Blue Cross Blue Shield Headquarters
The Blue Cross Blue Shield of Michigan headquarters is located in this Detroit building. Some school districts say they have saved thousands of dollars and maintained employee benefit levels by purchasing those plans. About 80 percent of Michigan public school districts purchased Blue Cross insurance as of 2005, either directly from the corporation or through a third-party administrators. (AP Photo/Carlos Osorio)

A group of customers is concerned that Blue Cross Blue Shield of Michigan might begin charging more for a health plan that has saved public schools hundreds of thousands of dollars over the years.

The group of school districts, labor unions and insurance administrators in December asked for details about a recent Blue Cross proposal to add a surcharge to the cost of certain High Deductible Health Plans, or HDHPs. School districts say those plans save them money because, as with auto or home insurance, the premium goes down when the customer pays a higher deductible up front.

Typically under this scenario, a school district purchases a medical plan with a deductible ranging from $1,000 to $2,500. Instead of asking the employee to pay that deductible, the district pays part or all of it from its general fund, or uses a third party administrator, called a TPA, for the payment of claims within the deductible limits, a process known as "wrapping" the plan.

Some districts have found that the combined cost of a high-deductible Blue Cross plan and a separate wrap is less than the cost of a more traditional, low-deductible plan, according to school officials and insurance administrators. Schools save money not just because of the lower premium, but also because some employees don't use all of the deductible set aside for them in any given year.

In November, however, Blue Cross informed Michigan's Office of Financial and Insurance Regulation that it intended to charge an additional 8 percent to 32 percent for high-deductible plans in cases when the customer added a wrap, according to a letter from the corporation to Joan Moiles, OFIR deputy commissioner. Blue Cross said it would add the surcharge as of Jan. 1 to new customers representing 100 or more insured employees, as well as customers who move to a new insurance funding plan.

The surcharge would not be limited to schools, but would include other public and private sector customers.

Since the November letter, however, Blue Cross has withdrawn that proposal and the future cost of high-deductible plans remains a question.

"We're currently discussing our high-deductible plans," Blue Cross spokeswoman Helen Stojic told Michigan Education Report, but said the corporation had no further comment.

Blue Cross stated in the November letter that wrap programs take away employees' incentive to hold down health care expenses. The letter said that the corporation has experienced "significant financial losses" on the plans, and that "the additional load will ensure that the rates for coverages with wraps are adequate."

Some customers responded in December by requesting the state insurance office to conduct a hearing on those assertions. A list of entities requesting the hearing includes school districts, insurance consultants and labor unions, among them local units of AFSCME, the AFL-CIO and the AFT Michigan. The group is concerned not just about what Blue Cross plans to charge new customers, but about future renewal rates.

"We have not found any evidence, and they haven't provided us any evidence, that this increase would be necessary," said James Bleau, an assistant superintendent with Swartz Creek Community Schools, in a telephone interview.

Swartz Creek has purchased a high-deductible plan with a wrap for 10 years, he said, currently providing coverage to 240 employees.

"It's been very effective," he added.

Similarly, the Chelsea Public School District shifted from the Blue Cross Community Blue plan to the Blue Cross high-deductible plan in order to take advantage of lower rates, according to Teresa Zigman, executive director of Chelsea's business and operations. The district pays the deductible on behalf of its 225 employees, but not all of them use the entire amount, she said. Last year the plan returned about $100,000 in unused deductible to the district.

"We could be looking at a 50 percent increase" if the surcharge as originally proposed were applied, Zigman said.  Some of that increase would be based on the district's actual claims, which is understandable, Zigman said, but the surcharge would be an additional load.

A number of other school district and insurance administrators did not return calls from Michigan Education Report or declined comment.

"We think it should be incumbent on Blue Cross to provide those numbers," said Brian Flowerday, operations manager with School Employers Trust and School Employers Group, a nonprofit organization that sells insurance and consulting services to Michigan schools.

Blue Cross has actively encouraged sales of its high-deductible products, Jim Miller, SET SEG director of sales and marketing, said.

It might seem odd that a proposal by one company to raise the price of one product would generate such reaction among schools and local unions. But insurance consultants say that high-deductible plans with wraps is a key way in which districts have been able to restrain health care spending without reducing benefit levels or asking employees to pay more through premium contributions or co-pays. 

Jim Anthony, chief executive officer of Oak Pointe Group, a consulting firm that works with school districts on lowering their healthcare costs, told Michigan Education Report, "If OFIR approves any significant increase in rates for these HDHP plans as requested from the Blues it will cripple PA 106."

Enacted in 2007, Public Act 106 was a legislative effort to address the pressure put on school budgets by rising health care costs. The act requires schools to bid their health care plans, requires providers to turn over claims histories to their customers, and makes it easier for smaller schools to form insurance pools. The bidding process and release of claims data is intended to help schools comparison shop for lower-cost plans.

About 80 percent of Michigan schools purchased Blue Cross Blue Shield insurance in one form or another as of 2005, either directly from the corporation or through a third-party administrator, according to a report commissioned that year by legislative Republicans.

The largest third party-administrator is the Michigan Education Special Services Association, an affiliate of the Michigan Education Association, which sells Blue Cross packages to a majority of Michigan school districts. MESSA does not offer a High Deductible Health Plan option.

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Lorie Shane is the managing editor of the Michigan Education Report, the Mackinac Center’s education policy journal. Permission to reprint in whole or in part is hereby granted, provided that Michigan Education Report is properly cited.