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Facing Large and Uncontrollable Financial Losses on Individual Policies, Blue Cross Blue Shield of Michigan Will Cut Up to 1000 Jobs in 2009, Reduce Spending and Seek Rate Increases on Individual Plans

DETROIT, Jan. 16 /PRNewswire/ -- Blue Cross Blue Shield of Michigan announced a series of actions today to preserve its financial health by partly offsetting projected losses on its individual health plans that could exceed a cumulative total of $1 billion from 2009 through 2011.

Daniel J. Loepp, BCBSM president and CEO, this morning announced a workforce reduction of 400 employees of BCBSM and its Blue Care Network HMO subsidiary over the next 60 days - and subsequent efforts that could reduce up to 600 additional positions over the course of 2009 - as well as other initiatives to reduce costs on salaries and discretionary spending.

The company's actions also include requested average rate increases of 55 percent for Individual plans, 42 percent for Group Conversion plans and 32 percent for Medicare Supplemental plans.

"We should not ask our individual subscribers to pay more, without first demanding sacrifices from ourselves," Loepp told employees in an internal webcast. "Our goal is to move forward as a strong and financially stable nonprofit company, committed to fulfilling our mission and delivering the best value in health insurance products and services to our customers."

The projected financial losses are for individual products only. They are based on actuarial models that consider the combined effects of a recessionary economy driving thousands of people into Michigan's individual health insurance market, a broken regulatory system that requires BCBSM to cover virtually all of the state's costliest-to-insure individuals, and the increasing cost of health services, among other factors.

BCBSM lost about $140 million on individual policies in 2008 and projects to lose $320 million in 2009. The 2009 projection includes a $210 million underwriting loss on individual products and the required booking of $110 million in additional premium deficiency reserves to cover future losses. Projected losses are based on actuarial assumptions and assume that BCBSM receives some rate increases in 2009.

Individual losses are affecting BCBSM reserves, measured by Risk Based Capital, which have declined 25 percent over the past three years.

"State law requires our individual products to be financially sustainable, but we will lose hundreds of millions on them this year," said Andrew Hetzel, BCBSM vice president for corporate communications. "Absent regulatory reform, we must turn to the rate setting process for relief and we must get new pricing soon."

- Preserving Product Subsidies and BCBSM's Nonprofit Mission -

Despite BCBSM's intention to raise rates on Group Conversion and Medicare Supplemental plans, these products will continue to be heavily subsidized to keep them more affordable for consumers. Medicare Supplemental will receive a projected subsidy between $110-$120 million in 2009 - bringing the total subsidy to nearly $1.2 billion since 2000. Group Conversion will receive a projected subsidy between $25-$30 million in 2009. These subsidies keep the monthly premiums in these products lower than they otherwise would be.

"Subsidies applied to our products for seniors and people losing their jobs keep coverage more affordable for those in need," Hetzel said. "Our financial stability allows us to continue to serve as Michigan's insurance safety net. But Blue Cross must do well financially to do good things for the people of Michigan."

- Cost Saving Measures -

In addition to the workforce reduction of between 400 and 1000 employees, the company's cost-saving measures for 2009 include:

    -- A salary reduction for senior executives
    -- A freeze on executive pay for the second time in the past three years
    -- A reduction in the number of executives employed at the company
    -- A freeze on salaries for non-unionized workers
    -- A request of the United Auto Workers to delay a 3 percent pay increase
    -- A 25 percent reduction in the company's advertising and lobbying
    -- A 25 percent reduction in discretionary spending
    -- Cuts to programs funded by BCBSM in local communities across Michigan

"All of our actions are to preserve the financial health and stability of the Michigan Blues," Hetzel said. "They are unfortunate, particularly given the state's economy, but they are the direct and predictable result of a regulatory system that no longer works. Until policy makers reform Michigan's broken individual health market, Blue Cross will do what is necessary as a private business to preserve our financial stability. In 2009, this means raising rates, cutting costs and reducing our investments in local communities."

Blue Cross Blue Shield of Michigan is a nonprofit corporation and independent licensee of the Blue Cross and Blue Shield Association.

SOURCE Blue Cross Blue Shield of Michigan
Copyright©2009 PR Newswire.
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