Justice Department Sues Blue Cross of Michigan

Recently, a case involving Blue Cross Blue Shield of Michigan (BCBSM) has received attention in the press (USA Today, Detroit Free Press, Kaiser Health News).  The case involves alleged attempts by Blue Cross of Michigan to inhibit competition in the health insurance marketplace.  Specifically, the case in question focuses on TheraMatrix, a physical therapy provider.  They apparently were able to carve out coverage contracts with major employers such as automakers for physical therapy services.  That brought about a host of reactions from BCBSM and local hospitals aligned with Michigan’s dominant health insurance carrier. ^1,2,3,4,5,6

This case highlights among other issues, most favored nation (MFN) status in contracts offered by BCBSM to potential participating hospitals.  These types of clauses in health insurance contracts are under attack in general, and specifically in this case, are the subject of a legal action brought by the United States Justice Department as well as the State of Michigan against BCBSM. ^6,7

Additionally, it has been reported that insurers nationally have been hoarding huge reserves of cash, far in excess of actuarially required amounts to meet future demands.  The reasons for this are not clear, but one can of course speculate that this excess cash is being invested to increase profits for health insurers. ⁸

It has been argued that one of the best ways to deal with health insurers in the private market is to view them in the same light as a utility.  That would allow them to be regulated not just in terms of their solvency and adequacy of reserves, but also in terms of their rate structure in relation to those issues and their overall profitability.  It is clear that regulated utilities still make money, earn profits and yield returns for their investors.  The same would be true of regulated health insurers. ⁹

Elsewhere in the nation, Blue Cross Blue Shield of Louisiana (BCBSLA), that states largest insurer, and East Jefferson General Hospital (EJGH) in the New Orleans market have been engaged in a war of words following failed negotiations over a new contract.  BCBSLA argues that EJGH wanted higher payments for services than other local hospitals.  EJGH argues that BCBSLA is building excess reserves while cutting services and raising premiums.  The two sides ended their contract last month leaving many locals without access to one of the areas major hospitals. ^10,11,12

The issues raised by the recent news regarding anti-competitive behavior, excess cash and profits, along with continuing rate increases all point to a market which has run amuck.  Free markets are generally best, however, when vital services are at stake, necessary regulation must be implemented.  The fact that in many states, one or two major health insurers hold sway over the majority of the market raises classic anti-trust questions. ^13,14

Currently, the health reform bill fashioned by Congress that was passed along partisan lines last December, does not resolve these issues.  In fact, in many ways, in complicates them.  Still the bill fails to address issues of rate structure, premium increases, profitability, and anti-trust issues, which are of major concern when discussing health insurance reform.

Removal of anti-trust exemptions, along with the ability of health insurers to sell across state lines would be major steps toward improving access to affordable private coverage.  However, this can only come to pass if there is proper exercise of regulatory control over health insurance rates as outlined above.  Only these reforms will secure both the private health insurance market and the needed changes the citizenry deserves. ¹⁵

1. Did Blues bully cost-saving firm in Michigan?
   
2. Case against Blue Cross shows difficulty of cutting health costs
   
3. BCBS Of Michigan Alleged To Have Crushed Pilot Physical Therapy Program It Saw As Competition
   
4. TheraMatrix
5. Blue Cross Blue Shield of Michigan
   
6. Feds accuse Mich. Blue Cross of anti-competitive contracts
   
7. UNITED STATES OF AMERICA and the STATE OF MICHIGAN, Plaintiffs, v. BLUE CROSS BLUE SHIELD OF MICHIGAN, a Michigan nonprofit healthcare corporation, Defendant (Case 2:10-cv-14155-DPH -MKM Document 1 Filed 10/18/10)
8. Consumer group: Insurers kept surplus while hiking premiums
9. Details on “the plan”
   
10. East Jefferson General Hospital seeks arbiter in dispute with insurer
    
11. East Jefferson General Hospital
    
12. Blue Cross Blue Shield of Louisiana
    
13. Healthcare Sector Comes Under Increased Government Antitrust Scrutiny
    
14. Are Insurance Companies Still Exempt From Antitrust Laws?
    
15. Health Insurers Charged with Increasing Anti-Competitive Behavior
    

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