Why We’re Making Changes to Legacy Medigap
Good businesses always seek to do right by their customers. This often makes for tough business decisions – because sometimes, what’s good for some customers isn’t necessarily good for all. The best businesses try to find that balance where everyone is served well.
As Blue Cross Blue Shield of Michigan moves forward with some significant increases in the cost of premiums for some of our most loyal customers – the nearly 200,000 members enrolled in our Medicare supplement plans known as “Legacy Medigap” – we want to take this opportunity to explain how we came to this decision and how moving forward best serves the collective interest of our more than 5 million members.
To see the full picture, it’s important to put all the parts into perspective.
How Legacy Medigap Is Priced Today
The premiums our members pay for Legacy Medigap today are artificially low for two reasons:
- First, because for the past five years they have been frozen by an agreement between Blue Cross and the state of Michigan. Health care costs have risen over that time, but premiums haven’t changed.
- Second, because under an old regulatory law, Blue Cross was required to subsidize Medigap by absorbing financial losses that result from our premiums not being enough to cover the cost of health care for our covered members. In Legacy Medigap, health care costs were higher than premium revenue by about 150 percent in 2015 – totaling more than $200 million in losses.
Medigap Subsidies and Blue Cross’ Historic Mission
Blue Cross has been a mainstay of Michigan health care for 77 years – providing security and confidence to generations of people. Over that time, we have grown to be a large business, but we have also maintained the character of a nonprofit. Today, our nonprofit mission continues to be focused on helping everyone in Michigan obtain access to quality health care, and improving the health of our state’s people and communities.
In 1980, a state law was enacted that put some requirements around Blue Cross’ nonprofit mission. That law extended the company’s state and local tax exemptions as a nonprofit. In return, the company was required, among other things, to subsidize Legacy Medigap.
Medicare Expands Options for Beneficiaries
Back in 1980, Medigap plans were the only option available to seniors for filling the gaps in their Medicare benefit.
In the 2000s, however, Congress enacted changes to the Medicare system. New plan options were introduced. These plans dramatically broadened the Medicare benefit and offered a significant number of choices that exist today in an open and competitive market. Some of these new plans offer more comprehensive coverage, including dental and vision coverage. Medigap plans were no longer the only option for beneficiaries. They were just one of many options for coverage.
Changes in State Law Restructure Blue Cross’ Requirements
In 2013, the state of Michigan passed a new law regulating Blue Cross. This law ended the company’s tax-exempt status. As a result, we paid more than $100 million in state and local taxes in 2015. In return for the company paying taxes, the old requirements of the 1980 law were abolished – including the requirement that we subsidize Legacy Medigap. New requirements were put into place.
One of the new requirements of the 2013 law is that Blue Cross provide $1.56 billion over 18 years to support a newly created and independent nonprofit – the Michigan Health Endowment Fund. Blue Cross has paid $210 million to the Endowment Fund so far. The requirement to subsidize Medigap coverage now applies to the Health Endowment Fund, not Blue Cross.
Vulnerable People Still Benefit from Medigap Subsidies
The mission of the Health Endowment Fund is to protect the health of people in Michigan who are vulnerable. The Health Endowment Fund worked hard with Blue Cross, senior advocates and our health plan competitors to structure a subsidy for Medigap that helps people who need help the most.
We are very pleased that some of the money we have provided the Health Endowment Fund for Medigap subsidies will help people with disabilities and seniors who earn below $26,730 for an individual or $36,045 for a couple. You can learn more about the new Medigap subsidy here.
The Market Benefits
Medigap plans in Michigan are offered by a number of different companies. The plans are regulated by the federal government, so the benefits are fairly consistent regardless of the company providing the coverage. The only difference in Michigan for 36 years has been the price – with Blue Cross’ artificially low premiums for Legacy Medigap giving us an edge in attracting and retaining membership.
Our competitors charge market rates for Medigap that approximate health care costs for their members. Soon, we will be pricing our products using the same standard.
Our Customers Benefit
As a nonprofit mutual, Blue Cross tries to manage our financial performance to very small margins of profitability. In 2015, we lost $68 million overall – including $220 million on Legacy Medigap. Even when our new pricing takes effect, Blue Cross projects that premium revenues still will fall below what we need to cover medical claims and costs.
It’s a delicate balance. We try to keep health coverage affordable for each of our more than 5 million members, pay the taxes now required by the law, make our annual payments to the Health Endowment Fund to protect people and subsidize Medigap for the vulnerable, and have capital to invest in improving our business. Improving our financial performance on Medigap will help all of our customers over the long term.
We are making this change at a time when Medicare beneficiaries have more choices for coverage than ever before. As we move forward, we are committed to working hand-in-hand with our Legacy Medigap members and their families, with the committed advocates serving seniors and persons with disabilities, and with state regulators and the Health Endowment Fund.
Working as a trusted partner to help people make fully informed choices and getting the coverage that best meets their needs has been a hallmark of our company’s approach since 1939. We’re redoubling that effort now.
Will seniors 65 and older pay the same rate as the under 65 disabled subcribers? Currently, the rate is the same for everyone. Also, will you stop selling these legacy plans to newly elidgable seniors?
Hi Dawn, Your rate will be determined based on a number of factors, including your age and where you reside in Michigan. Unlike many of our competitors, Blue Cross will continue to guarantee access to Medigap coverage, regardless of health status. For specifics on available plans for newly eligible seniors and any questions about your coverage, please dial the number on the letter you received or reach out to us here, http://miblues.co/29OAEjf.
The change in law was not to our benefit. What happened is that instead of using the $100 million to keep rates down, Blue Cross Blue Shield pays it to the government as taxes. Who on earth would approve of such a lousy deal? And then our rates need to be raised enough to subsidize the payment to the Endowment. So, we the rate payers are hit twice, once we are taxed to subsidize the poor, and second to pay the government taxes. And for what, so now we get the same as any other insurance company provides? BC/BS was a good deal, and now we have lost it. This must have to do with the wild idea of privatization, and no longer giving the common person a break. I see no benefit to this new method of taxation. We need to start a new insurance company in Michigan to replace the BC/BS we have lost. This increases the cost of health care to us all for no reason. We had a better deal. As far as the options for Medigap, they are rip offs, do not buy Medicare Advantage. You will die because you will not have the coverage you need.
Thank you for your comment, Mark.
Over the past five years, BCBSM has not increased the price of Legacy Medigap while health care services get more expensive each year. Insurance prices typically reflect these higher costs. Because of the five-year rate freeze, premiums have slipped far behind the annual cost of providing care for Medigap members and must be adjusted now. We have paid $210 million of a $1.56 billion, 18-year commitment, to the Michigan Health Endowment Fund. The MEHF is using some of that money to provide a subsidy to offset the cost of Medigap for people who meet income criteria. For more information, visit http://bit.ly/1pAu8CX.
Thank You,
Naomi
I got my letter of increase yesterday. My new rate is 314.00 dollars. A 260% increase. I dont have major dr or hospital bills. Bcbsm really doesnt want my business. I cant afford this nor do I qualify for the subsidies. I do pay additional insurance costs from Medicare and a stand alone drug plan. I pay more on my car insurance because medicare does not pay for car injuries as well.I am on social security and there have been minimal increase at best but not 260 a month increase to cover insurances raises
Hi Robin,
To help our members, Blue Cross has agreed to keep the current price for our Medigap plans in place until January 1, 2017. Members can make a new plan selection during the Medicare Annual Election Period beginning October 15, 2016. We are sending two letters to our Legacy Medigap members. The second letter will arrive by July 15 and include a special phone number to speak with an expert who can answer your questions.
Thank You,
Naomi
my wife and I have medigap plan c affinity rx. My question is, will the coverage we have now be exactly the same when the new rates go into effect
Hi James,
Thank you for your question. Your coverage will be the same. Coverage will not be affected by changes in premiums. If you would like to speak to one of our Advisors, they can answer any additional questions you have if you dial the number on the letter you received or by following the instructions on this link: http://miblues.co/29OAEjf.
Thank You,
Naomi
what zipcodes are being affected by the increase?
Hi Leigh,
Legacy Medigap members in Michigan are affected. Your increase was included in the second letter you should have received about your coverage around July 15. If you did not receive this letter or you have further questions, we encourage you to reach out to us at http://miblues.co/1Bb6oI4 and someone from our team will reach out directly.
Thank you, Naomi
Can you explain why people on Medicare that are under age 65 are paying the highest premiums out of EVERYONE for a Medigap policy? You say that prices are set according to age, gender, tobacco use, and where you reside in the state, however, this is absolutely not true! Since the only reason you could be on Medicare, if you are under age 65, is if you have a medical condition which causes disability, that has to be the reason for charging them the highest premiums!
The ACA protects people from being charged more because of prior conditions and seniors don’t have their health status considered when setting premium rates for Medigap but the disabled do…? I, too, had a 260% increase in my Medigap premiums recently… Plus I still pay my Medicare premium and my Prescription coverage premium. It’s just too much……I am curious how much the salaries of some BCBS employees go up after these rate increases!
Teresa,
Asking our members to pay more is never an easy thing, but this is the first time in five years we have done so. The five-year freeze on our Legacy Medigap rates means that rates have not kept up with rising health care costs over that time.
In addition, per your comment, rates are determined based on a number of factors, including your age and where you reside in Michigan. Unlike many of our competitors, Blue Cross will continue to guarantee access to Medigap coverage, regardless of health status.
There will be a subsidy available for Medigap members who meet income criteria through the Michigan Health Endowment Fund. We encourage you to learn more about the program by visiting: http://miblues.co/29y2dRj. Lastly, if you have questions about your coverage, you can contact one of our Health Plan Specialists by reaching out to us here: http://miblues.co/29OAEjf.
Thank you,
Naomi