Third party administrators such as MESSA which administer insurance benefits that are underwritten by commercial carriers must enter into an agreement for underwriting services with a licensed insurer. Aside from underwriting specifications, the agreement between the administrator and the insurer of the benefits identifies the arrangements for payment, administration, filing of claims, etc., and delegates various tasks. While responsibilities may vary from agreement to agreement, the underwriter always provides the actual coverage and charges a corresponding rate to the administrator. The administrator, whose name is usually on the insurance plan, then bills its members or their employers for the combined cost of administration and underwriting services.

The various provisions of the cooperative venture between MESSA and- Blue Cross are detailed in an operating agreement dating back to August 13, 1985. Pursuant to this agreement, MESSA is actually administering Blue Cross insurance to public school employees under the MESSA name. Blue Cross assumes full risk for paying the benefit costs associated with MESSA health plans (unless those costs are outside of the scope of the agreement). MESSA is responsible for most aspects of administration. Among the more significant tasks allocated to MESSA are:

• Calculating and collecting the premiums charged to customer school districts;

• Processing applications and enrolling new members;

• Issuing certificate booklets and identification cards;

• Deciding how any excess revenues will be used;

• Identifying eligibility for claim reimbursement;

• Adjusting claims and determining the amount to be paid;

• Paying certain claims to members;

• Overseeing the claims appeal process;

• Pre-determining the "reasonable" amounts to be paid for certain claims;

• Paying Blue Cross for the cost of underwriting plus a service fee.

The MEA has a stake in the agreement because it maintains control over the structure of benefit packages through MESSA's Board of Trustees. In addition, the MEA takes administrative responsibility for promoting MESSA health plans to its local affiliates and negotiating the plans into labor contracts.

The most essential feature of MESSA's agreement with Blue Cross is that MESSA members are allowed to take advantage of the provider arrangements that Blue Cross has with hospitals, physicians, and other health care providers in the state of Michigan. This arrangement permits MESSA to procure the special discounts that Blue Cross receives from its participating health care providers. Participating providers agree to accept slightly lower payments in exchange for a guaranteed volume of business. These special discounts are advantageous to customer school districts because participating providers cannot overcharge MESSA for services, thereby limiting the overall cost of MESSA plans.

The discounts are also an effective cost-reduction mechanism for MESSA members. Participating providers in the Blue Cross/Blue Shield program have agreed in advance to accept the "reasonable and customary" payment for medical services, as determined by Blue Cross, and to receive direct compensation from Blue Cross for any services rendered to MESSA members. MESSA members do not have to worry about being overcharged or compensating for any difference that would result if a provider charged above the "reasonable and customary" level. Yet, even if this arrangement did not exist, MESSA would most likely accept the burden of excess charges on behalf of its members as part of its goal to reduce their personal liability for costs.

Despite the agreement with Blue Cross, nothing compels MESSA members to receive medical services from Blue Cross participating providers; members also have the option of receiving treatment from providers that are not affiliated with Blue Cross. Non-affiliated providers may participate on a case-by-case basis, but only if they agree to accept Blue Cross's terms of payment. Like regularly participating providers, nonaffiliated providers who agree to participate submit their claims directly to Blue Cross using the standard Blue Cross filing system.

In the other situation, where the provider is neither affiliated with Blue Cross nor willing to participate with Blue Cross in the particular case, the MESSA member can still receive treatment and send the itemized invoice to MESSA, rather than Blue Cross. This type of claim is processed by a MESSA employee and paid according to MESSA's own "reasonable and customary" fee schedule using a MESSA check. Although Blue Cross has determined a schedule of reasonable charges for health services, MESSA is allowed to disregard this schedule when handling certain claims. Blue Cross has no other contract arrangement quite like this.

MESSA contends that its operating agreement with Blue Cross is so confidential that it will not disclose any information about the contents to its members, customer school districts, or the taxpaying public. MESSA will only allow the Insurance Commissioner to examine the agreement for investigative purposes, and it will not let the Insurance Bureau retain a copy. A letter from MESSA's attorneys to the Insurance Bureau best summarizes the secrecy of this agreement:

MESSA and Blue Cross have gone to substantial lengths to preserve the confidentiality of their trade secrets. MESSA will vigorously oppose public disclosure of these confidential trade secrets… Public disclosure of the trade secrets is not necessary and will not serve the public interest.⁴⁹

To the contrary, disclosure of the agreement would serve the public interest by allowing citizens to scrutinize the efficiency of an operation which is funded by public school districts. Information obtained through interviews and public records demonstrates that the operating agreement does contain inefficiencies affecting MESSA's design of benefits, which work to the advantage of MESSA and Blue Cross, but are wasteful from the public's point of view.