Pennsylvania’s four Blue Cross companies have spent more than $1 billion in recent years subsidizing health plans for people who can’t get coverage anywhere else.
As the so-called insurers of last resort, subsidies provided by the Blues have been the primary justification for their not-for-profit status since the mid-1990s.
But starting next year when the federal health care reform law goes into full effect, the companies will need to find a new reason to call themselves nonprofits.
That’s because the Affordable Care Act eliminates the need for nonprofit insurers to cover the chronically ill. Under the 2010 law, all health insurance companies essentially become insurers of last resort because they will no longer be allowed to deny coverage based on a person’s health.
And the federal government will take over the role of making individual plans affordable by providing subsidies to offset monthly premiums.
Two state senators who oversee the insurance industry in Pennsylvania said it’s time to review the charitable missions of Highmark Inc., Capital Blue Cross, Independence Blue Cross and Blue Cross of Northeastern Pennsylvania.
“Insurer of last resort is their essential purpose,” state Sen. Michael Stack, a Philadelphia Democrat and the minority chair of the Senate Banking and Insurance Committee, said of the state’s Blue Cross companies.
“The way they do business, the way they function, will clearly change” under health care reform, Stack said. “It’s something that absolutely lawmakers should take a look at.”
State Sen. Don White, R-Indiana, agreed. “I think we need to look at them,” said White, who is the committee’s chairman.
The four state-created nonprofit Blues have built up substantial reserves — totaling more than $7 billion at the end of 2012 — and should be required to give back financially to their communities to justify their nonprofit status, he said.
“With Highmark sitting there with $4 billion in reserves, that could solve a few health care issues,” he said.
Does that mean the companies should lose their non-profit status? White said all options should be on the table.
But Joel Ario, who was the state’s insurance commissioner under Gov. Ed Rendell, said there should be a role for the Blues in providing products under the Affordable Care Act that for-profit insurers may not find profitable.
“I wouldn’t be in favor of eliminating their nonprofit status,” he said.
Michigan lawmakers this year reacted to the changes coming from the Affordable Care Act by converting the state’s nonprofit Blue Cross company to a member-owned mutual insurance company.
Rhode Island and Virginia are the only other states where nonprofit Blue Cross companies are the insurers of last resort, as well as Washington, D.C.
Blue Cross Blue Shield of Rhode Island declined to comment. CareFirst, a Maryland-based nonprofit Blue Cross company and the insurer of last resort in Virginia and Washington, said it has no plans to ditch its nonprofit status, but declined to comment further.
Laurie Sobel, a senior attorney for Consumers Union, the nonprofit publisher of Consumer Reports magazine, said insurers of last resort should shift their focus to making health insurance less expensive.
“Many of these Blues plans have a mission to provide affordable coverage,” Sobel said. “They should be held accountable to that mission.”
Pennsylvania’s four Blues have reported to the state a total of $1.1 billion in charity spending since 2008, including what they plan to spend through June 2014. About 75 percent of that spending, or $822 million, has gone to subsidize plans. The remainder has been donations to health care related charities and other spending to improve community health.
The four companies’ proposed charitable spending this year of $186.9 million is less than 1 percent of their combined revenue of $27.8 billion in 2011. From July this year through June 2014, the four companies plan to spend a total of $250 million. That number is higher than previous years because Highmark included more than $135 million it is giving to Jefferson Regional Medical Center and St. Vincent Health System in Erie.
Highmark has acquired Jefferson Regional and plans to buy St. Vincent as part of a new integrated health care system it is creating.
Highmark, the state’s largest health insurer with 5 million members, said it expected to provide $87.1 million in subsidies between July 2012 and June 2013 on plans for people unable to obtain insurance coverage elsewhere, according to state reports. That spending will drop to $36.4 million from July this year through June 2014.
The company reported 2011 revenue of $14.8 billion and net income of $444.7 million.
Highmark spokesman Aaron Billger said the company will continue to spend money to improve community health.
“Our nonprofit status allows us to put the needs of our members and local communities first,” he said. “Although the insurer of last resort role and current way Highmark contributes to the community may change, Highmark will continue to make very significant investments in community health and welfare.”
Billger could not provide specific ways the insurer will fulfill its charitable mission. He did cite Highmark’s pending acquisition of West Penn Allegheny Health System and creation of a new health system as examples of activities that will benefit the community.
Highmark is building a new network of hospitals and doctors to compete against Western Pennsylvania’s largest health system, UPMC, which is coming under fire for allegations that it fails to act like a nonprofit.
Pittsburgh Mayor Luke Ravenstahl last month filed suit against UPMC, challenging its nonprofit status and seeking to extract property tax payments from the health system. UPMC has said it deserves its nonprofit status because it provides charity care to patients.
But Highmark and the state’s other Blue Cross companies are not charities like UPMC, West Penn Allegheny and other hospitals throughout the region.
The four Blues are exempt from state and local taxes under state law, but they are not charities under the federal tax code. They pay federal income tax and Highmark pays property taxes on all its real estate holdings. They also pay taxes on for-profit subsidiaries.
“Because of their prior history as insurers of last resort, we expect that the Blues will continue to provide coverage to many folks who have significant health issues,” state Insurance Department spokeswoman Rosanne Placey said.
She declined to comment on what a new role for the Blues should be.
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Staff Writer: Alex Nixon
April 7th, 2013