Recently, there has been some confusion over MESSA's role as a risk taker. If MESSA
paid for certain claims outside of what it owed to Blue Cross, then it would qualify as an
at-risk insurer rather than an administrator. There have also been questions about the
legality of MESSA because MESSA would be violating the insurance code if it accepted risk
in its insurance plans. MEA Executive Director Beverly Wolkow has testified that MESSA
does share risk with Blue Cross.57 But this contradicts a previous MESSA
statement explaining, "These are fully insured/underwritten contracts. MESSA takes no
risk."58 All things considered, MESSA technically does not appear to have
accepted any explicit risk. Yet, this does not mean that MESSA is absolved of any implicit
The implicit assumption of risk can be found in the formula which calculates the
underwriting results that are to occur if MESSA ever terminated its contract with Blue
Cross.59 The ultimate risk taker for MESSA health insurance plans is Blue
Cross, but this insured risk must be put in its proper perspective. Blue Cross's ultimate
risk for MESSA health insurance plans is limited to a reserve deficit in excess of 10
percent of annual premium but only at the time the MEA cancels the operating agreement. If
Blue Cross suddenly stopped underwriting MESSA plans, it would still be liable for claims
which have been incurred but not paid as of the termination date. The operating agreement
dictates that Blue Cross will establish a Rate Stabilization Reserve (RSR) in order to
cover these claims-in-process in the event that the operating agreement is ever canceled.
The accumulated underwriting results of all prior ratings periods are debited or credited
to the RSR. If the MEA cancels the agreement, all claims have been satisfied, and the
balance in the RSR is positive, the leftover money is refunded to MESSA. If the balance is
negative, Blue Cross recoups the difference from MESSA. The ultimate risk of Blue Cross to
pay for claims-in-process is confined to any amount over 10 percent of the annual premium
it receives from MESSA.
Suppose, for example, that MESSA paid $300 million in premiums to Blue Cross last year.
Also suppose that last year, MESSA canceled its underwriting agreement with Blue Cross. Up
to that point, any of MESSA's premium payments to Blue Cross that were not used to pay
for' insurance benefits during the applicable plan year were added to a cash reserve.
Similarly, any losses during a plan year were deducted from this reserve. At the time
MESSA canceled its agreement with Blue Cross, the balance in the reserve totaled $45
million. If any claims remain unpaid at the time the agreement is canceled, MESSA has to
pay for the first $30 million worth of claims, or 10 percent of annual premium. Blue Cross
must come up with the difference of $15 million. In the opposite situation, if there were
no unpaid claims at the time of cancellation, Blue Cross would keep $15 million and refund
the $30 million to MESSA-a windfall profit.
The likelihood of a reserve deficit exceeding 10 percent of premium at the time the
agreement is canceled is so remote that the operating agreement between the parties
resembles more of a "minimum-premium" or "self-funded cash flow"
arrangement. Under such an arrangement, MESSA would anticipate its future claims and
reserve just the right amount of funds to meet the contingencies. Right now, the rate
structures charged to MESSA by Blue Cross practically guarantee that enough money will be
generated to cover MESSA's benefit costs for the year. If the rates generate more than
enough money, the surplus is deposited in a reserve. The only time there would be any
practical risk for Blue Cross is when the underwriting agreement is canceled and the cost
of unpaid claims exceeds 10 percent of last year's premium, because that is the only time
when the actual "insurance" will kick in. The entire risk is born by Blue Cross,
but the practical risk for Blue Cross is minimal to non-existent. Realistically, Blue
Cross would only be at considerable risk if MESSA somehow refused to make payment.