Blue Cross Blue Shield of Michigan replies to Congressmen's queries

Blue Cross Blue Shield of Michigan has sent a letter to Michigan Congressmen John Dingell and Sander Levin as a response to the Congressmen's request for company information. A complete text of the letter follows:

August 20, 2009

Congressman John D. Dingell Congressman Sander M. Levin 19855 West Outer Drive 27085 Gratiot Ave Suite 103-E Roseville, MI 48066 Dearborn, MI 48124

Dear Congressman Dingell and Congressman Levin,

I received your letter questioning some of Blue Cross Blue Shield of Michigan's business practices. It is clear you and your colleagues are working hard in Congress to make changes to the health care system in order to rein in costs, improve quality and expand access. We share many of the same goals and have been vocal proponents of meaningful health care reform for many years.

What your letter fails to recognize is that BCBSM already runs its business as Congress proposes all insurers should and should be held up as a model for health reform not villainized in the media. BCBSM is the most strongly regulated health insurer in Michigan. We are the only insurer in the state that accepts everyone for coverage regardless of their medical condition. We community rate our health care coverage for individuals -- which means we ask for the same premium regardless of the individual's health condition. We self-limit our margins -- earning just one-tenth of one percent margin over the last 20 years. We work closely with Michigan doctors and hospitals to reduce the cost and improve the quality of care. These partnerships have saved hundreds of millions of dollars and many lives in the process.

Even with our recent rate increase, Blue Cross will continue to lose money on its individual products because costs will exceed premiums collected for these individuals. These rate increases in the individual market underscore the urgent need for health insurance reform in Michigan and the nation. We strongly encourage our Michigan Congressional delegation to take strong action in Washington to level the playing field in Michigan and across the nation and to apply regulation consistently and uniformly to all insurers in the marketplace.

The questions in your letter have been asked and answered many times before, including as part of our most recent and heavily regulated rate request process. Our state regulators, including the Attorney General and the Insurance Commissioner, reviewed this information to determine our current interim rate increases.

Nonetheless, I will not only answer your questions, but I will shed additional light on how our current unsustainable system is responsible for our need to request double-digit rate increases, something we agree is very unfortunate in this difficult economy.

As previously stated, we collect much less in premium dollars than we pay out for individual member medical costs, and even this most recent rate increase does not make up the difference. Therefore, 100 percent of collected premiums after the rate increases take affect will be applied to medical costs, and we will still come up short.

BCBSM's surplus is well below its maximum level. Our current surplus, as measure by Risk Based Capital, is approximately 415% below the statutory maximum. Both the Commissioner of The Office of Financial and Insurance Regulation and a Michigan court have ruled that, as a matter of law, the Commissioner does not have the authority to use surplus in place of rate increases unless it exceeds the statutory maximum. Furthermore, despite being one of the five largest Blues plans in terms of membership, we are among the lowest capitalized plans in the country. Maintaining adequate reserves is not just a regulatory requirement; it is our responsibility to ensure we are adequately capitalized to protect our members in the event of a major catastrophe.

Within our individual products portfolio, we offer benefit plans that vary widely in accordance with customer demands regarding coverage and price, just as any other business markets its products. At renewal, Michigan law requires policies be renewed as written.

Our actual medical loss ratio on individual products in 2008 was 127 percent. That means we paid out $1.27 in claims for every $1 we collect in premiums. Compare that to commercial insurers operating in Michigan, and you'll find a much lower loss ratio, likely between 50 percent and 60 percent. Michigan does not regulate, except for Blue Cross, a minimum loss ratio, whereas many other states have adopted loss ratios between 65 percent and 80 percent for their individual markets.

The best way to minimize future rate increases is for Congress to enact meaningful, consistent reform that applies to all insurers. Without reform at the federal or state level, BCBSM will continue to find itself in the difficult position of needing to file for significant rate increases. It is our sincere hope that reform will work to level the playing field in this area so rate increases will moderate over time, something not possible without reform. Who is affected by rate increases depends on the product lines for which we seek increases. While we cannot predict the future, it is safe to say nearly all individual members in our book of business will continue to be affected by rate increases, which will be higher without reform.

On the question of compensation, we were asked for the same information by Congressman Henry Waxman, chair of the Energy and Commerce Committee, and we will provide you with this information when we respond to him. But please note that executive compensation is also carefully monitored by our regulators and has been found to be reasonable and in keeping with sound business practices.

Please feel free to continue asking questions, and we will be happy to help in any way possible as we all work together on this important endeavor that has such far-reaching implications for business, government and the American people.

Sincerely, Daniel J. Loepp President and Chief Executive Officer Blue Cross Blue Shield of Michigan cc: Michigan Congressional Delegation Michigan Governor Jennifer M. Granholm