Mich. Legislation Introduced to Stabilize Market for Small Business Insurance

Legislation introduced Tuesday in the Michigan House shows continuing strong support across the state for small business health insurance market reform that will help stabilize the marketplace and prevent the practice of cherry-picking, according to Blue Cross Blue Shield of Michigan. A bill is expected to be introduced in the Senate as well.

“The legislation reflects principles of reform expressed last year by associations and chambers of commerce representing 65,000 small businesses in our state and also reflects five years of effort on the part of the Blues to bring about relief for small business,” Richard Whitmer, Blues president and CEO, remarked.

The legislation would apply to the health insurance market for small business with fewer than 100 employees.

Called the Small Employer Health Market Reform Act, the legislation is aimed at strengthening local community insurance pools that were formed in Michigan in the 1970s as a way for small business to offer their employees benefits comparable to those offered by large business. They were seen then, and are seen now, as a competitive issue – providing the ability for small business to compete on health care coverage. However, the insurance pools have been deteriorating because Michigan is one of only three states that has not undergone market reforms to address cherry-picking, the practice of selectively covering the young and healthy, and the dumping of the ill.

“The absence of a law in Michigan that would prohibit cherry-picking and dumping has produced an effort that really injures all small businesses. The businesses that benefit from today’s laws are those who hire and retain only the youngest and healthiest workers or those who find ways to get the youngest and healthiest covered by commercial carriers that avoid risk,” Whitmer continued.

“What this legislation is going to do is reintroduce the principle in health insurance that all insurers should be obligated to retain coverage on customers who become sick as well as those who remain healthy,” he said.

The legislation allows for variance in rates, but requires insurers, once they agree to a range of rates for coverage, to keep those rates in the range even if the customer becomes ill or the group’s health experience is bad. Only certain factors may be used for determining the rate within the band that an insurer may operate under.

The legislation would reportedly increase competition in the market because insurers would compete on service and reliability instead of their ability to cherry- pick and dump risk.

The market reform legislation was introduced as part of a five-bill package. Other legislation would include provisions to enable the Michigan Blues to contract with medical facilities in other states, enter the long-term care market for the first time by allowing for an adequately rated product, and require the addition of prescription drug benefits in two Blues products offered to individual consumers. The other bill would allow for minimum participation requirements for workforce enrollment, and some changes to rate filing requirements.

Medicare supplemental policies are not affected by the legislation.

The Michigan Blues are the insurer of last resort in the state, as the company offers coverage to all residents, year-round, regardless of health status. This role, as well as the company’s nonprofit status, is retained under the proposed legislation.