The Michigan Senate has voted to effectively repeal a three-decade-old law that designates Blue Cross Blue Shield of Michigan a tax-exempt nonprofit insurer of last resort. The federal Affordable Care Act now makes such insurers unnecessary, and the state legislation would benefit Blue Cross policyholders by letting the company convert to a nonprofit mutual insurer subject to streamlined regulation.

Similar legislation was vetoed by Gov. Rick Snyder in December over some last-minute amendments, but the Senate bills omit these. The House now has a chance to improve the original proposal by removing the requirement that Blue Cross finance a new quasi-governmental health foundation meant to “promote the public welfare.”

Supporters of the proposed foundation, the “Michigan Health Endowment Fund,” imply that Blue Cross will bear the potential $1.56 billion cost of the program. But this money has to come from somewhere. In 2011, Blue Cross reported net income of $40 million. It had underwriting losses of $48.8 million. The company has sizable reserves, but insurers will need such reserves to smooth the adjustment to the higher cost of doing business created by new federal insurance regulations, price controls and taxes.

If legislators further increase Blue Cross’ costs by forcing it to finance the foundation, premiums will ultimately go up.

This would be terrible timing: Health insurance experts Merrill Matthews and Mark Litow predict that the Affordable Care Act alone will raise average premiums in Michigan by 35 to 65 percent. The ACA forces insurers to bear such substantial new expenses as an excise tax expected to increase premium costs by $10 to $15 per employee per month, an additional “patient-centered outcomes research” tax on each covered life, and “transitional reinsurance program” fees on employers that offer self-funded group plans. The law will also require Michiganders to buy expensive health insurance policies that mandate coverage for children’s eyeglasses alongside coverage for catastrophic trauma care.

The foundation itself could be problematic. Similar foundations in other states spend money on projects of dubious benefit. In Colorado, the Caring for Colorado foundation was created when the Colorado Blue Cross Blue Shield affiliate was privatized in 1999. Among other things, Caring for Colorado directs its grants to entities favoring virtually unlimited Medicaid expansion regardless of the effect on the state budget.

To make things worse, the Colorado foundation’s tax forms state that its board members are often associated with potential grantees as either paid staff or board members of other nonprofits. The proposal in Michigan would require recusal of board members with conflicts of interest, but this provision is a paper tiger. Experience suggests that board members will tend to vote for each other’s projects.

Michigan’s proposed statute directs the health foundation to subsidize “Medigap” policies — spending that would transfer premium money from the young to older, not necessarily poorer people. The foundation would also fund programs on infant mortality, healthy food, preventing food borne illness, wellness, fitness, technology enhancements and “health-related transportation needs.”

This additional spending would likely be a waste. Categorizing by birth weight and differing definitions of live birth, U.S. infant mortality rates are already among the lowest in the world. Increased spending by all levels of government has failed to move them from their 2000 levels. Michigan’s food retailers already market healthy food, and innumerable private outlets promote wellness and fitness. Technology investments funded by a politically appointed board are more likely to resemble Solyndra than Apple. 

If the Legislature wants to contribute to Michigan’s health, it will allow Blue Cross to convert to a mutual insurer without raising premium costs to subsidize programs of dubious merit. At the very least, any foundation money should be used to relieve the burdens of individuals suffering from crippling medical bills and applying for relief on a case-by-case basis.

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Dr. Linda Gorman is a senior fellow and director of the Health Care Policy Institute at the Independence Institute in Golden, Colo. The Mackinac Center is a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.