more focused and local way. One of the students in attendance asked a question with particular relevance to some of the dialog at the Summit. His question was, is Blue Cross and Blue Shield of Michigan a role model, can other states learn from us in Michigan, and can reform happen at a state level?

My answer to this question goes to both the complexity of health reform and why it is so hard to sell it in a sound bite. Interestingly, over the past week or two, much has been written about the 39 percent rate increase planned by Anthem in California for their individual market. In almost the same breath, folks at the Summit and in the press have raised the 56 percent rate increase requested by Blue Cross and Blue Shield of Michigan (BCBSM) for its individual market. While these two situations have been equated, the facts behind each are unique to their local markets and the nature of these two insurers.

BCBSM is a non-profit insurer that is (and has been for the past 70+ years) the insurer of last resort in the state of Michigan. Anthem is a for-profit insurer, converted from what was Blue Cross of California. BCBSM is required by state law to provide guaranteed issue products in the individual market place, i.e., to take all comers regardless of health status and its rates for this segment are heavily regulated by the state’s insurance commissioner. Anthem is not required to guarantee issue and actively uses medical underwriting exclusions in its individual segment. BCBSM insures approximately half the state’s population while Anthem faces significant market competition in California.

In part because of its large market share, non-profit status and history, BCBSM is indeed a role model for many of the ideas embodied in health reform: innovative contracts with hospitals and physicians, a commitment to a social mission, and a role as the insurer of last resort. BCBSM can also be seen as a case study of why there is a need for health reform: because it is the only insurer in the state that must take all regardless of health status, the risk pool in the individual market has deteriorated over time, with healthier individuals either dropping coverage or finding cheaper coverage elsewhere, leaving BCBSM with a sicker and sicker population to cover and increasing financial losses in the individual pool. And, because rates are heavily regulated in the individual market for BCBSM and BCBSM alone, rate approvals take a long time, leading to lagging rate adjustments out of sync with rising health care costs and “shock value” rate increase percentages when they are finally approved (the actual rate increase approved for this segment was ultimately 22 percent — not the 56 percent requested).

This is a very different situation than the one in California. The factors leading to the rate increases for Anthem are also complex but unique to the situation in that state and market — in fact, Anthem may have a different problem from BCBSM because it faces more a more challenging provider contracting environment than the one in Michigan.

Nationally published data tell us the rate of increase in health care spending in Michigan has been less than the national average[CHRT REPORT HEALTH CARE SPENDING BY COUNTRY, STATE AND PAYER] for over 20 years and I think much of that can be attributed to the innovations implemented by BCBSM in its relationships with providers. But, can health reform be solved at the state level? Despite what some politicians say, the research and data is pretty clear: to really address insurance reforms and substantially expand coverage, reforms have to be made at the federal level. There are many reasons why that is so (the New England Journal of Medicine has an excellent article on this as well). Expanding coverage and ending pre-existing condition exclusions and the like means that people cannot pick and choose to be covered based on their own health status: the healthy and the sick must both be in the pool in order to avoid an adverse risk spiral. And to accomplish that, there needs to be a mandate or tax subsidized system of some kind. And, that has to be accomplished at the federal level. So, the bottom line answer to the student’s question is: yes, other states and the country can learn a lot from what has happened with BCBSM and in Michigan: BCBSM shows both what can be accomplished and why reform is so needed at the federal level.