A $1.5 Billion Fund Is Woefully Inadequate.
BCBSM argues that a $1.5 Billion fund over 18 years will soften the blow of losing BCBSM Legacy plans. No way -- $1.5 Billion over 18 years does not even come close to the value of having a guaranteed Medigap option for Michiganders and the increased premiums Michiganders will have to pay for Medigap plans.
Further, BCBSM tries to argue that this amount is more than what other states have received from Blue Cross conversions. This is misleading -- the proper analysis is (a) what is the value of what Michiganders are giving up if the Blue Cross conversion legislation goes through and (b) how much value has BCBSM's charitable status created for BCBSM.
If the $1.5 Billion is paid equally over 18 years, the actual value to Michiganders is less $1 Billion in today's dollars. [1] Meanwhile, BCBSM stands to recover well over $1.7 Billion in today's dollars over the same 18 year period by increasing BCBSM Legacy plans to market rates in 2017. [2] (Note: If the subsidy is closer to $200 Million as BCBSM claims, BCBSM stands to recover closer to $2 Billion -- double the value of the current proposed fund.) In other words, the fund does not even cover what BCBSM stands to gain by increasing BCBSM Legacy premiums alone.
Thus, BCBSM will likely make money on the conversion through premium increases to its BCBSM Legacy Medigap program alone!
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Further, BCBSM tries to argue that this amount is more than what other states have received from Blue Cross conversions. This is misleading -- the proper analysis is (a) what is the value of what Michiganders are giving up if the Blue Cross conversion legislation goes through and (b) how much value has BCBSM's charitable status created for BCBSM.
If the $1.5 Billion is paid equally over 18 years, the actual value to Michiganders is less $1 Billion in today's dollars. [1] Meanwhile, BCBSM stands to recover well over $1.7 Billion in today's dollars over the same 18 year period by increasing BCBSM Legacy plans to market rates in 2017. [2] (Note: If the subsidy is closer to $200 Million as BCBSM claims, BCBSM stands to recover closer to $2 Billion -- double the value of the current proposed fund.) In other words, the fund does not even cover what BCBSM stands to gain by increasing BCBSM Legacy premiums alone.
Thus, BCBSM will likely make money on the conversion through premium increases to its BCBSM Legacy Medigap program alone!
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[1] This is a simple net present value calculation stretching the $1.5 Billion in equal payments of $83.33 million over 18 years with a rate of return of 5% (calculated value is $975 Million).
[2] This is based on the rates of 200,000 BCBSM Legacy policyholders having their premiums increased by $73/month (as referenced in the recent Michigan Attorney General press release) over the same 18 year period with the same 5% rate of return (actual $1.734 Billion). BCBSM actually stands to make much more than this if it is able to convert these individuals to BCBSM Medicare Advantage plans.
Please send in any comments to the above assumptions and we will gladly correct any calculations if needed.
[2] This is based on the rates of 200,000 BCBSM Legacy policyholders having their premiums increased by $73/month (as referenced in the recent Michigan Attorney General press release) over the same 18 year period with the same 5% rate of return (actual $1.734 Billion). BCBSM actually stands to make much more than this if it is able to convert these individuals to BCBSM Medicare Advantage plans.
Please send in any comments to the above assumptions and we will gladly correct any calculations if needed.