Concerns About the Elimination of Dual Choice

Although MESSA is worthy of criticism for many of the ways in which it conducts business, not all of the criticism has been leveled with fairness. A frequent subject of criticism has been the decision by MESSA and Blue Cross to eliminate dual choice of health insurance plans. The term "dual choice" refers to situations where employees are given the opportunity to choose between two competing indemnity plans. Under regular circumstances, employees would comprise one group for underwriting purposes and would not be given more than one option for insurance. Several of Michigan's school districts have persistently objected to the elimination of dual choice, even though the decision was economically prudent on MESSA's part.

In 1989, MESSA adopted a "Dual Choice Phase-Out" plan, which eliminated the co-existence of MESSA and Blue Cross insurance plans over a five year period. Although this plan might appear to be an attempt by MESSA to dominate its market, there were valid reasons for the decision which supersede any attempts to undermine it.

The dual choice option permitted public school employees to choose between MESSA coverage and Blue Cross coverage. The obvious problem with this and similar arrangements is that the plan offering more comprehensive benefits tends to be chosen by employees with a greater need for insurance. Similarly, the plan with reduced benefits tends to be chosen by people in good health, who can take advantage of rebates for selecting the cheaper plan. For example, an employee who expects to be in good health for the coming year will choose the less-comprehensive Blue Cross plan and receive a rebate. But next year, the employee may expect to become pregnant, so she will choose the MESSA plan, since it will fully cover her medical bills. This is the problem of adverse selection- one carrier retains a disproportionate share of the risk. Instead of a single group with both high and low risks, one carrier ends up with the high risk while the other enjoys the low risk.79

The existence of dual choice was an expensive underwriting policy for MESSA. Since insurance rates are based largely on actuarial predictions, the high losses for MESSA translated into higher premium rates. Under usual circumstances, MESSA had the higher number of participants, but due to the existence of dual choice, it, also had the higher risk since it provided the better benefits.

It is possible to question Blue Cross's role in the decision, once the situation is analyzed from Blue Cross's perspective. Whether the plan name is Blue Cross or MESSA, Blue Cross is still the underwriter of both plans. As the underwriter, Blue Cross incurs the same aggregate experience factor regardless of whoever has its name on the policy. Furthermore, Blue Cross benefits from underwriting MESSA plans without having to compete with MESSA. Is it just that Blue Cross was sympathetic to MESSA's losses, or did other motivations factor into the decision? (Consider that dual choice is prohibited by Paragraph 6 of the standard Blue Cross Group Operating Agreement, but exceptions were previously made for the school employee market). To further complicate matters, school districts could not tell who made the decision to eliminate dual choice, since both Blue Cross and MESSA arrived at similar, yet independent, decisions.80 Nevertheless, the decision to eliminate dual choice was an intelligent move for MESSA, since it spread total risk and eliminated the problem of adverse selection.