Earlier this week, Brad Wilson, CEO of Blue Cross and Blue Shield of North Carolina, held a press conference with North Carolina Insurance Commissioner, Wayne Goodwin, to make a major announcement. During the conference, Mr. Wilson happily announced that Blue Cross would be refunding $155.8 million dollars to some of its customers who had purchased individual insurance through Blue Cross. The refund is tied to the federal health care overhaul which spurred Blue Cross to return some of its reserves to its individual members. Wilson also announced that the rate increase of 6.97% that Blue Cross had requested earlier this year would be lowered to only a 5.37% increase and that the reduction in this rate increase would actually save Blue Advantage customers approximately $14.5 million dollars next year. Hallelujah, health care reform must actually be working! Our problems are solved!
Wait a minute -- Is this the first sign that health care reform legislation is actually reducing costs? Are we finally emerging from the hyperinflation of health insurance costs and bending the cost curve as the president promised? Is this the first sign of economic recovery and are we going to see our streets paved with gold next year?!?! Not so fast. Unfortunately, the answer to all of these questions is no. This announcement by Blue Cross and Blue Shield of North Carolina has nothing to do with health care reform legislation actually working. This announcement is nothing more than a clever game of political spin aimed at trying to build support for Democratic candidates leading up to an important midterm election in November. And anyone who thinks this is actually a good thing is wrong.
Consider two separate stories about Blue Cross that were published in the months leading up to this particular press conference. On July 14th, 2010, a story ran in the local papers that Blue Cross, “the insurance giant in North Carolina,” was going to cut its costs by 20%. In this story, Brad Wilson made some very interesting and very accurate observations about the future of health care and health care costs. Wilson stated, “Over time, Blue Cross will be a smaller company. It’s all about change. We are focused on how we need to change to meet the needs of North Carolina.” Later in the story, Mr. Wilson explained why Blue Cross had lobbied against the health care reform legislation and why he would like to see further changes in the legislation that passed. He lamented, “Unless the industry is revamped and medical inflation is tamed it brings you to a doomsday scenario down the road.” Now does that really sound like a man who truly believes that health care reform has fixed the cost problems with health insurance in this country? Not hardly.
Another example: One month later, on August 19th, a similar story was published. In this article, Blue Cross asked the Department of Insurance to approve rate increases for two of its health insurance plans including its Blue Advantage plan that provides insurance for individuals purchasing their own policy. This product currently covers more than 300,000 people in North Carolina. Blue Cross requested a rate increase of nearly 7 %. Officials said provisions of the Federal Patient Protection and Affordable Care Act (health care reform law) were impacting rates charged under this plan. A company statement was said, “Given what we know today about the health care reform law, premiums will be generally higher for individual policies after 2014. Rates generally will be lower for less healthy consumers and higher for healthier consumers than they would have been without reform.”
Now, just one month after those statements were made, Brad Wilson suddenly puts on a happy face and comes out with a major refund and a reduction in its requested rate increase. So what happened? Why the change of heart? Did Blue Cross suddenly realize that it had been wrong all along and that health care reform is really going to be the magic bullet the reduces the cost of care? Did they suddenly decide to play nice and start giving away money? No, I don’t think any of those things happened. What I believe happened (and what I think you’ll agree is a much more likely scenario) is that Blue Cross got caught in the middle of a game of serious political arm twisting.
All across the country we are seeing examples of employers and insurance companies sending signals that they think health care reform law is not going to help control costs but rather is going to increase costs. It started when several large companies including AT & T, Caterpillar, and many others came forward (as required by law), taking a charge to their books and reporting this charge to the SEC. Then there was the fight in Massachusetts when the Department of Insurance declined all rate increases and the payers have since taken that fight to court. Many states have seen similar rate increase requests from insurance companies, and it seems that everywhere we turn today there is negative press disparaging health care reform similar to what we have seen in North Carolina.
At almost every turn, the Obama Administration or members of the Democratic Party have tried to counter these naysayers. Just last week, the Department of Health and Human Services sent a very intimidating letter to the insurance industry that accused them of partaking in “misinformation and misleading marketing.” The letter went on to warn that “there will be zero tolerance. We will…. keep track of insurers who make unjustified rate increases.” Now here’s where the arm twisting comes in: This letter specifically says that the Department of Health and Human Services may exclude those insurers from a large slice of the market in 2014 by excluding them from participating in the exchanges that will be developed by then. The Administration is telling an entire industry to put a positive spin on health care reform…or face what would be the destruction of their entire business in a couple of years. Now doesn’t this sound like that old scenario where the three large men in bad suits come into your place of business and say, “You’ve got a nice place here. It would be a shame if it burned down. Lucky for you, we can provide you with protection for a small, weekly fee.”
Alright, so how does this all relate to the Blue Cross refund announcement? With midterm elections coming up and not a single Democrat wanting to campaign on the fact that they voted yes for health care reform, I think it’s extremely likely that someone put pressure on Blue Cross and Blue Shield to give a refund now… or face more dire consequences in the future. Think about what just happened —more than 300,000 potential voters in North Carolina (a state with a Democratic governor) just got the happy news about refunds and lower premiums (and gumdrops and rainbows). Now, the Democratic candidates can try to tie that directly to health care reform less than two months before a major midterm election. Look, I’m not saying that someone is trying to buy votes…..but…..well, yes; I guess that is what I am saying. When it comes to politics, there is always a bigger picture than what first meets the eye.
Now this is what I find most concerning: What do you think Blue Cross is likely to do in response to this situation? Keep in mind that they just took hit of over $155.8 million dollars. Any business that faces a loss of more than $150 million dollars is going to look at how it can reduce expenses to help cover the loss. In the case of Blue Cross and Blue Shield, 87% of their expenses are made up of payments to physicians, hospitals and other providers of care or products. So, if they need to reduce expenses to cover this loss, they are most likely to do so by taking it out of the pockets of a doctor or hospital. By that reasoning, one could make the argument that these votes are not being purchased by Blue Cross and Blue Shield, but rather, physicians will end up paying for them in the long run.
It will be interesting to see how many times this scenario plays out in other states as their governors and insurance commissioners start their own versions of arm twisting leading up to the midterm elections. It will also be interesting to see if these scenarios only play out in states with a Democratic governor like North Carolina.
Wait a minute -- Is this the first sign that health care reform legislation is actually reducing costs? Are we finally emerging from the hyperinflation of health insurance costs and bending the cost curve as the president promised? Is this the first sign of economic recovery and are we going to see our streets paved with gold next year?!?! Not so fast. Unfortunately, the answer to all of these questions is no. This announcement by Blue Cross and Blue Shield of North Carolina has nothing to do with health care reform legislation actually working. This announcement is nothing more than a clever game of political spin aimed at trying to build support for Democratic candidates leading up to an important midterm election in November. And anyone who thinks this is actually a good thing is wrong.
Consider two separate stories about Blue Cross that were published in the months leading up to this particular press conference. On July 14th, 2010, a story ran in the local papers that Blue Cross, “the insurance giant in North Carolina,” was going to cut its costs by 20%. In this story, Brad Wilson made some very interesting and very accurate observations about the future of health care and health care costs. Wilson stated, “Over time, Blue Cross will be a smaller company. It’s all about change. We are focused on how we need to change to meet the needs of North Carolina.” Later in the story, Mr. Wilson explained why Blue Cross had lobbied against the health care reform legislation and why he would like to see further changes in the legislation that passed. He lamented, “Unless the industry is revamped and medical inflation is tamed it brings you to a doomsday scenario down the road.” Now does that really sound like a man who truly believes that health care reform has fixed the cost problems with health insurance in this country? Not hardly.
Another example: One month later, on August 19th, a similar story was published. In this article, Blue Cross asked the Department of Insurance to approve rate increases for two of its health insurance plans including its Blue Advantage plan that provides insurance for individuals purchasing their own policy. This product currently covers more than 300,000 people in North Carolina. Blue Cross requested a rate increase of nearly 7 %. Officials said provisions of the Federal Patient Protection and Affordable Care Act (health care reform law) were impacting rates charged under this plan. A company statement was said, “Given what we know today about the health care reform law, premiums will be generally higher for individual policies after 2014. Rates generally will be lower for less healthy consumers and higher for healthier consumers than they would have been without reform.”
Now, just one month after those statements were made, Brad Wilson suddenly puts on a happy face and comes out with a major refund and a reduction in its requested rate increase. So what happened? Why the change of heart? Did Blue Cross suddenly realize that it had been wrong all along and that health care reform is really going to be the magic bullet the reduces the cost of care? Did they suddenly decide to play nice and start giving away money? No, I don’t think any of those things happened. What I believe happened (and what I think you’ll agree is a much more likely scenario) is that Blue Cross got caught in the middle of a game of serious political arm twisting.
All across the country we are seeing examples of employers and insurance companies sending signals that they think health care reform law is not going to help control costs but rather is going to increase costs. It started when several large companies including AT & T, Caterpillar, and many others came forward (as required by law), taking a charge to their books and reporting this charge to the SEC. Then there was the fight in Massachusetts when the Department of Insurance declined all rate increases and the payers have since taken that fight to court. Many states have seen similar rate increase requests from insurance companies, and it seems that everywhere we turn today there is negative press disparaging health care reform similar to what we have seen in North Carolina.
At almost every turn, the Obama Administration or members of the Democratic Party have tried to counter these naysayers. Just last week, the Department of Health and Human Services sent a very intimidating letter to the insurance industry that accused them of partaking in “misinformation and misleading marketing.” The letter went on to warn that “there will be zero tolerance. We will…. keep track of insurers who make unjustified rate increases.” Now here’s where the arm twisting comes in: This letter specifically says that the Department of Health and Human Services may exclude those insurers from a large slice of the market in 2014 by excluding them from participating in the exchanges that will be developed by then. The Administration is telling an entire industry to put a positive spin on health care reform…or face what would be the destruction of their entire business in a couple of years. Now doesn’t this sound like that old scenario where the three large men in bad suits come into your place of business and say, “You’ve got a nice place here. It would be a shame if it burned down. Lucky for you, we can provide you with protection for a small, weekly fee.”
Alright, so how does this all relate to the Blue Cross refund announcement? With midterm elections coming up and not a single Democrat wanting to campaign on the fact that they voted yes for health care reform, I think it’s extremely likely that someone put pressure on Blue Cross and Blue Shield to give a refund now… or face more dire consequences in the future. Think about what just happened —more than 300,000 potential voters in North Carolina (a state with a Democratic governor) just got the happy news about refunds and lower premiums (and gumdrops and rainbows). Now, the Democratic candidates can try to tie that directly to health care reform less than two months before a major midterm election. Look, I’m not saying that someone is trying to buy votes…..but…..well, yes; I guess that is what I am saying. When it comes to politics, there is always a bigger picture than what first meets the eye.
Now this is what I find most concerning: What do you think Blue Cross is likely to do in response to this situation? Keep in mind that they just took hit of over $155.8 million dollars. Any business that faces a loss of more than $150 million dollars is going to look at how it can reduce expenses to help cover the loss. In the case of Blue Cross and Blue Shield, 87% of their expenses are made up of payments to physicians, hospitals and other providers of care or products. So, if they need to reduce expenses to cover this loss, they are most likely to do so by taking it out of the pockets of a doctor or hospital. By that reasoning, one could make the argument that these votes are not being purchased by Blue Cross and Blue Shield, but rather, physicians will end up paying for them in the long run.
It will be interesting to see how many times this scenario plays out in other states as their governors and insurance commissioners start their own versions of arm twisting leading up to the midterm elections. It will also be interesting to see if these scenarios only play out in states with a Democratic governor like North Carolina.
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